1 Democracy, Market Liberalization and Political Preferences

This paper questions the conventional wisdom concerning the sequencing of political and economic reforms in developing countries. We exploit the specific situation of frontier-zones as well as the considerable regional variations in culture and economic development in the countries of Central and Eastern Europe and the former Soviet Union in order to estimate the impact of market development and democratization on subjective political preferences. Taking advantage of a new survey conducted in 2006 by the European Bank for Reconstruction and Development and the World Bank in 28 post-transition countries, we find a positive and significant effect of democracy on support for a market economy, but no effect of the impact of market liberalization on support for democracy. Our results are robust to the use of various indices of market liberalization and democracy and alternative measures of political preferences. Hence, the relativist argument according to which the demand for democracy is an endogenous by-product of market development is not supported by our data