The Arab world is undergoing a major political transition. The final outcomes of the changes are far from certain in nations where they have occurred. The geographical spread of the changes is also far from clear at this point. Nevertheless, there have been and will continue to be economic consequences from the moves towards democracy (see Besley and Kudamatsu 2007).
In recent research (Freund and Jaud 2013), we have looked at historical experiences to get an idea of likely outcomes. Specifically, to get a sense of what to expect, we identified and examined 90 attempts at transition from autocracy to democracy that took place over the last half century. Our results offer a cautiously optimistic tale for the Arab countries: most transitions are successful politically and/or economically.
In particular, we find that about 45% succeeded, 40% failed, and 15% achieved democracy gradually. Success is defined as achieving a high level of democracy within three years and maintaining it; failure is when democracy is achieved temporarily or only at very low levels; and gradual is sustained and significant democratic change that takes 4-15 years to complete.
Importantly, we find that the majority of countries that underwent a transition experienced long-run gains in income growth following short-run declines (see Figure 1). Typically, countries face temporary challenges around the time of change with growth declining by 7-11 percentage points in the year of transition, though in the case of gradual transition declines were much larger around 21 percentage poiints and lasted longer1.
Figure 1. Average growth performance during democratic transitions
Note: After restricting thesample to countries with available data for at least ten years before and after the transition, the sample includes 30 successful, 13 gradual and 17 failed transitions. Panel a show the evolution of log per capita real income growth in a 20-year interval around the transition dates. In panel B the data are re-scaled, taking as year zero the year with lowest growth rate within a four-year interval before and after the date of transition.
But it is the effect of the type of transition on long-term growth that is most distinct. Countries with rapid transitions, irrespective of whether they are successful or failed, experience swift recoveries and a long-run growth dividend of about one percentage point relative to pre-transition growth levels. In contrast, countries undergoing gradual transition tend to stagnate for years, with high long-run costs to growth.
The similarity between successful and failed transitions in economic outcomes is striking. This suggests that the growth dividend found in earlier time-series studies of democratic transition may be due to regime change and not democracy. In particular, Rodrik and Wacziarg (2005), Persson and Tabellini (2006) and Papaioannou and Siourounis (2008) examine transition to democracy and also find a roughly one percentage point growth dividend – however, they focus on successful transitions. One explanation for the similarity between failed and successful transitions is that poorly performing dictators are more likely to be ousted and replaced with more competent ones, whether autocratic or democratic, so it is the regime change that brings growth and not the political slant. Our results are consistent with a large cross-country literature that does not find a significant effect of democracy on growth (Barro 1996).
The poor economic performance associated with gradual transition seems counterintuitive. Why does the speed of transition matter more for economic prospects than the outcome of transition? The answer is that most gradual transitions are gradual by default not by design, with political transition happening in fits and s