The International Spillover Effects of Political Transitions

Why do political transitions to more representative forms of government are often associated with vastly different outcomes for different countries? This paper examines the possibility of cross-country “political spillovers†, testing in particular whether countries surrounded by relatively more autocratic neighbors also experience a more difficult economic adjustment process following democratization. The dynamic fixed effects model, estimated using the pooled mean group estimator methodology of Pesaran, Shin and Smith (1999) allows to account for both short and long-run effects of political spillovers between neighboring countries. In particular, the paper finds evidence that for countries which have experienced democratization, moving away from their neighborhoods on the political spectrum implies slower GDP per capita growth in the long run.