Democracy and financial regulation: The effects of political institutions on economic policy

My study concerns the effect of political institutions upon economic policy, specifically, the impact that democratic regimes have upon the efficiency of financial regulatory policy. I first identify a theoretical contradiction in the literature which deals with the merits and liabilities of different institutional designs upon policy choices. I argue that where one strand of literature prescribes closed or more autocratic regimes the other prescribes open or democratic regimes in order to produce more efficient economic policy.;I test both of these hypotheses and a third by examining 96 countries in terms of their current regime type, history of democratization, and their level of regime stability over the last ten years. Using cluster analysis, correlations, and an innovative coding method of existing data on regime type, I find that there while institutions do matter, when and how they matter varies greatly. Specifically, democratic institutions are more clearly associated with efficient financial regulatory policies than autocratic institutions. However, the effects of democracy are highly uneven and inconsistent across the narrow range of economic policy dealing with financial regulation suggesting that non-institutional variables such as distributional coalitions, actor preferences, or policy characteristics may be of equal or greater importance than regime type in explaining policy outcomes. The approach and the findings presented in this study force us to reexamine the factors that determine the preconditions for efficient economic policy making and the presumption that democracy is one of them.