This paper revisits and critically re-evaluates the widely-accepted modernization hypothesis which claims that per capita income causes the creation and the consolidation of democracy. We argue that existing studies find support for this hypothesis because they fail to control for the presence of omitted variables. There are many underlying historical factors that affect both the level of income per capita and the likelihood of democracy in a country, and failing to control for these factors may introduce a spurious relationship between income and democracy. We show that controlling for these historical factors by including fixed country effects removes the correlation between income and democracy, as well as the correlation between income and the likelihood of transitions to and from democratic regimes. We argue that this evidence is consistent with another well-established approach in political science, which emphasizes how events during critical historical junctures can lead to divergent political-economic development paths, some leading to prosperity and democracy, others to relative poverty and non-democracy. We present evidence in favor of this interpretation by documenting that the fixed effects we estimate in the post-war sample are strongly associated with historical variables that have previously been used to explain diverging development paths within the former colonial world.
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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number
6430.
Find related papers by JEL classification: O10 - Economic Development, Technological Change, and Growth - - Economic Development - - - General P16 - Economic Systems - - Capitalist Systems - - - Political Economy of Capitalism
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Daron Acemoglu & Simon Johnson & James Robinson & Pierre Yared, 2005.
"Income and Democracy,"
NBER Working Papers
11205, National Bureau of Economic Research, Inc.
[Downloadable!] (restricted)
Other versions:
Acemoglu, Daron & Johnson, Simon & Robinson, James A & Yared, Pierre, 2005.
"Income and Democracy,"
CEPR Discussion Papers
5273, C.E.P.R. Discussion Papers.
[Downloadable!] (restricted)
Daron Acemoglu & Simon Johnson & James A. Robinson & Pierre Yared, 2008.
"Income and Democracy,"
American Economic Review,
American Economic Association, vol. 98(3), pages 808-42, June.
[Downloadable!]
Green, Donald P. & Kim, Soo Yeon H. & Yoon, David, 2001.
"Dirty Pool,"
International Organization,
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[Downloadable!]
Donald P. Green & Soo Yeon Kim & David H. Yoon, 2001.
"Dirty Pool,"
International Organization,
MIT Press, vol. 55(2), pages 441-468, June.
[Downloadable!] (restricted)
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