Democracy, Development, and Distribution

What we know, what we do not, and how we learn?

Development in the long run

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Population in the long run

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Elected legislatures in the long run

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Plan

• Development and democracy

• Political regimes and development

• Inequality, political regimes, and development

• What to teach?

Dynamics of Political Regimes, 1950-2000

• Development and Democracy (Lipset 1959)

• Transitions to Democracy

• Survival of Democracy

Development and Democracy

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Development and Transitions to Democracy

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Lagged GDP/cap

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Development and Survival of Democracy

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Conclusion

• The reason there are democracies in the developed countries is that they never die at high income levels, not that transitions to democracy become more likely with development.

Democracy and Development

• Rate of growth of per capita income = Rate of growth of total income – Rate of growth of population.

• Political regimes do not affect the rate of growth of total income (GDP).

• Surprisingly, population growth is higher in dictatorships, because of higher fertility per woman.

• As a result, per capita income grows higher under democracy.

Observed averages

Dictatorships Democracies

Growth of total output

4.27 3.68

Growth of population

2.42 1.35

Growth of per capita output

1.85 2.33

Methodological Issues

• Development = Regimes, Observed Conditions + Unobserved Conditions

• Problem: Distinguish the effect of regimes (generally institutions) from the effect of observed and unobserved conditions.

• Different ways of doing it may generate different results.

For example, at different income levels

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Estimated differences

YG POPG G

Observed 0.59 1.03*** -0.48

Match 0.44 0.37*** 0.07

Heckman 2 0.59 0.48*** 0.11

Heckman 1 0.32 0.59*** -0.27

2SLS 0.33 0.57** -0.26

Conclusions

• Regimes do not make difference for economic growth but for population growth.

• Do not conclude that political institutions do not matter.

• Topic of intense research.

Which institutions?

• Protect property rights

• Coordinate investment

• Make rulers accountable to citizens

• Other?

Inequality

• Income distribution is very stable over long periods.

• Major redistributions of assets are very rare and result from cataclysmic events.

• Measured on individual/household basis, inequality declined in the world in the past 20 years, because of China and India.

• But two-thirds of countries became more unequal.

Q5/Q1 by regime and gdp/cap

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Selection corrected differences

Dictatorship Democracy Difference

N 93 238

Observed 10.50 9.19 1.31

Match 3.84

Heckman 2 11.27 10.75 0.52

Heckman 1 -1.38

2SLS -1.25

Inequality and Development

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But development and inequality

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Conclusion

• We cannot tell what causes what.

• Moreover, the data are very bad.

• As important as inequality is, studying its causes and effects is hard.

What we do not know?

• What makes political institutions change.

• What kinds of institutions, if any, affect development.

• What is the impact of inequality on development and democracy and of development on inequality.

What to teach?

• How to learn.

• Basic knowledge: philosophy, history.

• Basic tools: models, statistics.

Why?

• Philosophy: Questions, ideas, concepts that survived the test of time.

• History: Broaden perspectives, put each case in context.

• Models: Clarify arguments; be sure they are consistent.

• Statistics: Do the models explain reality?

Marginal value of income

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Value of democracy

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Why democracies survive in wealthy societies?

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The role of inequality

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