Economic development and democracy: evidence

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Markets and democracy

Does economic development encourage democratisation in transition countries? The literature suggests at least four reasons why average per capita income might influence a country’s propensity to democratise.

• At higher average income levels, high-income voters will be more willing to accept the redistributional consequences of democracy, especially if the costs of repression are considered excessive.
• Development is generally correlated with lower levels of inequality, at least in the long term.¹
• Development is linked to a shift in the nature of wealth ‒ that is to say, from fixed assets, such as land, to mobile capital.
• Higher per capita income is associated with education and secularisation, with educated citizens being more likely to demand political participation and to embrace democratic beliefs.

Table 2.1 presents the results of a simple regression of the level of democracy on economic development for a global sample over the period from 1800 to 2000. It looks at the impact of economic growth on the development of democracy with lags of 5, 10 and 25 years. This shows that GDP per capita has a strong positive impact on the emergence of democracy globally. Levels of democracy will be higher today for countries that were richer 5, 10 or 25 years ago (see the three left-hand columns of the table).

Unsurprisingly, the relationship between economic growth and democracy does not hold true in the countries that make up today’s transition region, many of which were part of non-democratic states or empires for much of their recent history – the Habsburg, Ottoman and Russian empires prior to the First World War, and then the Soviet Union or one of its satellites in eastern Europe.

During these periods many countries in the transition region experienced rapid development led by industrialisation, but remained undemocratic. Consequently, the rest of this analysis focuses on the period between 1989 and 2012 to examine the relationship between economic development and political regime outcomes in the post-communist period.

Table 2.2 shows the results of a panel regression that is analogous to that of Table 2.1, except that it also includes measures of natural resource endowments (as a share of GDP) and income inequality (measured by the Gini coefficient). These are variables that should, based on the preceding analysis, influence the propensity to democratise for a given level of per capita income.

As in Table 2.1, the regression considers the relationship between democracy in year t and lagged GDP per capita (as well as income inequality and natural resources). Because of the shorter length of the sample, the lag length is always five years.²

Three variants of the dependent and lagged dependent variable are considered: first, the level of democracy as expressed by the Polity index (as in Table 2.1); second, the highest Polity score over the preceding five years (Max5Polity), which effectively restricts the analysis to cases where there has been an increase in democracy; and lastly, the minimum score over the previous five years (Min5Polity), which restricts the analysis to cases where there has been a decline in democracy.

The rationale for analysing these variants in addition to the Polity index at time t is that the effect of some of the explanatory variables may not be the same when it comes to promoting or delaying democratic improvements and when it comes to defending or undermining a level of democracy that already exists.

Table 2.2 shows that, when controlling for the type of political regime in place five years previously, for natural resources, and for inequality, the probability of a country becoming more democratic depends strongly on lagged GDP per capita (see columns 1 to 6). The coefficient estimated is larger for the transition region than for the rest of the world, and statistically significantly larger than zero in all specifications except model 1. The effect of lagged GDP growth appears to be larger as regards inducing democratic improvements ‒ columns 3 and 4 ‒ than it is when it comes to protecting countries from democratic reversals ‒ columns 5 and 6.

1. See Atkinson et al. (2009), Davies and Shorrocks (2000) and Morrisson (2000). [back]
2. For each country, the dependent variable in the first observation in the sample is the 1995 democracy score, while the lagged dependent and independent variables correspond to 1990; the second observation is the 2000 democracy score, while the lagged dependent and independent variables correspond to 1995, and so on.[back]

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