Academic journal article Contemporary Economic Policy

Time under Autocratic Rule and Economic Growth

Academic journal article Contemporary Economic Policy

Time under Autocratic Rule and Economic Growth

Article excerpt

I. INTRODUCTION

Contributions to New Institutional Economics highlight the importance of political and economic institutions because, as North (1990, 12) states and as many others agree, "institutions matter." Scholars have noted the role of property rights, legal systems, governments, banking, and other formal structures in promoting economic growth. Specifically, there has been some debate as to the relationship between autocracy, democracy, and economic performance. In this essay, we focus on the importance of a polity's exposure to autocratic institutions. In particular, we examine the relationship between economic performance in the 1990s and in the year 2000--the decade following the collapse of communism--and the number of years that a country had autocratic institutions since 1920, which was roughly the beginning of the Soviet era. We argue that the amount of time countries spend under autocratic regimes affects their growth.

We focus on the structure of human and social capital that develops based on a country's political institutions. Success under free institutions requires human and social capital that is appropriate to those institutions rather than (for example) a rent-seeking society. In some cases, such knowledge does not develop because the requisite institutions are never there to begin with. Institutional knowledge can also atrophy in un-free societies--such as those governed by autocratic political regimes--because the structure of human and social capital necessary for growth will decay. Of course, countries that have perpetually existed within autocracy may never have fully developed the human and social capital necessary to support economic development if, or when, the country transitions to more democratic institutions. Like countries in which institutional knowledge has atrophied during a period of autocratic rule, countries that have had long histories of autocracy will need time to build and develop human and social capital appropriate to democratic institutions.

We focus on the effect of long-term exposure to autocratic political institutions. There has been some debate regarding the degree to which autocracy or democracy affects economic growth; specifically, growth among countries with autocratic institutions exhibits higher variance, which some scholars interpret as evidence that a "benevolent autocrat" can overcome the political obstacles necessary to create economic growth. (1) Some have argued that a benevolent autocrat is necessary. Indeed, Rostow (1971, 57) writes:

  ...the buildup of an initial minimum quantum of social overhead
  capital (including the role of education), the bringing about of
  expansion in agriculture, and the generation of a supply of imports
  adequate for modernization have required important interventions and
  leadership by national governments.

We test this more explicitly using data that begins in 1920, which is roughly halfway between the Russian Revolution of 1917 and the establishment of the USSR in 1922.

The pattern and type of "social overhead capital" referred to by Rostow will be influenced by the continuity of the institutions. Citizens will develop human capital and social capital based on their knowledge of the country's institutions. Human capital and social capital can be context-specific. We expect to see people develop more human and social capital conducive to dealing with the vagaries of autocracy the longer that a country is under an autocratic regime.

A polity's experience with a given political regime and the kinds of human capital and social capital they develop based on the political regime will affect the growth experience after institutional transition. In this article, we test the hypothesis that the length of time a country spends under an autocratic regime is inversely related to its economic growth. Moreover, we also hypothesize that time free from the shackles of an autocratic state can reverse the process. …

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