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American Economic Review: Vol. 98 No. 3 (June 2008)

AER Volume. 98, Issue 3 | Previous ArticleNext Article

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Income and Democracy

Article Citation

Acemoglu, Daron, Simon Johnson, James A. Robinson, and Pierre Yared. 2008. "Income and Democracy." American Economic Review, 98(3): 808-42.

DOI: 10.1257/aer.98.3.808

Abstract

Existing studies establish a strong cross-country correlation between income and democracy but do not 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 present instrumental-variables estimates that also show no causal effect of income on democracy. The cross-country correlation between income and democracy reflects a positive correlation between changes in income and democracy over the past 500 years. This pattern is consistent with the idea that societies embarked on divergent political-economic development paths at certain critical junctures.

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Authors

Acemoglu, Daron (MIT)
Johnson, Simon (MIT and International Monetary Fund)
Robinson, James A. (Harvard U)
Yared, Pierre (Columbia U)

JEL Classifications

D72: Models of Political Processes: Rent-seeking, Elections, Legislatures, and Voting Behavior
O47: Measurement of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence