The Economics of Democracy and Populism (2 presentations) - Nauro Campos and Jarko Fidrmuc

The Economics of Democracy and Populism (2 presentations) - Nauro Campos and Jarko Fidrmuc

• Nauro Campos (University College London) will present his research co-authored with Fabrizio Coricelli (University of Siena, Paris School of Economics and CEPR) and Marco Frigerio (University of Siena) entitled The Political U: New Evidence on Democracy and Income

• Jarko Fidrmuc (Zeppelin University of Friedrichshafen and Slovak Academy of Sciences) will present his research co-authored with Yannick Scharf and Fabian Reck (both Zeppelin University of Friedrichshafen) entitled Economic and Institutional Effects of Populism

The Political U: New Evidence on Democracy and Income (Nauro Campos)
We present new evidence that the relationship from political to economic development is causal and U-shaped. Covering 162 countries over 1960-2018, we show that “intermediate” political regimes lead to significantly inferior economic outcomes vis-à-vis both “democracies” and “autocracies.” Our baseline results indicate “intermediate” regimes decrease long run GDP per capita by about 20 percent. These effects seem driven by political instability and productivity, while other potential channels, such as education and investment, lack comparable empirical support. These findings are robust to, among others, using night-lights instead of GDP, different democracy measures and estimators (including dynamic panel and instrumental variables).

Economic and Institutional Effects of Populism (Jarko Fidrmuc)
While much research has been done on the causes of populism, consequences of government takeovers by populist parties remain under-researched. Contributions on institutional effects are primarily centered around indicators of liberal democracy while a research string on economic effects has only begun to develop in recent years. This paper simultaneously contributes to the broad field of research on consequences of populism and to specific research on the countries under consideration by quantitatively analyzing and comparing five cases: Hungary, the Czech Republic and Poland are considered as main Central European populist-led countries, Slovakia & Austria are added having populist-influenced governments. For empirically estimating the impact of populist government takeovers on key economic and institutional variables the synthetic control method and difference in-difference analysis are used. The results show that scores for indicators related to quality, reactiveness and anti-corruption efforts of governments predominantly declined. Those observations stand in stark contrast to converse core promises made by all the considered populist parties. For the economic variables, results are mixed, with negative trend regarding GDP p.c. and productivity in Hungary, moderately positive developments in Poland and scant significant observations in the Czech Republic. The policy context introduced in the qualitative part allows analyzing potential connections to host ideology, unconventional economic policy, direction of fiscal & social policy as well as economic performance of predecessors. The consideration of Austria and Slovakia as well as an earlier, populist-involving, Czech coalition government illustrates key differences between the impact of populist-led and populist-influenced governments. Furthermore, the employment of two methods and varying controls allows methodological comparisons.

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