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Sequencing institutional development: The modernization hypothesis reconsidered

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  • Murphy, Ryan H.
  • O'Reilly, Colin

Abstract

The modernization hypothesis and the question of sequencing institutional development remain important for economic development, the economics of transition, and interpreting economic history. This paper applies panel vector autoregression to test whether other institutional structures precede the adoption of democracy, making use of a recently developed method of measuring historical state capacity for a large number of countries. The evidence suggests that neither strong states nor market institutions are necessary for democratization, contradicting one of the main claims of modernization theory. Relatively little evidence is found in favor of the importance of sequencing overall. Improving the quality of state institutions tends to precede liberalized economic institutions.

Suggested Citation

  • Murphy, Ryan H. & O'Reilly, Colin, 2026. "Sequencing institutional development: The modernization hypothesis reconsidered," Journal of Comparative Economics, Elsevier, vol. 54(3), pages 846-868.
    • Handle: RePEc:eee:jcecon:v:54:y:2026:i:3:p:846-868
    DOI: 10.1016/j.jce.2026.05.002
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    JEL classification:

    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
    • P00 - Political Economy and Comparative Economic Systems - - General - - - General
    • 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
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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