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The Democratic Transition. A study of the causality between income and the Gastil democracy index


  • Erich Gundlach
  • Martin Paldam

    () (School of Economics and Management, University of Aarhus, Denmark)


The paper considers the transformation of the political system as countries pass through the Grand Transition from a poor developing country to a wealthy developed country. In the process most countries change from an authoritarian to a democratic political system. This is shown by using the Gastil democracy index from Freedom House. First, the basic pattern of correlations reveals that a good deal of the short- to medium-run causality appears to be from democracy to income. Then a set of extreme biogeographic instruments is used to demonstrate that the long-run causality is from income to democracy. The long-run result survives various robustness tests. We show how the Grand Transition view resolves the seeming contradiction between the long-run and the short- to medium-run effects.

Suggested Citation

  • Erich Gundlach & Martin Paldam, 2008. "The Democratic Transition. A study of the causality between income and the Gastil democracy index," Economics Working Papers 2008-15, Department of Economics and Business Economics, Aarhus University.
  • Handle: RePEc:aah:aarhec:2008-15

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    References listed on IDEAS

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    Cited by:

    1. Gundlach, Erich & Paldam, Martin, 2009. "The transition of corruption: From poverty to honesty," Economics Letters, Elsevier, vol. 103(3), pages 146-148, June.
    2. Gundlach, Erich & Paldam, Martin, 2009. "A farewell to critical junctures: Sorting out long-run causality of income and democracy," European Journal of Political Economy, Elsevier, vol. 25(3), pages 340-354, September.

    More about this item


    Paths of development; democracy; biogeography;

    JEL classification:

    • B25 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Historical; Institutional; Evolutionary; Austrian; Stockholm School
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development

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