A Farewell to Critical Junctures: Sorting Out Long-Run Causality of Income and Democracy

University of Aarhus Economics Working Paper No. 2008-4

27 Pages Posted: 6 Jun 2008  

Martin Paldam

University of Aarhus - Department of Economics

Erich Gundlach

University of Hamburg

Abstract

We consider the empirical relevance of two opposing hypotheses on the causality between income and democracy: The Democratic Transition claims that rising incomes cause a transition to democracy, whereas the Critical Junctures hypothesis denies this causal relation. Our empirical strategy is justified 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.

Keywords: Long-run growth, democracy, unified growth theory, biogeography

JEL Classification: B25, O1

Suggested Citation

Paldam, Martin and Gundlach, Erich, A Farewell to Critical Junctures: Sorting Out Long-Run Causality of Income and Democracy. Available at SSRN: https://ssrn.com/abstract=1141715 or http://dx.doi.org/10.2139/ssrn.1141715

Martin Paldam (Contact Author)

University of Aarhus - Department of Economics ( email )

Universitetsparken
Building 350
DK-8000 Aarhus C
Denmark
+45 8942 1133 (Phone)
+45 8613 6334 (Fax)

Erich Gundlach

University of Hamburg ( email )

Department of Economics
Von-Melle-Park 5
Hamburg, 20146
Germany
+49 40 428384589 (Phone)

HOME PAGE: http://www.erichgundlach.de

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