On a comparative analysis of the impact of democracy on regulatory reform

This paper questions the effect of democracy on regulatory reforms by mainly checking whether the observed differences between the transition economies and the rest of the economies in terms of engaged reforms are related to the level of democracy. Our results, based primarily on the Oaxaca - Blinder decomposition approach, suggest that democracy is not the basis of these observed differences. This calls into question the importance of democracy when it comes to unleashing the potential reform of the economies concerned. Moreover, the estimation using the fixed-effect Poisson model and marginal effect analysis method was conclusive with the previous result. Evidence is therefore in favour of the fact that democratic political systems do not increase the probability of regulatory reforms. Indeed, during the study period, several regulatory reforms which have improved efficiency and growth were applied by weak democracies (i.e., Israel) and authoritarian regimes (i.e., China). A formal robustness check confirmed the validity of our estimation and highlighted some other determinants of reforms. Education and ethnic diversity positively affect reforms while inflation presents a negative impact. Investing in human capital improvement through education appear therefore to be important for the implementation of reforms; the diversity of ethnic presentation is also good for the same objective. This paper, which is part of the very young literature on the determinants of reforms, is original in the sense that for questions of reform, the democracy factor had not yet been investigated using the same approach.