Income and Democracy?

64 Pages Posted: 26 Feb 2005

See all articles by Daron Acemoglu

Daron Acemoglu

Massachusetts Institute of Technology (MIT) - Department of Economics; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Simon Johnson

Massachusetts Institute of Technology (MIT) - Entrepreneurship Center; National Bureau of Economic Research (NBER)

James A. Robinson

Harvard University - Department of Government; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Pierre Yared

Columbia Business School - Finance and Economics

Date Written: February 2005

Abstract

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.

Keywords: democracy, economic growth, institutions, political development

JEL Classification: P16, O10

Suggested Citation

Acemoglu, Daron and Johnson, Simon and Robinson, James A. and Yared, Pierre, Income and Democracy? (February 2005). MIT Department of Economics Working Paper No. 05-05. Available at SSRN: https://ssrn.com/abstract=675066 or http://dx.doi.org/10.2139/ssrn.675066

Daron Acemoglu (Contact Author)

Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

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Simon Johnson

Massachusetts Institute of Technology (MIT) - Entrepreneurship Center ( email )

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National Bureau of Economic Research (NBER)

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James A. Robinson

Harvard University - Department of Government ( email )

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Centre for Economic Policy Research (CEPR) ( email )

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United Kingdom

National Bureau of Economic Research (NBER) ( email )

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Pierre Yared

Columbia Business School - Finance and Economics ( email )

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New York, NY 10027
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