Economic reform, democracy and growth during post-communist transition

The post-communist transition was associated with two specific phenomena. First, political liberalization was initiated simultaneously with economic reforms. Second, instead of a short Jshaped adjustment, most transition countries experienced deep and protracted recessions. Some analysts suggest that the early introduction of democracy was in fact harmful for economic growth. Similarly, proponents of reemerging authoritarian regimes claim that a strong hand is needed to restore order and reinvigorate the economy. This paper considers the stipulated trade-off between democracy and growth. The results suggest that democracy reinforces progress in economic liberalization, which, in turn, improves growth. Hence, democratization had a positive effect on growth during transition, albeit indirectly, through facilitating economic liberalization. D 2003 Elsevier B.V. All rights reserved. JEL classification: O47; P26; P27