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Do banking crises improve democracy?

  • Beni Kouevi-Gath
  • Pierre-Guillaume MéonEmail author
  • Laurent Weill
Article

Abstract

We study the relationship between banking crises and the level of democracy. We use an event-study method on a sample of up to 129 countries over the period 1975–2010 featuring 94 systemic banking crises. We find that banking crises are followed by an improvement in democracy and report evidence suggesting that the relation may be causal. The bulk of the improvement takes place between 3 and 10 years after the banking crisis. The impact of a banking crisis is greater in non-democratic countries and when the banking crisis is severe. We explain this finding by the fact that banking crises create windows of opportunity to contest autocratic regimes.

Keywords

Banking crisis Democracy Regime change Transitions 

JEL Classification

D72 H11 

Notes

Acknowledgements

We thank the editors and two anonymous referees. We are grateful to Peter Bernholz, Christian Bjørnskov, Richard Bluhm, Andrea Cinque, Michael Dorsch, Tommy Krieger, Florian Loipersberger, Felix Noth, and Niklas Protrafke for valuable comments and suggestions. We also express gratitude to participants of the 2019 Silvaplana workshop in political economy, the European Public Choice Society conference in Rome, the Beyond Basic Questions workshop in Gengenbach, and the annual meeting of the Association for Comparative Economic Studies/Allied Social Sciences Association in Atlanta. Nevertheless, we vigorously claim that the responsibility for any remaining error is ours. This research benefited from a Tournesol grant awarded by Wallonie-Bruxelles International, F.R.S-FNRS, FWO, the French Embassy in Brussels, the Ministry of Europe and Foreign Affairs and the Ministry of Higher Education in France.

Supplementary material

11127_2019_730_MOESM1_ESM.docx (188 kb)
Supplementary material 1 (DOCX 187 kb)

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Copyright information

© Springer Science+Business Media, LLC, part of Springer Nature 2019

Authors and Affiliations

  • Beni Kouevi-Gath
    • 1
  • Pierre-Guillaume Méon
    • 2
    Email author
  • Laurent Weill
    • 3
    • 4
  1. 1.Centre Emile Bernheim, ECARES, Solvay Brussels School of Economics and ManagementUniversité libre de Bruxelles (ULB)BrusselsBelgium
  2. 2.Centre Emile Bernheim, Solvay Brussels School of Economics and ManagementUniversité libre de Bruxelles (ULB)BrusselsBelgium
  3. 3.EM Strasbourg Business SchoolUniversity of StrasbourgStrasbourg CedexFrance
  4. 4.Moscow State Institute of International RelationsMGIMO UniversityMoscowRussia

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