Democratization and Economic Liberalization in the Postcommunist World

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Abstract
How does economic liberalization affect political regime? Economic liberalization is widely regarded as inimical to democratization. The “Washington Consensus,” which generally endorses “shock therapy” and envisions a basic compatibility between economic liberalization and democratization, is widely disdained in social science. Many scholars hold that neoliberal economics depresses popular living standards and exacerbates socioeconomic inequalities, thereby compromising democratization. Focusing on the postcommunist region, this article tests this hypothesis. It examines the data that have been used to assess the relationship between economic liberalization and political democratization and presents analyses using more appropriate and differentiated techniques. The authors find that economic liberalization advances rather than undermines democratization. Using Engle-Granger analysis, they find that although economic liberalization has no discernible impact on democratization in the short term, democratization adjusts in the direction of a long-term equilibrium to which economic liberalization contributes substantially.