In this article, we combine two so far separate strands of the economic literature and argue that democratization leads to
a real exchange rate appreciation. We test this hypothesis empirically for a sample of countries observed from 1980 to 2007
by combining a difference‐in‐difference approach with propensity score matching estimators. Our empirical results reveal a
strong and significant finding: democratization causes real exchange rates to appreciate. Consequently, the ongoing process
of democratization observed in many parts of the world is likely to reduce exchange rate distortions.
Keywords:TP_Wettbewerbsfaehigkeit_Produktion
Research group:Industrial, Innovation and International Economics