## Political Institutions and Output Collapses

_IMF Working Papers, February 17, 2023_

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**Canonical URL:** [Political Institutions and Output Collapses](https://www.imf.org/en/publications/wp/issues/2023/02/17/political-institutions-and-output-collapses-525757)

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## Bibliographic details
- Authors: Patrick A. Imam, Jonathan R. W. Temple
- Published: February 17, 2023
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9798400225802.001

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### Summary
- Major output collapses are costly and frequent in the developing world.
- Using cross-country data, five-year periods are classified in a two-dimensional state space based on growth regimes and political institutions.
- The joint evolution of output growth and political institutions is modeled as a finite state Markov chain to study how countries move between states.
- Key empirical findings:
  - Growth is more likely to be sustained under democracy than under autocracy.
  - Output collapses are more persistent under autocracy.
  - Stagnation under autocracy can give way to outright collapse.
  - Democratic countries appear to be more resilient.

### Methodology
- Data structure:
  - Analysis uses cross-country data aggregated into five-year periods.
  - Classification of periods into states uses a two-dimensional state space defined by growth regimes and political institutions.
- Modeling approach:
  - The joint evolution of output growth and political institutions is modeled as a finite state Markov chain.
  - The framework allows study of transitions between growth/institutional states, including persistence and probability of moving into collapse states.

### Findings and Interpretation
- Persistence and transition patterns:
  - Output collapses exhibit greater persistence under autocratic political institutions.
  - Democracies show higher likelihoods of sustaining growth and greater resilience against collapse.
  - Stagnation under autocracy is identified as a danger zone that can transition into outright collapse.
- Implication for developing countries:
  - Political institutions are strongly associated with the dynamics of output collapse and recovery.
  - Institutional regime (democracy versus autocracy) alters the risk profile for prolonged stagnation and collapse.

### Policy implications (implicit from findings)
- Strengthening democratic institutions may increase the probability of sustained growth and resilience to output collapses.
- Monitoring and addressing stagnation in autocratic contexts is important because stagnation can precede collapse.
- Policies aimed at reducing the persistence of collapses under autocracy could focus on institutional reforms that enhance accountability and checks on power.

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_Source: https://www.imf.org/en/publications/wp/issues/2023/02/17/political-institutions-and-output-collapses-525757_