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Income and Democracy

64 Pages Posted: 20 Apr 2005 Last revised: 15 Aug 2010

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

Multiple version iconThere are 2 versions of this paper

Date Written: March 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 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.

Suggested Citation

Acemoglu, Daron and Johnson, Simon and Robinson, James A. and Yared, Pierre, Income and Democracy (March 2005). NBER Working Paper No. w11205. Available at SSRN: https://ssrn.com/abstract=689386

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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National Bureau of Economic Research (NBER) ( email )

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Cambridge, MA 02138
United States

Pierre Yared

Columbia Business School - Finance and Economics ( email )

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New York, NY 10027
United States

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