Recent Political Change in Myanmar and Its Impact on her Economic Growth

• Date: 01 March 2018
• DOI: http://doi.org/10.1111/asej.12141
• Author: Khin Nwe,Yuichiro Yoshida,Keisuke Kawata
• Published date: 01 March 2018

Recent Political Change in Myanmar and Its

Impact on her Economic Growth

Khin Nwe, Keisuke Kawata and Yuichiro Yoshida

Received 27 December 2016; Accepted 27 December 2017

The present study estimates the causal effect of a process of political change,

namely, a recent constitutional referendum, on economic growth in Myanmar. To

analyze the impact of this process, this study compares the trajectories of actual

and counterfactual GDP per capita after the referendum using the synthetic control

method. We calculate the counterfactual GDP per capita using country-level panel

data from 2002 to 2013, with Myanmar as the treated country and a set of devel-

oping countries in East and South Asia, the Pacific and sub-Saharan Africa as the

control group. The results of the synthetic analysis suggest that the recent process

of political change in Myanmar had a positive and significant effect on GDP per

capita but not on per capita foreign direct investment or trade.

Keywords: economic growth, Myanmar, political change, synthetic control

method.

JEL classification codes: O47, O53, P26.

doi: 10.1111/asej.12141

I. Introduction

The Republic of the Union of Myanmar, relying on the merits of democracy,

has recently accelerated its political reforms, with the 2008 constitutional refer-

endum being the major example. The existence of cross-countr y heterogeneity

means that the question of what impact democracy has on a country’s economic

growth is controversial. As the effects of democracy are country-specific, the

only way to develop a convincing answer to that question is to collect country-

level evidence across many countries. The aim of this paper is, thus, to contrib-

ute to the literature by quantitatively analyzing the impact of political change in

Myanmar on its economic growth using country-level panel data from 2000 to

2013, with GDP per capita and per capita foreign direct investment (FDI) or

trade considered separately as outcome variables.

Nwe: Department of Economics, Yangon University of Economics, No. 2 Main Road, East Tagon

Township, Yangon, Myanmar. Kawata: Associate Professor, Institute of Social Science, the University

of Tokyo, 7-3-1Hongo, Bunkyo-ku, Tokyo, Japan, 113-0033. Email: keisukekawata@iss.u-tokyo.ac.jp.

Yoshida (corresponding author):Graduate School for InternationalDevelopment and Cooperation, Hiro-

shima University, 1-5-1, Kagamiyama, Higashihiroshima, Hiroshima-ken, Japan. Email: yuichiro@hir-

oshima-u.ac.jp. This workwas partly supported by TheSumitomo Foundation (Grantfor Environmental

Research Projects #153421).

© 2018 East Asian Economic Association and John Wiley & Sons Australia, Ltd

Asian Economic Journal 2018, Vol.32 No. 1, 39–54 39

To measure the causal impact of political reform, we use the synthetic control

method (SCM) developed by Abadie and Gardeazabal (2003), which is recog-

nized as the strongest option for analyzing issues in the area of comparative pol-

itics and economics (Abadie, 2015). We synthetically generate a counterfactual

trend in GDP per capita for Myanmar using data from the countries in a control

group; namely, East and South Asian, Pacific and sub-Saharan African (SSA)

developing countries, as suggested by the literature.

1

Subsequently, the actual

outcome (i.e. with political change) and the counterfactual outcome (without

political change) of the country are compared to measure the causal impact. The

analysis finds that the 2008 constitutional referendum had a positive and signifi-

cant impact on GDP per capita in Myanmar. The results also show that there is

no evidence on per capita FDI or trade in Myanmar.

Over the past two decades, Myanmar has had two types of political systems,

military government and parliamentary democracy. Prior to the installation of

the military government that would eventually evolve into a parliamentary

democracy, the country was ruled by a socialist government. From 1962 to

1988, Myanmar was governed by the Burma Socialist Programme Party

(BSPP). Under this socialist regime, Myanmar (then known as Burma) was

autarchic. However, starting in the late 1980s, Myanmar’s economy began to

encounter serious problems, including inflation. In August 1988, the continued

economic problems due to increasing rice prices and the demonetization of the

currency led to nationwide anti-government riots (Kubo, 2013), which resulted

in the collapse of the BSPP later that year. In September 1988, a military gov-

ernment took power under the name of the State Law and Order Restoration

Council (SLORC) following the aforementioned political unrest. Although

multi-party elections were held in 1990, the SLORC did not transfer power to

the National League for Democracy (NLD), the opposition party, which had

won the election. In 1997, the name of the government was changed from the

SLORC to the State Peace and Development Council (SPDC).

It was not until this century that Myanmar experienced unexpected political

reform from military government to parliamentary democracy. The beginning of

the political reform process was rather sudden. In August 2003, the SPDC pro-

mulgated the ‘Roadmap to Democracy’, a draft for political reform (Kyaw,

2012). After announcing the Roadmap, the regime convened within the National

Convention (NC) between 2004 and 2007 to develop a new constitution. In

September 2007, anti-government activities occurred, such as Buddhist monks

leading demonstrations (referred to as the Saffron Revolution). In 2007, the

SPDC faced external pressures, such as the combined effect of Western sanc-

tions and criticism from the international community, which led to the develop-

ment of the country’s political system. On 9 February 2008, to overcome the

1 Abadie and Gardeazabal (2003) and Abadie, Diamond, and Hainmueller (2010, 2015) suggest

using variables from a broader range of comparison units rather than a single unit to construct con-

trol groups to compare the characteristics of the treated unit.

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