NCPA - National Center for Policy Analysis

Income and Democracy

April 6, 2011

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, say researchers Jess Benhabib, Alejandro Corvalan and Mark M. Spiegel.

  • 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 inherent difference among countries (fixed effects).
  • This raises the possibility that the correlation in the data reflects a third causal characteristic, such as institutional quality.

In their paper, Benhabib, Corvalan and Spiegel reexamine the robustness of the income-democracy relationship.

  • They extend the research on this topic in two dimensions: first, they make use of newer income data, which allows for the construction of larger samples with more within-country observations.
  • Second, they 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.
  • Their results show that when one uses both the new income data available and a properly nonlinear estimator, a statistically significant positive income-democracy relationship is robust to the inclusion of country fixed effects.

Source: Jess Benhabib, Alejandro Corvalan and Mark M. Spiegel, "Reestablishing the Income-Democracy Nexus," National Bureau of Economic Research, February 2011.

For text:

http://www.nber.org/papers/w16832

For study:

http://www.nber.org/papers/w16832.pdf

 

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