Autocratic Transitions and Growth. Tommaso Nannicini, Bocconi University and IZA Roberto Ricciuti, Università di Verona e CESifo

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1 Autocratic Transitions and Growth Tommaso Nannicini, Bocconi University and IZA Roberto Ricciuti, Università di Verona e CESifo

2 Democracy and growth Inconsistent results in the literature Panel (Barro, 1996; Tavares and Wacziarg, 2001; Aghion et al. (2007) ) Diff-in-diff (Giavazzi and Tabellini, 2005; Persson and Tabellini, 2006; 2008) Papaioannou and Siourounis (2008) Diff-in-diff + matching estimators (Persson and Tabellini, 2008)

3 Autocracy and growth Persson and Tabellini (2008) find an average negative effect on growth of leaving democracy of about 2%, a 45% percent loss of income over the sample. Among their 18 autocratic transitions, 4 experienced a mildly positive growth effect (below 2%), 7 a mildly negative effect, and 7 a strong negative effect (above 2%).

4 Methology We apply the synthetic control method proposed by Abadie and Gardeazabal (2003) and Abadie et al. (2010) to perform data-driven comparative case studies. We evaluate the effect of a binary treatment autocratic transition on real per capita income in a panel framework.

5 This approach: accounts for the presence of a timevarying impact of country unobservable characteristics; rests on the transparent construction of the counterfactual outcome of the treated country, that is, a linear combination of untreated countries: the synthetic control.

6 The comparison countries that form the synthetic control (and their relative weights) are selected based on their similarity to the treated country before the treatment takes place, both with respect to past realizations of the outcome and the standard covariates used in the growth literature.

7 The only limitation of the SCM is that it does not allow to assess the significance of the results using standard (largesample) inferential techniques, as the number of units in the control pool and the number of periods covered by the sample are usually quite small in comparative case studies like ours.

8 Diff-in-diff propensity score matching, similarly to the synthetic control method, relaxes the linearity assumption of the standard diff-in-diff and, by transparently checking for the existence of a common support between treated and control units, avoid drawing inference from parametric extrapolation. However, this methodology, unlike ours, still relies on the assumption that the impact of unobservable confounders must be timeinvariant.

9 Data We start with a dataset of about 160 advanced and developing countries (Persson and Tabellini) We define as autocratic transition a drop of at least 10 points in the Polity IV Index by crossing the zero value. The value of zero is the standard threshold used in the literature to distinguish autocracies (negative values) from democracies (positive values). We identify 11 viable episodes of transition to autocracy.

10 Changing the definition of autocratic transition as a drop of just 5 points in the Polity IV Index extends the sample to a few other countries (Singapore, Brazil, Zimbabwe, Equatorial Guinea, Comoros) but does not alter the general conclusion of the empirical results.

11 Results Counterfactual Placebo test

12 Placebo test Placebo tests consist in applying the SCM to every country in the pool of potential controls. This is meant to assess whether the estimated effect for the treated country is large relative to the effect for a country chosen at random.

13 Placebo testing compares the estimated treatment effect for the country under investigation with all the (fake) treatment effects of the control countries, obtained from experiments where each control country is assumed to shift to autocracy in the same year of the treated country. If the estimated effect in the treated country is larger than those in most of the (fake) experiments, we can conclude that the results are not driven by chance.

14 Trends in real GDP per capita, Greece 1967

15 Trends in real GDP per capita, Philippines 1972

16 Trends in real GDP per capita, South Korea 1972

17 Trends in real GDP per capita, Pakistan 1977

18 Trends in real GDP per capita, Panama 1968

19 Trends in real GDP per capita, Peru 1968

20 Trends in real GDP per capita, Chile 1973

21 Trends in real GDP per capita, Nigeria 1966

22 Trends in real GDP per capita, Nigeria 1984

23 Trends in real GDP per capita, Lesotho 1970

24 Trends in real GDP per capita, Gambia 1994

25 Conclusions First, we find an almost equal split of our episodes between positive (South Korea and Panama), negative (Chile, Peru and Gambia), and insignificant (Greece, Philippines, Pakistan, Nigeria in 1966 and 1984, and Lesotho) consequences of autocratic transitions on growth. This contrasts with the (more pronounced) negative results found by Persson and Tabellini (2008).

26 Second, when the effect of the transition is negative, it tends to worsen over time (with the significant exception of Chile), whereas the opposite is not usually true.