Democracy, Development, and Distribution What we know, what we do not, and how we learn?

Development in the long run

Population in the long run

Elected legislatures in the long run

Plan Development and democracy Political regimes and development Inequality, political regimes, and development What to teach?

Dynamics of Political Regimes, Development and Democracy (Lipset 1959) Transitions to Democracy Survival of Democracy

Development and Democracy

Development and Transitions to Democracy

Development and Survival of Democracy

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 DictatorshipsDemocracies Growth of total output Growth of population Growth of per capita output

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

Estimated differences YGPOPGG Observed ***-0.48 Match ***0.07 Heckman ***0.11 Heckman *** SLS **-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

Selection corrected differences DictatorshipDemocracyDifference N93238 Observed Match3.84 Heckman Heckman SLS-1.25

Inequality and Development

But development and inequality

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

Value of democracy

Why democracies survive in wealthy societies?

The role of inequality