Democratization and real exchange rates

Benjamin Furlan, Martin Gächter, Bob Krebs, Harald Oberhofer

Publication: Scientific journalJournal articlepeer-review

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In this article, we combine two so far separate strands of the economic literature and argue that democratization leads to a real exchange rate appreciation. We test this hypothesis empirically for a sample of countries observed from 1980 to 2007 by combining a difference-in-difference approach with propensity score matching estimators. Our empirical results reveal a strong and significant finding: democratization causes real exchange rates to appreciate. Consequently, the ongoing process of democratization observed in many parts of the world is likely to reduce exchange rate distortions.
Original languageEnglish
Pages (from-to)216 - 242
JournalScottish Journal of Political Economy
Issue number2
Publication statusPublished - 2016

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