The Nexus Between the Democratic Transition and the Structural Transformation

Abstract

There are several theoretical and empirical papers on the structural transformation but there is not a study relating structural transformation with the political regime switch in the country. This paper aims to fill the gap in relevant literature by empirically examining the linkage between the political regime switch and the structure of the economy. The main purpose of this paper is to explore the impact of the political regime switch on the share of the agricultural value added in the GDP. Due to endogeneity issues, Difference GMM methodology is used to test the hypothesis that the democratization leads to the structural transformation of the economy by using data for 43 countries over the period from 1970-2016. The estimation results confirm that the share of agricultural value in total value added is higher when the country is ruled by an autocratic system rather than a democratic system. Moreover, the estimation results indicate that per capita GDP, arable land, and trade openness have a negative significant, whereas financial development, fertility, and population have a positive significant impact on the value added share of agriculture.