Democracy or Dictatorship: The Effect of Political Regime Type on Economic Institutions

The purpose of this study is to investigate the effect of political regime types, including democracy and dictatorship, on the quality of economic institutions as the main variables in the formation of the economic growth process. The political power is distributed among a wide range of interest groups in mature democracies, while it is concentrated in the hands of the elected executive in initial democracies in a way that other groups are unable to participate in political power. In initial dictatorships, the political power is vested in one individual as well, but in mature dictatorships, it is divided among the members of the ruling group and the leader is limited in removing other members of the ruling coalition. The empirical results indicate that the economic institutions enjoy better quality in mature democracies and dictatorships compared to the initial democracies and dictatorships. Moreover, the economic institutions’ quality in mature dictatorships and democracies is not significantly different. The mature dictatorships have better protection of property rights compared to the initial democracies, despite the fact that they lack free elections. The results are robust to change the dependent variable, control variables, the sample, and using the instrumental variable approach.