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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