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A farewell to critical junctures: Sorting out long-run causality of income and democracy

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  • Gundlach, Erich
  • Paldam, Martin

Abstract

We consider the empirical relevance of two opposing hypotheses on the causality between income and democracy: The Democratic Transition hypothesis claims that rising incomes cause a transition to democracy, whereas the Critical Junctures hypothesis denies this causal relation. Our empirical strategy is motivated by Unified Growth Theory, which hypothesizes that the present international income differences have roots in the prehistoric past. Thus, we use prehistoric measures of biogeography as instruments for modern income levels, and find a large long-run causal effect of income on the degree of democracy. This result rejects the Critical Junctures hypothesis, which is an important part of the Primacy of Institutions view.

Suggested Citation

  • Gundlach, Erich & Paldam, Martin, 2008. "A farewell to critical junctures: Sorting out long-run causality of income and democracy," Kiel Working Papers 1410, Kiel Institute for the World Economy (IfW Kiel).
  • Handle: RePEc:zbw:ifwkwp:1410
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    More about this item

    Keywords

    Democracy; Unified growth theory; Biogeography; Long-run growth;
    All these keywords.

    JEL classification:

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

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