Reestablishing the Income-Democracy Nexus

31 Pages Posted: 28 Feb 2011 Last revised: 30 Jun 2023

See all articles by Jess Benhabib

Jess Benhabib

New York University - Leonard N. Stern School of Business - Department of Economics; National Bureau of Economic Research (NBER)

Alejandro Corvalan

Universidad Diego Portales - Facultad de Economía y Empresa; New York University (NYU) - Faculty of Arts and Science

Mark M. Spiegel

Federal Reserve Bank of San Francisco - Economic Research Department

Date Written: February 2011

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.

Suggested Citation

Benhabib, Jess and Corvalan, Alejandro and Spiegel, Mark M., Reestablishing the Income-Democracy Nexus (February 2011). NBER Working Paper No. w16832, Available at SSRN: https://ssrn.com/abstract=1770385

Jess Benhabib (Contact Author)

New York University - Leonard N. Stern School of Business - Department of Economics ( email )

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Alejandro Corvalan

Universidad Diego Portales - Facultad de Economía y Empresa ( email )

Manuel Rodriguez Sur 253
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Chile

New York University (NYU) - Faculty of Arts and Science ( email )

New York, NY
United States

Mark M. Spiegel

Federal Reserve Bank of San Francisco - Economic Research Department ( email )

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United States
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