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Does democracy drive income in the world, 1500–2000?

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  • Madsen, Jakob B.
  • Raschky, Paul A.
  • Skali, Ahmed

Abstract

Using data for political regimes, income and human capital for a sample of 141 countries over the periods 1820–2000 and 1500–2000, this research examines the income and growth effects of democracy when human capital, among other key variables, is controlled for. Linguistic distance-weighted foreign democracy is used as an instrument for domestic democracy. Democracy is found to be a significant determinant of income and growth and the result is robust to various estimation methods and covariates. We find that a one-standard deviation increase in democracy is associated with a 44–98% increase in per capita income.

Suggested Citation

  • Madsen, Jakob B. & Raschky, Paul A. & Skali, Ahmed, 2015. "Does democracy drive income in the world, 1500–2000?," European Economic Review, Elsevier, vol. 78(C), pages 175-195.
    • Handle: RePEc:eee:eecrev:v:78:y:2015:i:c:p:175-195
    DOI: 10.1016/j.euroecorev.2015.05.005
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    More about this item

    Keywords

    Democracy; Economic growth; Human capital; Long-term economic development;
    All these keywords.

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • H1 - Public Economics - - Structure and Scope of Government
    • P16 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Capitalist Institutions; Welfare State
    • P48 - Political Economy and Comparative Economic Systems - - Other Economic Systems - - - Legal Institutions; Property Rights; Natural Resources; Energy; Environment; Regional Studies

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