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Title:Inflation and Democracy in Former Extractive Colonies Analysis with a New Instrumental Variable PDF Logo
Authors:Mijiyawa, Abdoul
Issue Date:2008
Series/Report no.:Proceedings of the German Development Economics Conference, Zürich 2008 28
Abstract:This paper analyzes the link between inflation and democracy in developing countries. In order to address the endogeneity issue of democracy, I use the date of political independence as an instrument for democratic institutions. The application of the criterion of Stock and Yogo (2002, 2005) for weak instrumental variable in my sample reveals that, the independence date is a good instrument for democratic institutions. Using five years pooled data covering the period 1960-2003, and a sample of 62 developing countries former extractive colonies (including 32 African countries); I find a robust positive causal relationship between inflation and democracy. It appears that democracy increases inflation because democracy stimulates money creation and compromises trade liberalization in my sample of developing countries. Case studies based on Chile, Ghana, and Sri Lanka better illustrate the result relating to the relationship between inflation and democracy in my sample.
Subjects:Democracy
Inflation
Median voter
Stabilization Policies
Weak Instruments Test
JEL:D78
E31
E63
O17
Document Type:Conference Paper
Appears in Collections:Proceedings of the German Development Economics Conference, 2008 (Zürich)

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