Premium
Fighting Inflation in Developing Countries: Does Democracy Help? An Empirical Investigation
Author(s) -
Mijiyawa Abdoul' Ganiou
Publication year - 2011
Publication title -
journal of international development
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.533
H-Index - 66
eISSN - 1099-1328
pISSN - 0954-1748
DOI - 10.1002/jid.1671
Subject(s) - democracy , latin americans , developing country , economics , inflation (cosmology) , liberalization , independence (probability theory) , development economics , sample (material) , direct democracy , international economics , monetary economics , political economy , political science , economic growth , market economy , politics , law , physics , theoretical physics , statistics , chemistry , mathematics , chromatography
Abstract Using the date of independence as an instrument for democratic institutions, and data over the period 1960–2003, I find a positive and significant effect of democracy on inflation in a sample of 62 developing countries. Democracy increases inflation because democracy stimulates money creation and compromises trade liberalisation. When I exclude Latin American countries from my sample, democracy has a positive but insignificant effect on inflation. This suggests that the significant effect of democracy is due to Latin American countries experiences. Thus, my results reconcile two views: one that ‘populist democracy’ is a Latin American phenomenon; and the other that democracy does not necessarily induce better macroeconomic management in developing countries. Copyright © 2010 John Wiley & Sons, Ltd.