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Reestablishing the Income-Democracy Nexus

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  • Jess Benhabib
  • Alejandro Corvalan
  • Mark M. Spiegel

Abstract

A number of recent empirical studies have cast doubt on the “modernization theory” of democratization, which posits that increases in income are conducive to increases in democracy levels. This doubt stems mainly from the fact that while a strong positive correlation exists between income and democracy levels, the relationship disappears when one controls for country fixed effects. This raises the possibility that the correlation in the data reflects a third causal characteristic, such as institutional quality. In this paper, we reexamine the robustness of the income-democracy relationship. We extend the research on this topic in two dimensions: first, we make use of newer income data, which allows for the construction of larger samples with more within-country observations. Second, we concentrate on panel estimation methods that explicitly allow for the fact that the primary measures of democracy are censored with substantial mass at the boundaries, or binary censored variables. Our results show that when one uses both the new income data available and a properly non linear estimator, a statistically significant positive income-democracy relationship is robust to the inclusion of country fixed effects.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 16832.

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Date of creation: Feb 2011
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Handle: RePEc:nbr:nberwo:16832

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  1. Hahn, Jinyong & Kuersteiner, Guido, 2011. "Bias Reduction For Dynamic Nonlinear Panel Models With Fixed Effects," Econometric Theory, Cambridge University Press, vol. 27(06), pages 1152-1191, December.
  2. Simon Johnson & William Larson & Chris Papageorgiou & Arvind Subramanian, 2009. "Is Newer Better? Penn World Table Revisions and Their Impact on Growth Estimates," NBER Working Papers 15455, National Bureau of Economic Research, Inc.
  3. 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.
  4. Ivan Fernandez-Val, 2007. "Fixed Effects Estimation of Structural Parameters and Marginal Effects in Panel Probit Models," Boston University - Department of Economics - Working Papers Series WP2007-009, Boston University - Department of Economics.
  5. Honore, Bo E., 1993. "Orthogonality conditions for Tobit models with fixed effects and lagged dependent variables," Journal of Econometrics, Elsevier, vol. 59(1-2), pages 35-61, September.
  6. Daron Acemoglu & Simon Johnson & James A. Robinson & Pierre Yared, 2005. "From Education to Democracy?," NBER Working Papers 11204, National Bureau of Economic Research, Inc.
  7. Bobba, Matteo & Coviello, Decio, 2007. "Weak instruments and weak identification, in estimating the effects of education, on democracy," Economics Letters, Elsevier, vol. 96(3), pages 301-306, September.
  8. Acemoglu, Daron & Johnson, Simon & Robinson, James A & Yared, Pierre, 2007. "Reevaluating the Modernization Hypothesis," CEPR Discussion Papers 6430, C.E.P.R. Discussion Papers.
  9. José Cheibub & Jennifer Gandhi & James Vreeland, 2010. "Democracy and dictatorship revisited," Public Choice, Springer, vol. 143(1), pages 67-101, April.
  10. Castelló-Climent, Amparo, 2008. "On the distribution of education and democracy," Journal of Development Economics, Elsevier, vol. 87(2), pages 179-190, October.
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