Three essays on democracy and economic policy

This dissertation is composed of three chapters. Chapter 2 studies the relationship between parliamentary versus presidential democracies and international trade. It analyzes whether parliamentary or presidential democratic political systems are more amenable to special interest groups seeking to alter trade policy. The question asked here is if bilateral exports are higher when the trading partners are both parliamentary systems. A theoretical model is developed that derives the trade-offs the government faces when deciding on international trade policy. The model highlights that a government's willingness to trade-off sector specific interests versus aggregate welfare varies amongst parliamentarism and presidentialism and is thus a key reason why we see variations in trade policy. Using the gravity model as a baseline specification the dyadic results indicate that parliamentarism has statistically significant more trade than dyads composed of two presidential regimes. The results show that parliamentary systems have higher levels of bilateral exports.; Chapter 3 studies democracy and capital flows paying specific attention to foreign direct investment. Do developing countries that consolidate their power in the form of more autocracy generate increased inflows of FDI? Section 3.1 analyzes the change in the level of democracy in developing countries and the effect this has on inward foreign direct investment. Section 3.2 considers the impact of the consolidation of autocracy on inward flows of FDI. The extension, Section 3.3, looks at bilateral portfolio flows. All the results indicate that democracy has a positive effect on FDI inflows for developing countries.; Finally, Chapter 4 considers price stability in the context of parliamentary and presidential democracies. The theory in Section 4.1 argues that in parliamentary systems the tradeoff between output and inflation is more severe than in presidential regimes and develops the hypothesis that parliamentary regimes have more price stability compared to presidential democracies. This is due to the fact that the policymaking process is more collegial in parliamentary systems and thus politicians cannot afford to neglect the popular will in favor of low levels of unemployment. I argue, it is likely that parliamentary systems will delegate control over monetary policy to independent institutions such as central banks. This delegation results in more price stability compared to presidential regimes. The econometric results are supportive indicating that parliamentary regimes have more price stability measured by the change in the inflation rate. Finally, section 4.2 offers an empirical analysis of this effect on economic integration.