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Kiel Institute for World Economics Kiel Working Papers, Kiel Institute for World Economics

No 1410:
A Farewell to Critical Junctures: Sorting Out Long-run Causality of Income and Democracy

Erich Gundlach and Martin Paldam

Abstract: We consider the empirical relevance of two opposing hypotheses on the causality between income and democracy: The Democratic Transition claims that rising incomes cause a transi¬tion to democracy, whereas the Critical Junctures hypothesis denies this causal relation. Our empirical strategy is justified by Unified Growth Theory, which hypothe¬sizes that the present international income differences have roots in the prehistoric past. Thus, we use prehistoric measures of biogeography as instruments for modern income levels, and find a large long-run causal effect of income on the degree of democracy. This result rejects the Critical Junctures hypothesis, which is an important part of the Primacy of Institutions view

Keywords: Long-run growth, Democracy, Unified growth theory, biogeography; (follow links to similar papers)

JEL-Codes: B25,; O1; (follow links to similar papers)

26 pages, March 2008

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