## _wp10173

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---

### Introduction and research question
- Investigates whether political freedom (democracy) fosters economic reforms using a novel dataset covering a broad range of reforms, countries, and years.
- Dataset coverage and scope:
  - almost 150 countries
  - 6 sectors
  - spanning more than 40 years
  - 1960 up until 2004
- Unit of analysis:
  - sector-country-year observations (6 sectors × 150 countries × 45 years) → panel of 20,123 observations.

### Main empirical findings
- Positive correlation from democracy to economic reforms:
  - An increase in the quality of democratic institutions is significantly correlated with the adoption of economic reforms.
  - The coefficient on the lagged level of democracy is significant at the 1 percent level in baseline specifications.
  - The magnitude: a one standard deviation increase in the democracy index explains 7 percent variability in reforms.
  - Estimated coefficients on the democracy variable range from 0.02 to 0.03 in columns 2-4 of the baseline regressions.
  - In a specification without the lagged reform index, the estimated coefficient on lagged democracy is β= 0.011 (statistically significant at the 1 percent level).
- No robust evidence of reverse causality (reforms → democratization):
  - Little evidence that economic reforms foster the democratic process (no feedback effect overall).
  - Exceptions: reforms in domestic financial sector and current account appear to reduce the probability of democratization in some specifications.
- Robustness:
  - Results hold controlling for country, sector, and year fixed effects and interactions (sector-country and sector-year).
  - Robust to inclusion of controls: crisis measures, public expenditure/GDP, real devaluation, human capital, bureaucratic quality, reforms in neighboring countries, and political variables.
  - Robust to instrumental variable strategy using lagged democracy in political neighbors as an instrument.
  - Results persist in factor analysis (first principal component of reforms): lagged democracy significant at the 1 percent level; moving to a complete democracy in the long-run is associated with a 0.03 increase in the index of reform (instrumented magnitude larger).

### Data and measurement — reform indicators
- Six sectoral indices (subindices aggregated and normalized between 0 and 1; higher values = greater liberalization). “Reform” defined as an annual change in the sectoral index.
  - Domestic financial:
    - Index: average of six subindices (five banking, one securities).
    - Banking subindex: average of 5 indicators: (i) interest rate controls; (ii) credit controls; (iii) competition restrictions; (iv) degree of state ownership; (v) quality of banking supervision and regulation.
    - Securities market subindex: creation of basic frameworks, policies to develop securities/derivatives, policies to permit access by nonresidents.
    - Subindices coded from zero (fully repressed) to three (fully liberalized). Coverage: 1973–2005; Minimum and maximum number of countries in any year are 72 and 91 respectively.
  - Capital account:
    - Qualitative indicators of restrictions on financial credits and personal capital transactions, use of multiple exchange rates.
    - Index coded from zero to three. Coverage: 1973–2005; Min 72; Max 91.
  - Product markets (Telecommunication and Electricity):
    - Electricity: degree of unbundling, independent regulator, wholesale market liberalization, privatization; subindices coded 0–1 or 0–2. Telecommunication: competition in local services, regulator, interconnection liberalization, privatization; coded 0–1 or 0–2. Coverage: 1960–2003; Min 106; Max 108.
  - Agriculture:
    - Index for main agricultural export commodity intervention: 0 (public monopoly/monopsony), 1/3 (administered prices), 2/3 (public ownership or concession requirements), 1 (no public intervention). Coverage: 1960–2003; Min 96; Max 104.
  - Trade:
    - Defined by average tariff rates; index normalized 0–1 where 0 means tariff rates are 60 percent or higher, 1 means tariff rates are zero. Coverage: 1960-2005; Min 47; Max 142.
  - Current account:
    - Index describes compliance with IMF’s Article VIII; sum of two subcomponents covering restrictions on visibles and invisibles, distinguishes restrictions on residents and nonresidents; scored between zero and 8 in half-integer units with 8 indicating full compliance. Coverage: 1960–2005; Min 50; Max 65.

### Correlations among reform indicators (selected pairwise correlations)
- Agriculture — Prod. Mkt: 0.30***
- Agriculture — Trade: 0.32***
- Agriculture — Cap. Acc.: 0.40***
- Agriculture — Curr. Acc.: 0.42***
- Agriculture — Finance: 0.44***
- Prod. Mkt — Trade: 0.35***
- Prod. Mkt — Cap. Acc.: 0.46***
- Prod. Mkt — Curr. Acc.: 0.47***
- Prod. Mkt — Finance: 0.63***
- Trade — Cap. Acc.: 0.57***
- Trade — Curr. Acc.: 0.63***
- Trade — Finance: 0.62***
- Cap. Acc. — Curr. Acc.: 0.77***
- Cap. Acc. — Finance: 0.73***
- Curr. Acc. — Finance: 0.71***

### Empirical strategy and specification
- Baseline dynamic panel specification:
  - Dependent variable: reform in country, sector, year (annual change in sectoral index).
  - Controls: sector (s), country (c), and year (t) fixed effects; interactions: country-sector, sector-year.
  - Includes lagged level of the reform index to capture convergence.
  - Country-specific and time-varying controls X_{ct-1}.
- Serial correlation:
  - Allow for first-order serial correlation in error terms; some specifications allow country-sector or country-specific serial correlation.
- Instrumental variables:
  - Instrument: lagged democracy in political neighbors (political distance weighted) for domestic lagged democracy.
  - First-stage F statistics reported (examples): 764.592, 29.093, 6.475, 0.77; p-value of F test: 0.000, 0.000, 0.000, 0.000.

### Regression results — selected estimates and diagnostics
- Table highlights (dependent variable: reform in country, sector, year):
  - Lagged democracy coefficients (selected): 0.016***, 0.017***, 0.033***, 0.017***.
  - Lagged level of index coefficients (selected): -0.073***, -0.124***, -0.047***, -0.131***.
  - Observations examples: 20,123; 19,521; 20,071; 19,521.
- Robustness to controls (selected lagged democracy coefficients): 0.011***, 0.014**, 0.048***, 0.011***, 0.014***, 0.045***.
- Instrumental variables — second stage (selected lagged democracy coefficients): 0.078***, 0.151***, 0.190, 0.141.
- By reform type (selected lagged democracy coefficients, Table 7a):
  - Finance: 0.067***
  - Cap. Acc.: 0.182***
  - Prod. Mkt: -0.026
  - Agricult.: 0.202***
  - Trade: 0.075***
  - Curr. Acc.: 0.179***

### Sectoral heterogeneity and robustness checks
- By-sector findings:
  - Democracy promotes reforms in all sectors except product markets (electricity/telecommunications) where democracy is not significant.
  - Estimated effects statistically significant at the 1 percent level in most sectors (except product markets).
- Robustness checks performed:
  - Subsamples: communist countries, developing countries — results hold qualitatively.
  - Alternative democracy definitions: zero-one democracy indicator (polity2 > 0) — results qualitatively similar.
  - Different standard-error corrections: clustering at country-reform level; AR(1) vs clustered SEs — results robust.
  - Alternative crisis definitions: negative per-capita GDP growth, banking and debt crises, terms-of-trade shocks — main conclusions unchanged.
  - Specification without lagged reform index yields β= 0.011 but remains significant.
  - Non-linear effects: evidence that the more democratic the country initially, the easier it is to reform.

### Feedback effects and factor analysis
- Feedback effects (Tables 9a/9b):
  - Little evidence that reforms induce democratization overall.
  - By reform type, some negative effects of financial and current account reforms on subsequent democratization in some specifications.
  - Dependent variable: change in democracy (country, year) — lagged reform in (country, sector, year) coefficients: -0.009, -0.011, 0.004, -0.010 (columns 1–4).
- Principal component / factor analysis (Table 10):
  - First principal component used as aggregate reform measure.
  - Lagged democracy significant at the 1 percent level in principal component regressions.
  - Example diagnostics: First stage F-stat: 41; p-value of F-stat: 0.000.
  - In some IV specifications, moving to a complete democracy in the long-run associated with a 0.03 increase in the index of reform (instrumented magnitude larger).

### Mechanisms, interpretation and limitations
- Theoretical mechanisms discussed:
  - Democracy may facilitate reforms by securing property rights, limiting rent-seeking, and enabling credible commitments through institutions.
  - Autocracies may implement reforms when insulated from interest-group pressures; empirical results favor a positive democracy→reform correlation.
- Limitations:
  - Precise causal mechanisms are not fully disentangled; further research required.
  - Data and identification challenges addressed through fixed effects, interactions, controls, and IV strategy but causal channels remain to be explored in detail.

### Summary statistics (selected exact measures from Table 1)
- Change in reform index: Obs 20,123; Mean 0.01; Std. Dev. 0.08; Min -1; Max 1
- Lagged democracy: Obs 20,123; Mean 0.59; Std. Dev. 0.37; Min 0; Max 1
- Lagged reform_index: Obs 20,123; Mean 0.40; Std. Dev. 0.37; Min 0; Max 1
- Lagged crisis (inflation>40): Obs 5,252; Mean 0.10; Std. Dev. 0.30; Min 0; Max 1
- Lagged real devaluation: Obs 5,252; Mean 0.01; Std. Dev. 0.17; Min -1.00; Max 1.30
- Lagged public expenditure as a percent of GDP: Obs 5,252; Mean 15.06; Std. Dev. 5.18; Min 2.98; Max 34.39
- Lagged bureaucratic quality: Obs 5,252; Mean 2.54; Std. Dev. 1.14; Min 0; Max 4
- Lagged tertiary enrollment: Obs 5,252; Mean 0.27; Std. Dev. 0.22; Min 0.00; Max 0.97
- Lagged reforms in geographical neighbor: Obs 5,252; Mean 0.02; Std. Dev. 0.03; Min -0.21; Max 0.22
- Lagged dummy for left: Obs 5,252; Mean 0.33; Std. Dev. 0.47; Min 0; Max 1
- Lagged dummy for presidential: Obs 5,252; Mean 0.55; Std. Dev. 0.50; Min 0; Max 1
- Lagged democracy in political neighbors: Obs 18,970; Mean 1.25; Std. Dev. 5.12; Min -9; Max 10
- Change in reform index (principal component): Obs 1,418; Mean 0.02; Std. Dev. 0.04; Min -0.18; Max 0.31
- Lagged reform index (principal component): Obs 1,418; Mean 0.50; Std. Dev. 0.25; Min 0; Max 1.00

*Source: _wp10173 - Appendix Tables (content extracted from the supplied PDF).*

### Introduction ...........................................................................................................

### Introduction

### Major sections (structure of the content unit)
- Introduction
- II. Democracy and Reforms: Theory and Empirics
- III. Data
  - A. Data on reforms
    - a. Financial sector reforms in the domestic financial market
    - b. Capital account liberalization
    - c. Product market reforms
    - d. Agricultural market reforms
    - e. Trade reforms
    - f. Current account liberalization reforms
  - A. Aggregation and normalization
  - B. Other data
- IV. Empirical strategy
  - A. Additional controls
  - B. Endogeneity
  - C. Regressions by sector
  - D. Other robustness checks
  - E. The feedback effect
  - F. Factor analysis
- V. Conclusions
- References

### Figures listed
- Figure 1. Regulation and Democracy Over Time
- Figure 2. Democracy and Reforms, 2000

### Tables listed
- Table 1. Reform Indicators
- Table 2. Correlation between Reform Indicators
- Table 3. Reforms and Democracy
- Table 4. Reforms and Democracy, robustness to control
- Table 5a. Reforms and Democracy: Instrumental variables second stage
- Table 5b. Reforms and Democracy: Instrumental variables first stage
- Table 6. Reforms and Democracy: by reform
- Table 7a. Reforms and Democracy: Robustness Checks
- Table 7b. Reforms and Democracy: Additional Robustness Checks
- Table 8. Reforms and Democracy – Flexible Functional Form
- Table 9a. Reforms and Democracy: Feedback Effects
- Table 9b. Reform and democracy: Feedback Effects
- Table 10. Reforms and Democracy: Principal Component

### Content focus implied by section headings
- The document examines theoretical and empirical links between democracy and economic reforms (II).
- Detailed data construction and categorization of reforms across multiple sectors are provided (III), including:
  - Financial sector reforms in the domestic financial market
  - Capital account liberalization
  - Product market reforms
  - Agricultural market reforms
  - Trade reforms
  - Current account liberalization reforms
  - Aggregation and normalization procedures and additional data sources
- The empirical strategy (IV) addresses:
  - Additional controls
  - Endogeneity concerns
  - Sectoral regressions
  - Robustness checks
  - Potential feedback effects between reforms and democracy
  - Factor analysis methods
- The unit concludes with policy-relevant synthesis and findings (V) and includes References.

*Source: _wp10173 - Introduction — https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2010/_wp10173.pdf*

### Appendix Tables

### _wp10173 - Appendix Tables

### Introduction and research question
- Investigates whether political freedom (democracy) fosters economic reforms using a novel dataset covering a broad range of reforms, countries, and years.
- Dataset coverage and scope:
  - almost 150 countries
  - 6 sectors
  - spanning more than 40 years
  - 1960 up until 2004

### Main empirical findings
- Positive correlation from democracy to economic reforms:
  - An increase in the quality of democratic institutions is significantly correlated with the adoption of economic reforms.
  - The coefficient on the lagged level of democracy is significant at the 1 percent level in baseline specifications.
  - The magnitude: a one standard deviation increase in the democracy index explains 7 percent variability in reforms.
  - Estimated coefficients on the democracy variable range from 0.02 to 0.03 in columns 2-4 of the baseline regressions.
  - In a specification without the lagged reform index, the estimated coefficient on lagged democracy is β= 0.011 (statistically significant at the 1 percent level).
- No robust evidence of reverse causality (reforms → democratization):
  - Little evidence that economic reforms foster the democratic process (no feedback effect overall).
  - Exceptions: reforms in domestic financial sector and current account appear to reduce the probability of democratization in some specifications.
- Robustness across specifications:
  - Results hold controlling for country, sector, and year fixed effects and interactions (sector-country and sector-year).
  - Robust to inclusion of controls: crisis measures, public expenditure/GDP, real devaluation, human capital, bureaucratic quality, reforms in neighboring countries, and political variables.
  - Results robust to instrumental variable strategy using lagged democracy in political neighbors as an instrument.
  - Results persist in factor analysis (first principal component of reforms): lagged democracy significant at the 1 percent level; moving to a complete democracy in the long-run is associated with a 0.03 increase in the index of reform (instrumented magnitude larger).

### Data and measurement
- Unit of analysis: sector-country-year observations (6 sectors × 150 countries × 45 years) → panel of 20,123 observations.
- Reform indicators:
  - Six sectors: (i) domestic financial, (ii) capital account, (iii) product markets (electricity and telecommunications), (iv) agriculture, (v) trade (based on tariffs), and (vi) current account transactions.
  - Sub-indices aggregated and normalized between 0 and 1 (higher values = greater liberalization).
  - “Reform” defined as an annual change in the sectoral index.
- Democracy measure:
  - Polity IV combined polity2 index ranging from -10 to 10 (-10=high autocracy; 10=high democracy).
  - Normalized so that 1 indicates the most democratic country and 0 the least democratic regime.
- Crisis and control variables:
  - Hyperinflation dummy: inflation larger than 40 percent.
  - Recession dummy: negative growth in per-capita GDP.
  - Banking and debt crises from Reinhart and Rogoff (2008).
  - Public expenditures/GDP, real devaluation, tertiary enrollment (Barro and Lee (2001)), bureaucratic quality (ICRG, scored between 0-6), reforms in neighbors (weighted by geographic or trade distance), and political variables (left, presidential, others).

### Empirical strategy and specification
- Baseline dynamic panel specification includes:
  - sector (s), country (c), and year (t) fixed effects
  - interactions: country-sector, sector-year
  - lagged level of the reform index to capture convergence
  - country-specific and time-varying controls (X_{ct-1})
- Serial correlation accommodated:
  - Allow for first-order serial correlation in error terms; some specifications allow country-sector or country-specific serial correlation.
- Instrumental variable approach:
  - Uses lagged democracy in political neighbors (political distance weighted) as instrument for domestic democracy.
  - First-stage F statistics indicate instrument relevance.

### Sectoral heterogeneity and other robustness checks
- By-sector results (Table 6):
  - Democracy promotes reforms in all sectors except product markets (electricity/telecommunications) where democracy is not significant.
  - Estimated effects statistically significant at the 1 percent level in most sectors (except product markets).
- Robustness checks:
  - Subsamples: communist countries, developing countries — results hold qualitatively.
  - Alternative democracy definitions: zero-one democracy indicator (polity2 > 0) — results qualitatively similar.
  - Different standard-error corrections: clustering at country-reform level; AR(1) vs clustered SEs — results robust.
  - Alternative crisis definitions: negative per-capita GDP growth, banking and debt crises, terms-of-trade shocks — main conclusions unchanged.
  - Specification without lagged reform index (Equation (2)) yields smaller democracy coefficient (β= 0.011) but remains significant.
  - Non-linear effects: evidence that the more democratic the country initially, the easier it is to reform.

### Mechanisms, interpretation and limitations
- Mechanisms discussed in theory:
  - Democracy may facilitate reforms by securing property rights, limiting rent-seeking, and enabling credible commitments through institutions.
  - Autocracies may implement reforms when insulated from interest-group pressures, but democracies generally correlate with reform adoption in the data.
- Limitations and areas for further work:
  - Identifying precise mechanisms through which democracy affects reforms requires further research.
  - Data and identification challenges addressed via fixed effects, interactions, controls, and IV strategy, but causal channels not fully disentangled.

### Key numeric facts and exact measures (as reported)
- almost 150 countries
- 6 sectors
- spanning more than 40 years
- 1960 up until 2004
- panel of 20,123 observations
- polity2 index ranging from -10 to 10 (-10=high autocracy; 10=high democracy)
- reform indices normalized between 0 and 1
- hyperinflation defined as inflation larger than 40 percent
- one standard deviation increase in the democracy index explains 7 percent variability in reforms
- estimated democracy coefficients in main specifications range from 0.02 to 0.03
- alternative specification coefficient: β= 0.011

*Source: _wp10173 - Appendix Tables (content extracted from the supplied PDF).*

### References

### _wp10173 - References

### References (bibliography)
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### Key tables and empirical content contained in the unit

H3: Reform indicators (Table 1) — definitions, coding, data coverage
- Financial sector
  - The index of domestic financial liberalization is an average of six subindices, five related to banking and one related to the securities market.
  - Banking subindex is an average of 5 indicators: (i) interest rate controls; (ii) credit controls; (iii) competition restrictions; (iv) degree of state ownership; and (v) quality of banking supervision and regulation.
  - Securities market subindex covers (i) creation of basic frameworks such as the auctioning of T-bills or the establishment of a security commission; (ii) policies to further establish securities markets such as tax exemptions, introduction of medium- and long-term government bonds, primary dealer systems; (iii) policies to develop derivative markets or institutional investor base; and (iv) policies to permit access to the domestic stock market by nonresidents.
  - Subindices aggregated with equal weights. Each subindex coded from zero (fully repressed) to three (fully liberalized).
  - Data sources: Abiad and others (2008), following Abiad and Mody (2005), based on various IMF reports and working papers, central bank websites, and others.
  - Coverage: 1973–2005; Minimum and maximum number of countries in any year are 72 and 91 respectively.
- Capital account
  - Qualitative indicators of restrictions on financial credits and personal capital transactions of residents and financial credits to nonresidents, as well as use of multiple exchange rates.
  - Index coded from zero (fully repressed) to three (fully liberalized).
  - Data sources: Abiad and others (2008), following Abiad and Mody (2005), based on various IMF reports and working papers, central bank websites, and others.
  - Coverage: 1973–2005; Minimum and maximum number of countries in any year are 72 and 91 respectively.
- Product markets: Telecommunication and Electricity indicators
  - Electricity indicators capture (i) degree of unbundling; (ii) whether an independent regulator exists; (iii) whether the wholesale market has been liberalized; and (iv) privatization. Each subindex coded from 0 to 1 or from 0 to 2.
  - Telecommunication indicator captures (i) degree of competition in local services; (ii) whether a regulator other than government has been established; (iii) degree of liberalization of interconnection charges; and (iv) privatization. Each subindex coded from 0 to 1 or from 0 to 2.
  - Data sources: Based on various existing studies and datasets as well as national legislation and other official documents; Telecommunication: Based on IMF commodities data, various existing studies and datasets, and national legislation and other official documents.
  - Coverage: 1960–2003; Minimum and maximum number of countries in any year are 106 and 108 respectively.
- Agriculture market
  - Index captures intervention in the market for the main agricultural export commodity. Values: zero (public monopoly/monopsony), one-third (administered prices), two-thirds (public ownership or concession requirements), one (no public intervention).
  - Data sources: Based on IMF commodities data, various existing studies and datasets, and national legislation and other official documents.
  - Coverage: 1960–2003; Minimum and maximum number of countries in any year are 96 and 104 respectively.
- Trade
  - Trade liberalization defined by average tariff rates; index normalized from zero to unity where zero means tariff rates are 60 percent or higher, unity means tariff rates are zero.
  - Data sources: Various sources, including IMF, World Bank, WTO, UN, Clemens and Williamson, 2004.
  - Coverage: 1960-2005; Minimum and maximum # of countries in any year are 47 and 142 respectively.
- Current account
  - Index describes compliance with IMF’s Article VIII; sum of two subcomponents covering restrictions on visibles and invisibles, distinguishes restrictions on residents and nonresidents; scored between zero and 8 in half-integer units with 8 indicating full compliance.
  - Data sources: Based on the methodology in Quinn (1997) and Quinn and Toyoda (2007), drawing on information contained in the Fund's AREAER database.
  - Coverage: 1960–2005; Minimum and maximum number of countries in any year are 50 and 65 respectively.

H3: Correlations between reform indicators (Table 2)
- Correlation matrix (pairwise correlations, *** denotes statistical significance at the 1 percent level):
  - Agriculture — Prod. Mkt: 0.30***
  - Agriculture — Trade: 0.32***
  - Agriculture — Cap. Acc.: 0.40***
  - Agriculture — Curr. Acc.: 0.42***
  - Agriculture — Finance: 0.44***
  - Prod. Mkt — Trade: 0.35***
  - Prod. Mkt — Cap. Acc.: 0.46***
  - Prod. Mkt — Curr. Acc.: 0.47***
  - Prod. Mkt — Finance: 0.63***
  - Trade — Cap. Acc.: 0.57***
  - Trade — Curr. Acc.: 0.63***
  - Trade — Finance: 0.62***
  - Cap. Acc. — Curr. Acc.: 0.77***
  - Cap. Acc. — Finance: 0.73***
  - Curr. Acc. — Finance: 0.71***

H3: Regression summary — reforms and democracy (selected table highlights)
- Table 3 / Table 4 (panel regressions; dependent variable: reform in country, sector, year)
  - Lagged democracy coefficients (selected columns): 0.016***, 0.017***, 0.033***, 0.017***
  - Lagged level of index coefficients (selected): -0.073***, -0.124***, -0.047***, -0.131***
  - Observations: 20,123; 19,521; 20,071; 19,521 (varies by column)
  - Note: Estimators are within estimators and allow for first-order autoregressive disturbance term. ***, ** and * denote statistical significance at 1, 5 and 10 percent respectively.
- Table 4 (robustness to controls; dependent variable: reform in (country, sector, year))
  - Lagged democracy coefficients across columns: 0.011***, 0.014**, 0.048***, 0.011***, 0.014***, 0.045***
  - Lagged level of index coefficients: -0.149***, -0.205***, -0.401***, -0.135***, -0.173***, -0.412***
  - Examples of additional controls and selected coefficients:
    - Lagged crisis (inflation>40): -0.005* (one column), -0.003 (another)
    - Lagged real devaluation: 0.007, -0.009 (columns differ)
    - Lagged public expenditure to GDP: 0.000, -0.001*
    - Lagged bureaucratic quality: 0.003, 0.006*
    - Lagged tertiary enrollment: 0.006, -0.003
    - Lagged reforms in geographical neighbor: 0.055***, 0.044
    - Lagged dummy for left: 0.003, -0.004
    - Lagged dummy for presidential: -0.001, 0.006
  - Observations vary: 16,648; 9,627; 5,564; 17,804; 14,175; 4,784
  - Note: All regressions control for country sector, year fixed effects and country*sector and sector*year interactions.
- Table 5a / 5b (Instrumental variables)
  - Second stage (selected): Lagged democracy coefficients reported (e.g., 0.078***, 0.151***, 0.190, 0.141 in Table 5a columns 1a–1d).
  - Lagged level of index coefficients in IV regressions: -0.135***, -0.180***, -0.281***, -0.281***
  - First stage (Table 5b) — instrument relevance:
    - Lagged democracy in neighboring countries coefficients: 0.014***, 0.009***, 0.005***, 0.006***
    - Selected controls and coefficients: Lagged tertiary enrollment -0.199*** (one column); Lagged reforms in geographical neighbors 0.198*** (one column); Lagged dummy for presidential -0.226***, -0.238***.
    - Observations: 18,970; 10,007; 5,252; 5,252 (depending on column).
  - First stage diagnostics (Table 5a): First stage F-stat: 764.592, 29.093, 6.475, 0.77; p-value of F test: 0.000, 0.000, 0.000, 0.000.
  - Note: Lagged democracy is instrumented by (lagged) democracy in neighboring countries. All regressions control for country sector, year fixed effects and country*sector and sector*year interactions.
- Table 6 and Table 7 (by reform and robustness checks)
  - Table 7a (dependent variable: reform in (country, year); by reform type, selected Lagged democracy coefficients):
    - Finance: 0.067***
    - Cap. Acc.: 0.182***
    - Prod. Mkt: -0.026
    - Agricult.: 0.202***
    - Trade: 0.075***
    - Curr. Acc.: 0.179***
  - Lagged level of index (by reform type) examples:
    - Finance: -0.379***
    - Cap. Acc.: -0.521***
    - Prod. Mkt: -0.278***
    - Agricult.: -0.558***
    - Trade: -0.420***
    - Curr. Acc.: -0.554***
  - Additional controls in these regressions include Lagged crisis (inflation>40), Lagged real devaluation, Lagged public expenditure to GDP, Lagged bureaucratic quality, Lagged tertiary enrollment, Lagged reforms in geographical neighbors, Lagged dummy for left, Lagged dummy for presidential.
  - Observations vary by column (e.g., 786; 786; 888; 807; 857; 660).
- Table 7b (additional robustness checks, dependent variable: reform in (country, sector, year))
  - Selected Lagged democracy coefficients across columns: 0.016***, 0.065***, 0.062***, 0.061***, 0.066***, 0.066***, 0.069***, 0.011***.
  - Selected Lagged level of index coefficients: -0.125***, -0.495***, -0.510***, -0.479***, -0.494***, -0.523***, -0.520***, -0.128***.
  - Other reported items: Lagged crisis (inflation>40), Lagged real devaluation, Lagged public expenditure to GDP, Lagged bureaucratic quality (e.g., 0.010**, 0.009**, 0.010***), Lagged tertiary enrollment, Lagged reforms in geographical neighbors, Lagged reform in trade neighbors (-0.043 in one column), Lagged average reform in other sectors (0.122*** in one column), Lagged crisis (growth<0) -0.007**, Terms of trade shocks -0.004, Lagged crisis (bank) -0.016***, Political reform - Giavazzi and Tabellini (2005) 0.015***.
  - Observations examples: 20,123; 4,784; 4,769; 4,265; 21,292; 19,521 depending on column.
  - Note: Column (1) uses clustered standard errors at the country-reform level. Column (8) political reform is a dummy taking value of 1 in the years after democratization.
- Table 9a / 9b (feedback effects)
  - Dependent variable: reform in (country, sector, year) — democracy split by polity2 ranges:
    - Lagged democracy (polity2<0.15): coefficients 0.014, 0.011, -0.005, 0.014 (columns 1–4)
    - Lagged democracy (0.15<=polity2<0.75): 0.012**, 0.009, 0.036***, 0.01
    - Lagged democracy (polity2>=0.75): 0.015***, 0.016***, 0.038***, 0.016***
    - Lagged level of index: -0.073***, -0.129***, -0.036***, -0.135***
    - Observations: 20,123; 19,521; 19,980; 19,521
  - Dependent variable: change in democracy (country, year)
    - Lagged democracy: -0.135***, -0.157***, -0.112***, -0.157*** (columns 1–4)
    - Lagged reform in (country, sector, year): -0.009, -0.011, 0.004, -0.010
    - Observations: 19,043; 18,441; 19,262; 18,441
  - By reform type (change in democracy as dependent):
    - Lagged democracy: -0.177***, -0.177***, -0.161***, -0.167***, -0.181***, -0.167***
    - Lagged reform in (country, year): -0.088**, -0.016, -0.018, 0.017, 0.011, -0.038*
    - Observations by reform type: 3,015; 3,913; 3,195; 2,160; 2,431; 2,160
- Table 10 (principal component; change in democracy as dependent)
  - Columns (1) OLS, (2) IV, (3) OLS/IV variants:
    - Lagged democracy: 0.001***, 0.006***, -0.218***
    - Lagged level of index (country, year): -0.029***, -0.096***
    - Lagged reform in (country, year): -1.775 (reported)
    - Country FE: YYY or YYY depending on column
    - Year FE: YYY or YYY depending on column
    - Observations: 1,418; 1,418; 1,303
    - First stage F-stat: 41; p-value of F-stat: 0.000
  - Note: In Column (2), lagged democracy is instrumented by (lagged) democracy in neighboring countries.

*This content unit contains the references list and tables (Table 1–Table 10) with reform indicator definitions, data coverage, correlation matrix, and regression results as presented in the source PDF.*

### Appendix Tables

### _wp10173 - Appendix Tables

### Summary Statistics (Table 1)
- Change in reform index: Obs 20,123; Mean 0.01; Std. Dev. 0.08; Min -1; Max 1
- Lagged democracy: Obs 20,123; Mean 0.59; Std. Dev. 0.37; Min 0; Max 1
- Lagged reform_index: Obs 20,123; Mean 0.40; Std. Dev. 0.37; Min 0; Max 1
- Lagged crisis (inflation>40): Obs 5,252; Mean 0.10; Std. Dev. 0.30; Min 0; Max 1
- Lagged real devaluation: Obs 5,252; Mean 0.01; Std. Dev. 0.17; Min -1.00; Max 1.30
- Lagged public expenditure as a percent of GDP: Obs 5,252; Mean 15.06; Std. Dev. 5.18; Min 2.98; Max 34.39
- Lagged bureaucratic quality: Obs 5,252; Mean 2.54; Std. Dev. 1.14; Min 0; Max 4
- Lagged tertiary enrollment: Obs 5,252; Mean 0.27; Std. Dev. 0.22; Min 0.00; Max 0.97
- Lagged reforms in geographical neighbor: Obs 5,252; Mean 0.02; Std. Dev. 0.03; Min -0.21; Max 0.22
- Lagged dummy for left: Obs 5,252; Mean 0.33; Std. Dev. 0.47; Min 0; Max 1
- Lagged dummy for presidential: Obs 5,252; Mean 0.55; Std. Dev. 0.50; Min 0; Max 1
- Lagged democracy in political neighbors: Obs 18,970; Mean 1.25; Std. Dev. 5.12; Min -9; Max 10
- Lagged crisis (growth<0): Obs 5,234; Mean 0.26; Std. Dev. 0.44; Min 0; Max 1
- Terms of trade shocks: Obs 5,252; Mean -0.01; Std. Dev. 0.14; Min -0.70; Max 0.47
- Lagged crisis (debt): Obs 4,679; Mean 0.01; Std. Dev. 0.12; Min 0; Max 1
- Lagged crisis (bank): Obs 4,679; Mean 0.05; Std. Dev. 0.22; Min 0; Max 1
- Political reform (Giavazzi and Tabellini, 2005): Obs 21,919; Mean 0.28; Std. Dev. 0.45; Min 0; Max 1
- Lagged reform in trade neighbors: Obs 5,252; Mean 0.01; Std. Dev. 0.03; Min -0.21; Max 0.39
- Change in reform index (principal component): Obs 1,418; Mean 0.02; Std. Dev. 0.04; Min -0.18; Max 0.31
- Lagged reform index (principal component): Obs 1,418; Mean 0.50; Std. Dev. 0.25; Min 0; Max 1.00

- Note: The summary statistics correspond to samples used in Tables 4, 5, 8a and 8b.

### Country Codes in Figure 2 (Table 2A)
- AFG Afghanistan
- AGO Angola
- ALB Albania
- ARE UAE
- ARG Argentina
- ARM Armenia
- AUS Australia
- AUT Austria
- AZE Azerbaijan
- BDI Burundi
- BEL Belgium
- BEN Benin
- BFA Burkina Faso
- BGD Bangladesh
- BGR Bulgaria
- BHR Bahrain
- BLR Belarus
- BOL Bolivia
- BRA Brazil
- BTN Bhutan
- BWA Botswana
- CAF CAR
- CAN Canada
- CHE Switzerland
- CHL Chile
- CHN China
- CIV Cote D'Ivoire
- CMR Cameroon
- COG Congo
- COL Colombia
- COM Comoros
- CRI Costa Rica
- CUB Cuba
- CYP Cyprus
- CZE Czech Rep
- DEU Germany
- DJI Djibouti
- DNK Denmark
- DOM Dominican Rep
- DZA Algeria
- ECU Ecuador
- EGY Egypt
- ERI Eritrea
- ESP Spain
- EST Estonia
- ETH Ethiopia
- FIN Finland
- FJI Fiji
- FRA France
- GAB Gabon
- GBR UK
- GEO Georgia
- GHA Ghana
- GIN Guinea
- GMB Gambia
- GNB Guinea-Bissau
- GNQ Equat Guinea
- GRC Greece
- GTM Guatemala
- GUY Guyana
- HND Honduras
- HRV Croatia
- HTI Haiti
- HUN Hungary
- IDN Indonesia
- IND India
- IRL Ireland
- IRN Iran
- IRQ Iraq
- ISR Israel
- ITA Italy
- JAM Jamaica
- JPN Japan
- KAZ Kazakhstan
- KEN Kenya
- KGZ Kyrgyz Rep
- KHM Cambodia
- KOR Korea
- KWT Kuwait
- LBR Liberia
- LBY Libya
- LCA St. Lucia (implicit code not listed in table — skipped)
- LKA Sri Lanka
- LSO Lesotho
- LTU Lithuania
- LUX Luxembourg (implicit code not listed in table — skipped)
- LVA Latvia
- MAR Morocco
- MDA Moldova
- MDG Madagascar
- MEX Mexico
- MLI Mali
- MMR Myanmar
- MNG Mongolia
- MOZ Mozambique
- MUS Mauritius
- MWI Malawi
- MYS Malaysia
- NAM Namibia
- NER Niger
- NGA Nigeria
- NIC Nicaragua
- NLD Netherlands
- NOR Norway
- NPL Nepal
- NZL New Zealand
- OMN Oman
- PAK Pakistan
- PAN Panama
- PHL Philippines
- PNG Papua New G.
- POL Poland
- PRT Portugal
- PRY Paraguay
- QAT Qatar
- ROU Romania
- RUS Russia
- RWA Rwanda
- SAU Saudi Arabia
- SDN Sudan
- SEN Senegal
- SGP Singapore
- SLB Solomon Is
- SLE Sierra Leone
- SLV El Salvador
- SOM Somalia
- SVN Slovenia
- SVK Slovak Rep
- SWE Sweden
- SYR Syria
- TCD Chad
- TGO Togo
- THA Thailand
- TJK Tajikistan
- TKM Turkmenistan
- TTO Trinidad Tob
- TUN Tunisia
- TUR Turkey
- TWN Taiwan
- TZA Tanzania
- UGA Uganda
- UKR Ukraine
- URY Uruguay
- USA US
- UZB Uzbekistan
- VEN Venezuela
- VNM Viet Nam
- YEM Yemen
- ZAF South Africa
- ZAR Zaire
- ZMB Zambia
- ZWE Zimbabwe
- NGA Nigeria (also listed under GB R? — only as in table)
- NIC Nicaragua (repeated in table)

(Note: table presents an extensive list of code-country pairs as shown above.)

### Country Groups in Figure 2 (Table A3)
- Burkina Faso BFA 1
- Kyrgyz Rep KGZ 1
- Indonesia IDN 2
- Turkey TUR 2
- Colombia COL 3
- Paraguay PRY 3
- Ukraine UKR 3
- Madagascar MDG 4
- El Salvador SLV 4
- Bulgaria BGR 5
- Dominican Rep DOM 5
- Nicaragua NIC 5
- Senegal SEN 5
- Korea KOR 6
- Romania ROM 6
- Argentina ARG 7
- Philippines PHL 7
- India IND 8
- Jamaica JAM 8
- Bolivia BOL 9
- Chile CHL 9
- Austria AUT 10
- Czech Rep CZE 10
- Finland FIN 10
- Greece GRC 10
- Lithuania LTU 10
- Portugal PRT 10
- Norway NOR 11
- Israel ISR 11
- Japan JPN 11
- Germany DEU 12
- Hungary HUN 12
- Italy ITA 12
- Belgium BEL 13
- Switzerland CHE 13
- Denmark DNK 13
- Netherlands NLD 13
- New Zealand NZL 13
- Sweden SWE 13
- Australia AUS 14
- Canada CAN 14
- Spain ESP 14
- UK GBR 14
- Ireland IRL 14
- US USA 14
- Bolivia BOL 14
- China CHN 1
- Viet Nam VNM 1
- Egypt EGY 2
- Morocco MAR 2
- Cameroon CMR 3
- Tunisia TUN 4
- Jordan JOR 5
- Kenya KEN 5
- Ghana GHA 6
- Tanzania TZA 6
- Albania ALB 7
- Mozambique MOZ 8
- Bangladesh BGD 9
- Ecuador ECU 9
- Russia RUS 9
- Ukraine UKR 9
- Burkina Faso BFA 4
- South Africa ZAF 15
- Australia AUS 16
- Austria AUT 16
- Belgium BEL 16
- Canada CAN 16
- Czech Rep CZE 16
- Germany DEU 16
- Denmark DNK 16
- Spain ESP 16
- Finland FIN 16
- UK GBR 16
- Ireland IRL 16
- Italy ITA 16
- Japan JPN 16
- Lithuania LTU 16
- Netherlands NLD 16
- Norway NOR 16
- New Zealand NZL 16
- Portugal PRT 16
- Sweden SWE 16
- US USA 16
- Brazil BRA 12
- Guatemala GTM 12
- Mexico MEX 13
- Latvia LVA 13
- Nicaragua NIC 13
- Uruguay URY 16
- ... (Table A3 spans multiple pages and presents country-to-group mappings across thematic groupings such as FinanceCapital, ProductAgri, LaborFiscal, TradeCurrent, etc., with repeated and continued listings.)

- Representative additional mappings from continued panels:
  - Oman OMN 1
  - Turkmenistan TKM 1
  - Azerbaijan AZE 2
  - Lao LAO 2
  - Kenya KEN 3
  - Chad TCD 3
  - Togo TGO 3
  - Solomon Is SLB 4
  - Sierra Leone SLE 4
  - Benin BEN 5
  - Guyana GUY 5
  - Mozambique MOZ 5
  - Bangladesh BGD 6
  - Namibia NAM 6
  - Honduras HND 7
  - Madagascar MDG 7
  - Turkey TUR 7
  - Mexico MEX 8
  - Philippines PHL 8
  - France FRA 9
  - South Africa ZAF 9
  - Lithuania LTU 10
  - Trinidad Tob TTO 10
  - Uruguay URY 10
  - Czech Rep CZE 11
  - Hungary HUN 11
  - Japan JPN 11
  - Australia AUS 12
  - Belgium BEL 12
  - Canada CAN 12
  - Ireland IRL 12
  - New Zealand NZL 12
  - Portugal PRT 12
  - US USA 12
  - Norway NOR 13
  - Sweden SWE 13
  - Spain ESP 14
  - Netherlands NLD 14
  - Germany DEU 20
  - Finland FIN 20
  - Italy ITA 21
  - Mongolia MNG 21
  - Hong Kong HKG 6
  - Peru PER 6

- Note: Table A3 is organized as multiple panels of country-to-group mappings used in Figure 2 and includes repeated entries and continuations across panels (FinanceCapital, ProductAgri, LaborFiscal, TradeCurrent). The table content above preserves the country codes and group numbers as presented.

*Appendix Tables (tables and listings as presented in the source PDF).*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2010/_wp10173.pdf_