Existing scholarship attributes various political and economic advantages to democratic governance. These advantages may make more democratic countries prone to financial crises. Democracy is characterized by constraints on executive authority, accountability through free and fair elections, protections for civil liberties, and large winning coalitions. These characteristics bring important benefits, but they can also have unintended consequences that increase the likelihood of financial instability and crises. Using data covering the past two centuries, I demonstrate a strong relationship between democracy and financial crisis onset: on average, democracies are about twice as likely to experience a crisis as autocracies. This is an empirical regularity that is robust across a wide range of model specifications and time periods.
Phillip Y. Lipscy (Stanford University) is Assistant Professor of Political Science and Thomas Rohlen Center Fellow at the Freeman Spogli Institute for International Studies. His fields of research include international and comparative political economy, international organizations, and the politics of East Asia, particularly Japan. Lipscy’s book from Cambridge University Press, Renegotiating the World Order: Institutional Change in International Relations, examines how countries seek greater international influence by reforming or creating international organizations.