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Income and Democracy: Revisiting the Evidence

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Listed author(s):
  • Enrique Moral-Benito
  • Cristian Bartolucci

Abstract

It is well-known in the literature that income per capita is strongly correlated with the level of democracy across countries. In an influential paper, Acemoglu et al. (2008) find that this linear correlation disappears once they control for country-specific effects focusing on within-country variation. In this paper we find evidence of a non-linear effect from income to democracy even after controlling for country-specific effects. While a positive effect emerges for poor countries, this effect vanishes for rich countries.

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Paper provided by Collegio Carlo Alberto in its series Carlo Alberto Notebooks with number 204.

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Length: 20 pages
Date of creation: 2011
Handle: RePEc:cca:wpaper:204
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Keywords: Democracy; Income; Lipset hypothesis; panel data;

Other versions of this item:

Find related papers by JEL classification:
  • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
  • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
  • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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  1. Alok Bhargava & J. D. Sargan, 2006. "Estimating Dynamic Random Effects Models From Panel Data Covering Short Time Periods," World Scientific Book Chapters,in: Econometrics, Statistics And Computational Approaches In Food And Health Sciences, chapter 1, pages 3-27 World Scientific Publishing Co. Pte. Ltd..
  2. Zak, Paul J. & Feng, Yi, 2003. "A dynamic theory of the transition to democracy," Journal of Economic Behavior & Organization, Elsevier, vol. 52(1), pages 1-25, September.
  3. Robert J. Barro, 2013. "Inflation and Economic Growth," Annals of Economics and Finance, Society for AEF, vol. 14(1), pages 121-144, May.
  4. 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.
  5. Daron Acemoglu & Simon Johnson & James A. Robinson & Pierre Yared, 2008. "Income and Democracy," American Economic Review, American Economic Association, vol. 98(3), pages 808-842, June.
  6. Heid, Benedikt & Langer, Julian & Larch, Mario, 2012. "Income and democracy: Evidence from system GMM estimates," Economics Letters, Elsevier, vol. 116(2), pages 166-169.
  7. Johnson, Simon & Larson, William & Papageorgiou, Chris & Subramanian, Arvind, 2013. "Is newer better? Penn World Table Revisions and their impact on growth estimates," Journal of Monetary Economics, Elsevier, vol. 60(2), pages 255-274.
  8. Arellano, Manuel & Bover, Olympia, 1995. "Another look at the instrumental variable estimation of error-components models," Journal of Econometrics, Elsevier, vol. 68(1), pages 29-51, July.
  9. Hillier, Grant H, 1990. "On the Normalization of Structural Equations: Properties of Direct Estimators," Econometrica, Econometric Society, vol. 58(5), pages 1181-1194, September.
  10. Robert J. Barro, 1999. "Determinants of Democracy," Journal of Political Economy, University of Chicago Press, vol. 107(S6), pages 158-183, December.
  11. Enrique Moral-Benito, 2011. "Dynamic panels with predetermined regressors: likelihood-based estimation and Bayesian averaging with an application to cross-country growth," Working Papers 1109, Banco de España;Working Papers Homepage.
  12. 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.
  13. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August.
  14. Jess Benhabib & Alejandro Corvalen & Mark M. Spiegel, 2011. "Reestablishing the income-democracy nexus," Working Paper Series 2011-09, Federal Reserve Bank of San Francisco.
  15. Griliches, Zvi & Hausman, Jerry A., 1986. "Errors in variables in panel data," Journal of Econometrics, Elsevier, vol. 31(1), pages 93-118, February.
  16. 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.
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Cited by:

  1. Fahad Hassan Khan, 2014. "From revenues to democracy?," Departmental Working Papers 2014-25, The Australian National University, Arndt-Corden Department of Economics.
  2. Saha, Shrabani & Zhang, Zhaoyong, 2017. "Democracy-growth nexus and its interaction effect on human development: A cross-national analysis," Economic Modelling, Elsevier, vol. 63(C), pages 304-310.
  3. Benhabib, Jess & Corvalan, Alejandro & Spiegel, Mark M., 2013. "Income and democracy: Evidence from nonlinear estimations," Economics Letters, Elsevier, vol. 118(3), pages 489-492.
  4. Wadjamsse B. Djezou, 2014. "The Democracy and Economic Growth Nexus: Empirical Evidence from Côte d’Ivoire," European Journal of Comparative Economics, Cattaneo University (LIUC), vol. 11(2), pages 251-266, December.
  5. Michal Madr, 2016. "Economic Development as a Factor of Democratisation: Evidence from Post-Socialist Economies," MENDELU Working Papers in Business and Economics 2016-70, Mendel University in Brno, Faculty of Business and Economics.
  6. Heid, Benedikt & Langer, Julian & Larch, Mario, 2012. "Income and democracy: Evidence from system GMM estimates," Economics Letters, Elsevier, vol. 116(2), pages 166-169.
  7. Filipe R. Campante & Davin Chor, 2012. "Why Was the Arab World Poised for Revolution? Schooling, Economic Opportunities, and the Arab Spring," Journal of Economic Perspectives, American Economic Association, vol. 26(2), pages 167-188, Spring.
  8. Benhabib, Jess & Corvalen, Alejandro & Spiegel, Mark M., 2014. "Modernization and discrete measures of democracy," Working Paper Series 2014-1, Federal Reserve Bank of San Francisco.
  9. Matteo Cervellati & Florian Jung & Uwe Sunde & Thomas Vischer, 2014. "Income and Democracy: Comment," American Economic Review, American Economic Association, vol. 104(2), pages 707-719, February.
  10. Kemnitz, Alexander & Roessler, Martin, 2017. "Economic development, democratic institutions, and repression in non-democratic regimes: Theory and evidence," CEPIE Working Papers 04/17, Technische Universität Dresden, Center of Public and International Economics (CEPIE).
  11. Suzanna-Maria Paleologou, 2015. "Income and democracy: the modernization hypothesis re-visited via alternative non-linear models," Empirical Economics, Springer, vol. 48(2), pages 909-921, March.

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