Working Paper: NBER ID: w16832
Authors: Jess Benhabib; Alejandro Corvalan; Mark M. Spiegel
Abstract: A number of recent empirical studies have cast doubt on the "modernization theory" of democratization, which posits that increases in income are conducive to increases in democracy levels. This doubt stems mainly from the fact that while a strong positive correlation exists between income and democracy levels, the relationship disappears when one controls for country fixed effects. This raises the possibility that the correlation in the data reflects a third causal characteristic, such as institutional quality. In this paper, we reexamine the robustness of the income-democracy relationship. We extend the research on this topic in two dimensions: first, we make use of newer income data, which allows for the construction of larger samples with more within-country observations. Second, we concentrate on panel estimation methods that explicitly allow for the fact that the primary measures of democracy are censored with substantial mass at the boundaries, or binary censored variables. Our results show that when one uses both the new income data available and a properly non linear estimator, a statistically significant positive income-democracy relationship is robust to the inclusion of country fixed effects.
Keywords: No keywords provided
JEL Codes: O10; P16
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| higher lagged income levels (J31) | democracy scores (D72) |
| two standard deviation increase in lagged income (E25) | predicted increase in democracy scores (D79) |
| income (E25) | democracy (D72) |
| income and democracy relationship disappears (D31) | when accounting for country fixed effects (C23) |
| nonlinear Tobit and Wooldridge estimators (C24) | robust causal claims (C32) |