Multiparty Competition, Founding Elections and Political Business Cycles in Africa

Abstract

Political business cycle theory largely abstracts from institutional context, in particular assuming that elections are competitive. Yet, as empirical work on political business cycles turns increasingly to developing countries and nascent democracies for evidence, this assumption becomes untenable. We propose and test two empirical hypotheses: first, we should only see cycles when elections involve multiparty competition; second, we should see larger cycles in founding elections. Using an indicator of multiparty competition and applying recent advances in dynamic panel (generalized method of moments) econometrics to data from Africa, we find strong support for both hypotheses. These findings have implications for democratic transitions and the compatibility of economic and political reform in nascent democracies.