Economic resilience in developing countries: The role of democracy in the face of external shocks

Abstract

Objective: The objective of this article is to examine the role of democracy in strengthening the resilience of developing economies in the face of exogenous negative external shocks.

Research Design & Methods: To achieve our research objectives, we used the duration model to estimate how democracy can determine the probable duration of an economic growth spell.

Findings: By examining a panel of 96 developing countries observed in 1965-2015, we found that democracy is a resilience factor, insofar as it helps to support growth spells in the event of negative external shocks. The results show that an improvement in democracy score is associated with an increase in the expected duration of a growth spell. The second finding is that some dimensions of democratic institutions like political participation and egalitarian inclusion can lead to a sustainable economic growth.

Implications & Recommendations: The benefits of democracy for improving living standards in developing coutries. The study should be subject to further research as more variables that account for major shocks could be considered, such as political and civil unrest, internal conflicts, or natural disasters. These shocks may occur during a growth period and cause very serious disruptive effects.

Contribution & Value Added: The originality of this work lies in studying the role of democracy in the face of exogenous negative external shocks through the duration model which represents an original empirical study.