WORKING PAPER: Reestablishing the Income-Democracy Nexus

...[T]he bulk of the evidence favors of a statistical relationship between income and democratization.

Fighting words from DRI Affiliated Faculty Jess Benhabib and co-authors Alejandro Corvalan and Mark Spiegel, who use new data to overturn previous studies (Acemoglu, et al (2001), Easterly and Levine (2003), Rodrik et al (2004)) that showed good democratic institutions cause economic growth, not the other way around.

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.

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