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Reforms and ethnic diversity’s impact on economic growth Monica Vlaicu Laura Ionescu
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Background Liberalizations/ Reforms taken in isolation: 1)No robust effect of becoming a democracy on economic growth (Przeworski &Liamongi 2000,); (Giavazzi & Tabellini, 2005); (Barro, 1996); 2)Economic liberalizations speed up growth by about 1% (Giavazzi & Tabellini, 2005); (Wacziarg and Welch, 2003);
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Giavazzi and Tabellini (2005) The sequence of reforms is important to economic outcomes The Model: y it = a i +b t + y * x it + δ * reform it + e it y it → real GDP per capita growth a & b → country and year fixed effects, respectively x it → vector of other control variables (year fixed effects, continent, socialist legal origin …) reform it → 1, years after reform 0, otherwise (before reform/ control countries) e → unobserved error term δ → measures the effect of the reform on the variable Y
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Alesina and La Ferrara (2004) Ethnic diversity has an impact on economic performances Two measures of ethnic diversity: polarization and fractionalization Both are found to have a negative impact on growth, stronger in the case of polarization
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Our approach Drawing on the findings of these papers we test the hypothesis that not only is the sequence of liberalizations important(economic- political or vice versa), but the ethnic component affects the outcomes of reforms and thus impacts growth. We expect to find that a) Democratization + ethnic polarization → increase instability → negative impact on growth b) Liberalization + ethnic polarization → reduce instability → positive/ smaller negative impact on growth
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DATA: Polity IV database → Polity2 indicator Penn World table 6.3 → GDP per capita growth Wacziarg and Welch (2008) → liberalization data We updated the data used by Giavazzi&Tabellini up to 2007 for democratization and economic performance and 2001 for liberalization Sample of X countries 22: democratization + liberalization 15: liberalization + democratization
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