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Democracy, Development, and Distribution What we know, what we do not, and how we learn? 5000 4000 0 0 1000 2000 3000 lowess level year 3000 2000 1000 lowess gdpcap_world year 4000 5000 Development in the long run 1500 1600 1700 1800 year 1900 2000 1500 1600 1700 1800 year 1900 2000 1000000 500000 lowess popm_gcm year 30000 20000 0 10000 lowess popm_gcm year 40000 1500000 Population in the long run 1500 1600 1700 1800 year 1900 2000 1500 1600 1700 1800 year 1900 2000 .7 .6 .5 .4 lowess legelec year .8 .9 Elected legislatures in the long run 1800 1850 1900 year 1950 2000 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 .6 .4 .2 Pr(dem) .8 1 Development and Democracy 0 10000 20000 gdpcap 30000 40000 0.1 0.0 -0.1 -0.2 Estimated transition probability 0.2 Development and Transitions to Democracy 0 5000 10000 Lagged GDP/cap 15000 0.05 0.0 -0.05 TDA 0.10 0.15 Development and Survival of Democracy 0 1000 2000 3000 GDP.cap 4000 5000 6000 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. 3.5 3 2.5 2 lowess yg gdpcap 4 4.5 For example, at different income levels 0 5000 10000 15000 gdpcap 20000 25000 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 0.57** -0.26 0.33 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. 14 12 4 6 8 10 lowess qratio gdpcap 10 8 6 4 lowess qratio gdpcap 12 14 Q5/Q1 by regime and gdp/cap 0 10000 20000 30000 gdpcap 40000 0 10000 20000 30000 gdpcap 40000 Selection corrected differences Dictatorship Democracy Difference N 93 238 Observed 10.50 9.19 Match Heckman 2 11.27 1.31 3.84 10.75 0.52 Heckman 1 -1.38 2SLS -1.25 2 0 -2 lowess yg qratio 4 6 Inequality and Development 0 10 20 qratio 30 40 10 8 6 lowess qratio gdpcap 12 But development and inequality 0 10000 20000 gdpcap 30000 40000 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 1 0.8 0.6 0.4 0.2 0 10 20 y 30 40 50 Value of democracy 1 0.8 0.6 0.4 0.2 0 10 20 y 30 40 50 Why democracies survive in wealthy societies? 1 0.8 0.6 0.4 0.2 0 10 20 y 30 40 50 The role of inequality 1 0.8 0.6 0.4 0.2 0 5 10 15y 20 25 30