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Income and Democracy

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

We revisit one of the central empirical findings of the political economy literature that higher income per capita causes democracy. Existing studies establish a strong cross-country correlation between income and democracy, but do not typically 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 also present instrumental-variables estimates using two different strategies. These estimates also show no causal effect of income on democracy. Furthermore, we reconcile the positive cross-country correlation between income and democracy with the absence of a causal effect of income on democracy by showing that the long-run evolution of income and democracy is related to historical factors. Consistent with this, the positive correlation between income and democracy disappears, even without fixed effects, when we control for the historical determinants of economic and political development in a sample of former European colonies.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 5273.

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Date of creation: Oct 2005
Date of revision:
Handle: RePEc:cpr:ceprdp:5273
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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 A. Robinson & Pierre Yared, 2005. "From Education to Democracy?," NBER Working Papers 11204, National Bureau of Economic Research, Inc.
  3. David H. Romer & Jeffrey A. Frankel, 1999. "Does Trade Cause Growth?," American Economic Review, American Economic Association, vol. 89(3), pages 379-399, June.
  4. Robert J. Barro, 1999. "Determinants of Democracy," Journal of Political Economy, University of Chicago Press, vol. 107(S6), pages S158-S183, December.
  5. Acemoglu, Daron & Johnson, Simon & Robinson, James A, 2003. "The Rise of Europe: Atlantic Trade, Institutional Change and Economic Growth," CEPR Discussion Papers 3712, C.E.P.R. Discussion Papers.
  6. Baxter, M., 1994. "International Trade and Business Cycles," RCER Working Papers 390, University of Rochester - Center for Economic Research (RCER).
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  8. Robert J. Barro & Jong-Wha Lee, 2000. "International Data on Educational Attainment Updates and Implications," NBER Working Papers 7911, National Bureau of Economic Research, Inc.
  9. Moulton, Brent R., 1986. "Random group effects and the precision of regression estimates," Journal of Econometrics, Elsevier, vol. 32(3), pages 385-397, August.
  10. Ricardo Hausmann & Lant Pritchett & Dani Rodrik, 2004. "Growth Accelerations," NBER Working Papers 10566, National Bureau of Economic Research, Inc.
  11. Acemoglu, Daron & Johnson, Simon & Robinson, James A, 2004. "Institutions as the Fundamental Cause of Long-Run Growth," CEPR Discussion Papers 4458, C.E.P.R. Discussion Papers.
  12. repec:oup:restud:v:58:y:1991:i:2:p:277-97 is not listed on IDEAS
  13. Daron Acemoglu & Simon Johnson & James A. Robinson, 2001. "The Colonial Origins of Comparative Development: An Empirical Investigation," American Economic Review, American Economic Association, vol. 91(5), pages 1369-1401, December.
  14. Papaioannou, Elias & Siourounis, Gregorios, 2008. "Economic and Social Factors Driving the Third Wave of Democratization," CEPR Discussion Papers 6986, C.E.P.R. Discussion Papers.
  15. Robert J. Barro, 1998. "Determinants of Economic Growth: A Cross-Country Empirical Study," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262522543, June.
  16. 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.
  17. repec:oup:qjecon:v:117:y:2002:i:4:p:1231-1294 is not listed on IDEAS
  18. 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.
  19. repec:oup:qjecon:v:117:y:2002:i:2:p:659-694 is not listed on IDEAS
  20. Hausman, Jerry, 2015. "Specification tests in econometrics," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 38(2), pages 112-134.
  21. repec:oup:qjecon:v:114:y:1999:i:3:p:707-738 is not listed on IDEAS
  22. 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.
  23. 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.
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