Arab Countries between Winter and Spring: Where Democracy Shock Goes Next!

Hany Abdel-Latif,Anita Staneva,Tapas Mishra

doi:10.3390/economies7010020

Hany Abdel-Latif, Anita Staneva + Show 1 more

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https://doi.org/10.3390/economies7010020

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Abstract

We examine the role of democracy shocks in the cross-country economic growth processes over a period of five decades since 1960. The recent uprisings that arose independently and spread across the Arab world form the main context of our investigation. We study if (i) a shock to democracy in one country triggers institutional reforms and growth upsurge in the neighbouring countries, and (ii) the magnitude and direction of response to democracy shocks are contingent upon income pathways of countries. To estimate the spillover effects of democracy shocks, we model and estimate growth interdependence among individual countries with similar democratic characteristics. To study the nature of responses of democracy shocks on cross-country growth processes, we build and estimate a Global Vector Autoregression (GVAR) model where we allow countries to be interdependent with regard to bilateral migration and geographical proximity. Using the GVAR model, we also stimulate a positive shock to democracy in Egypt—the most populous Arabic country—and study its impacts on institutional reforms and economic growth in the rest of the Arab World. We find that high and upper-middle income countries are immune to democracy shocks in Egypt, whereas the lower middle and low income countries are susceptible to another revolutionary wave.

Highlights

In the context of a nation’s political-economic dynamics, the state of democracy often masks the spatio-temporal impacts of democratic quality it might experience from the neighbourhood.Surprisingly, this hidden effect is not rigorously modelled or robustly evidenced empirically possibly because, in the conventional empirical approach, dynamic interdependence among countries’political-economic processes is assumed but not explicitly modelled
There are two broad research questions this paper aims to address: First, does a shock to democracy in one country trigger institutional reforms and growth upsurge in the neighbouring countries? Second, is the nature of response to democracy shocks conditional on countries income pathways? To investigate this further, we study the case of the Arab Spring and employ a Global Vector Autoregression (GVAR) model to quantify its effects
We investigate the spillover effect of democratic shocks, and how it may trigger the state of democracy and economic growth among countries in proximity

Summary

Introduction

In the context of a nation’s political-economic dynamics, the state of democracy often masks the spatio-temporal impacts of democratic quality it might experience from the neighbourhood.Surprisingly, this hidden effect is not rigorously modelled or robustly evidenced empirically possibly because, in the conventional empirical approach, dynamic interdependence among countries’political-economic processes is assumed but not explicitly modelled. In the context of a nation’s political-economic dynamics, the state of democracy often masks the spatio-temporal impacts of democratic quality it might experience from the neighbourhood. This hidden effect is not rigorously modelled or robustly evidenced empirically possibly because, in the conventional empirical approach, dynamic interdependence among countries’. The study by Diebolt et al (2013) is a prominent example in this regard, where the authors show that countries which are close to each other with respect to similarity in democratic characteristics demonstrate highly interdependent growth processes.

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