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Using cross-country data, we find evidence for a significant negative interaction effect between democracy and inequality in determining the quality of growth-promoting institutions like rule of law. Democracy is associated with institutions of higher quality when inequality is lower.

This paper investigates the role of violent civil conflicts during the process of democratization for the quality of emerging democracies, and in particular, the protection of civil (political and economic) liberties. A simple theory in which different groups may engage in violent conflict in order to become the ruler predicts a crucial role of the democratization scenario. A peaceful democratization leads to democracies with a high degree of civil liberties, reflecting a social contract according to which all groups are politically represented and the rulers deliberately abstain from wasteful rent extraction. A transition to democracy under a violent conflict is less likely to lead to a system with a high degree of civil liberties. Empirical evidence from the third wave of democratization based on a difference-in-difference methodology supports the theoretical predictions. The findings suggest that violent conflicts during the democratic transition have persistent negative effects on the quality of the emerging democracies.

This article studies the endogenous evolution of economic and political institutions and the interdependencies with the process of economic development. Favourable economic institutions in the form of a state of law and absence of societal conflict arise in equilibrium. Democracies are neither necessary nor sufficient to implement a state of law, even if they may be instrumental. Efficient oligarchies can emerge and persist supported by the consensus of all groups. A taxonomy of politico-economic equilibria shows the endogenous evolution of institutions depending on economic inequality and natural resource abundance, implying a non-monotonic relationship between inequality and institutional quality. © Journal compilation © 2008 by the Royal Economic Society. ; Peer Reviewed

Using cross-country data, we find evidence for a significant negative interaction effect between democracy and inequality in determining the quality of growth-promoting institutions like rule of law. Democracy is associated with institutions of higher quality when inequality is lower.

We study the process of endogenous democratization from inefficient oligarchic systems in an economy where heterogeneous individuals can get involved in predation activities. The features of democracies are shown to be crucially related to the conditions under which democratization initially takes place. The political regime and the extent of redistribution implemented under it depend on the allocation of de facto political power across the different social groups. The cost of public enforcement of property rights depends on the extent of predation activities in the economy. The theory highlights the importance of inequality in natural resources and availability of human capital for endogenous democratic transitions. Multiple politico-economic equilibria can be sustained conditional on expectations about property rights enforcement. This generates history dependence. Democratic transitions supported by a large consensus serve as coordination device and lead to better protection of property and more stable political systems than democratic transitions imposed in conflictual environments. We test the novel predictions using available cross-country data. The link between the type of democratic transition and the outcomes under democracy is also investigated using novel data on constitutional principles. The findings support the theoretical predictions.

We analyze the endogenous evolution of economic and political institutions and the interdependencies with the process of economic development. Favorable economic institutions ensure the appropriability of rents in form of a state of law. We study the conditions under which a state of law can be implemented under oligarchy, and when democratization is necessary. Inequality in endowments and incomes prolongs the absence of good institutions and delays democratization. Conversely, institutions shape the income distribution. Simulations illustrate how inequality affects the development process and may lead to overtaking and divergence. The implications are in line with historical and empirical evidence.

AbstractThe earthquake that struck Haiti in January 2010 tipped the country into a state of socioeconomic despair from which it will be difficult to escape without a fresh start, made not only by its own political and economic elites, but also by the international community. Making a fresh start will require an honest assessment of Haiti's predicament and a bold vision of its future prospects. By this, lessons can usefully be drawn from the experiences of countries emerging from a period of conflict. From this perspective, Haiti needs to move beyond the neoliberal consensus which has dominated policy since the overthrow of the Duvalier regime and adopt a more integrated policy approach to creating jobs, boosting economic security, diversifying economic activity and repairing a dangerously frayed social contract. Such an approach critically depends on establishing a developmental state with an inclusive national agenda that can move Haiti out of an initial and unavoidable state of aid dependence to effective mobilization of domestic resources. For the international community, the Marshall Plan offers useful lessons in forging a more effective development partnership to support such a state‐building exercise and the efforts at recovery and rebuilding.Policy Implications
 State building is an integral part of development policy in countries adjusting to large external shocks.
 It is a mistake to privilege a set of predetermined policy instruments to be used to manage the adjustment to external shocks, regardless of actual circumstances.
 Mobilizing domestic resources is key to sustainable long‐term growth and development, including in countries recovering from crisis.
 Distributional issues are an integral part of successful strategies to improve domestic resource mobilization.
 Avoiding dual public sectors is essential for effective state building in countries receiving large aid inflows.
 The Marshall Plan continues to hold lessons for how the international community should behave towards countries recovering from large shocks and crises.