The impact of income on democracy revisited

This paper revisits the important issue of whether economic development promotes democracy by using the system-GMM method, which is superior to the difference-GMM method when dependent variables (democracy in this paper) are highly persistent over time. With the same data set as that of Acemoglu et al. (2008), we find that the system-GMM estimated coefficient of income per capita is positive and highly statistically significant, in sharp contrast to the difference-GMM results reported by Acemoglu et al. (2008). Furthermore, employing the US and Colombia as an example, we find that much of the difference in democracy across countries can be explained by the corresponding difference in income per capita.

► This paper revisits the important issue of whether economic development promotes democracy. ► We use system-GMM method, which is superior to the difference-GMM when the dependent variable (democracy) is highly persistent over time. ► We find that income per capita has a positive and significant effect on democracy. ► The difference in democracy across countries can be explained by the corresponding difference in income per capita.