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Democratization and Real Exchange Rates ,
Author(s) -
Furlan Benjamin,
Gächter Martin,
Krebs Bob,
Oberhofer Harald
Publication year - 2016
Publication title -
scottish journal of political economy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.4
H-Index - 46
eISSN - 1467-9485
pISSN - 0036-9292
DOI - 10.1111/sjpe.12088
Subject(s) - democratization , estimator , economics , exchange rate , matching (statistics) , propensity score matching , econometrics , sample (material) , democracy , macroeconomics , political science , statistics , mathematics , politics , physics , law , thermodynamics
In this article, we combine two so far separate strands of the economic literature and argue that democratization leads to a real exchange rate appreciation. We test this hypothesis empirically for a sample of countries observed from 1980 to 2007 by combining a difference‐in‐difference approach with propensity score matching estimators. Our empirical results reveal a strong and significant finding: democratization causes real exchange rates to appreciate. Consequently, the ongoing process of democratization observed in many parts of the world is likely to reduce exchange rate distortions.