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Political Institutions and Economic Performance: The Effects of Accountability and Obstacles to Policy Change

Authors


  • We would like to thank Bruce Bueno de Mesquita, William Clark, Jeffry Frieden, Michael Gilligan, Jon Hansen, Jude Hayes, James Morrow, Irfan Nooruddin, and Alastair Smith for their insightful comments.

Allen Hicken is assistant professor of political science, University of Michigan, 5700 Haven Hall, 515 S. State Street, Ann Arbor, MI 48109 (ahicken@umich.edu)

Shanker Satyanath is assistant professor of politics, New York University, 726 Broadway, New York, NY 10003 (ss284@nyu.edu)

Ernest Sergenti is a Ph.D. candidate in politics, New York University, 726 Broadway, New York, NY 10003 (ejs210@nyu.edu).

Abstract

Numerous analyses have been conducted on how political institutions affect economic performance. In recent years the emphasis has been on a causal logic that emphasizes institutional obstacles to policy change, such as those presented by multiple veto points. This has especially been the case when it comes to the important question of how political institutions influence governments' responses to exogenous economic shocks. We make the case for a substantial broadening of focus and show that when it comes to a major type of exogenous shock, a forced exchange-rate devaluation, variations in the breadth of accountability of the chief executive are more robustly associated with the post-shock growth recovery than variations in obstacles to policy change. We first argue that the size of the winning coalition will be positively associated with growth recoveries following forced devaluations. We then use a newly developed measure of the size of the winning coalition to test our claim. Our statistical analysis is based on a study of the responses of 44 countries to forced exchange-rate devaluations in the late 1990s.

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