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Income and Democracy

  • Daron Acemoglu
  • Simon Johnson
  • James A. Robinson
  • Pierre Yared

Existing studies establish a strong cross-country correlation between income and democracy but do not control for factors that simultaneously affect both variables. We show that controlling for such factors by including country fixed effects removes the statistical association between income per capita and various measures of democracy. We present instrumental-variables estimates that also show no causal effect of income on democracy. The cross-country correlation between income and democracy reflects a positive correlation between changes in income and democracy over the past 500 years. This pattern is consistent with the idea that societies embarked on divergent political-economic development paths at certain critical junctures.

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/aer.98.3.808
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File URL: http://www.aeaweb.org/aer/data/june08/20050219_data.zip
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Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 98 (2008)
Issue (Month): 3 (June)
Pages: 808-42

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Handle: RePEc:aea:aecrev:v:98:y:2008:i:3:p:808-42
Note: DOI: 10.1257/aer.98.3.808
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  1. Kraay, Aart & Ventura, Jaume, 1998. "Comparative advantage and the cross-section of business cycles," Policy Research Working Paper Series 1948, The World Bank.
  2. Daron Acemoglu & Simon Johnson & James Robinson, 2002. "The Rise of Europe: Atlantic Trade, Institutional Change and Economic Growth," NBER Working Papers 9378, National Bureau of Economic Research, Inc.
  3. Papaioannou, Elias & Siourounis, Gregorios, 2008. "Economic and social factors driving the third wave of democratization," Journal of Comparative Economics, Elsevier, vol. 36(3), pages 365-387, September.
  4. David H. Romer & Jeffrey A. Frankel, 1999. "Does Trade Cause Growth?," American Economic Review, American Economic Association, vol. 89(3), pages 379-399, June.
  5. Marianne Baxter, 1995. "International Trade and Business Cycles," NBER Working Papers 5025, National Bureau of Economic Research, Inc.
  6. M Arellano & O Bover, 1990. "Another Look at the Instrumental Variable Estimation of Error-Components Models," CEP Discussion Papers dp0007, Centre for Economic Performance, LSE.
  7. Acemoglu, Daron & Ventura, Jaume, 2001. "The World Income Distribution," CEPR Discussion Papers 2973, C.E.P.R. Discussion Papers.
  8. J. A. Hausman, 1976. "Specification Tests in Econometrics," Working papers 185, Massachusetts Institute of Technology (MIT), Department of Economics.
  9. Baxter, Marianne, 1995. "International trade and business cycles," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 35, pages 1801-1864 Elsevier.
  10. Daron Acemoglu & Simon Johnson & James Robinson, 2004. "Institutions As The Fundamental Cause Of Long-Run Growth," DOCUMENTOS CEDE 002889, UNIVERSIDAD DE LOS ANDES-CEDE.
  11. Daron Acemoglu & Simon Johnson & James A. Robinson, 2000. "The Colonial Origins of Comparative Development: An Empirical Investigation," NBER Working Papers 7771, National Bureau of Economic Research, Inc.
  12. Dani Rodrik, 1999. "Democracies Pay Higher Wages," The Quarterly Journal of Economics, Oxford University Press, vol. 114(3), pages 707-738.
  13. Ricardo Hausmann & Lant Pritchett & Dani Rodrik, 2005. "Growth Accelerations," Journal of Economic Growth, Springer, vol. 10(4), pages 303-329, December.
  14. Robert J. Barro, 1996. "Determinants of Economic Growth: A Cross-Country Empirical Study," NBER Working Papers 5698, National Bureau of Economic Research, Inc.
  15. Robert J. Barro, 1999. "Determinants of Democracy," Journal of Political Economy, University of Chicago Press, vol. 107(S6), pages S158-S183, December.
  16. Daron Acemoglu & Simon Johnson & James A. Robinson, 2001. "Reversal of Fortune: Geography and Institutions in the Making of the Modern World Income Distribution," NBER Working Papers 8460, National Bureau of Economic Research, Inc.
  17. Marianne Bertrand & Esther Duflo & Sendhil Mullainathan, 2002. "How Much Should We Trust Differences-in-Differences Estimates?," NBER Working Papers 8841, National Bureau of Economic Research, Inc.
  18. Robert J. Barro & Jong-Wha Lee, 2000. "International Data on Educational Attainment: Updates and Implications," CID Working Papers 42, Center for International Development at Harvard University.
  19. Edward Miguel & Shanker Satyanath & Ernest Sergenti, 2004. "Economic Shocks and Civil Conflict: An Instrumental Variables Approach," Journal of Political Economy, University of Chicago Press, vol. 112(4), pages 725-753, August.
  20. Daron Acemoglu & Simon Johnson & James A. Robinson & Pierre Yared, 2005. "From Education to Democracy?," American Economic Review, American Economic Association, vol. 95(2), pages 44-49, May.
  21. Anderson, T. W. & Hsiao, Cheng, 1982. "Formulation and estimation of dynamic models using panel data," Journal of Econometrics, Elsevier, vol. 18(1), pages 47-82, January.
  22. Moulton, Brent R., 1986. "Random group effects and the precision of regression estimates," Journal of Econometrics, Elsevier, vol. 32(3), pages 385-397, August.
  23. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Oxford University Press, vol. 58(2), pages 277-297.
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