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THE RELATIONSHIP BETWEEN ECONOMIC DEVELOPMENT 
AND DEMOCRATIZATION 

 
 

Dr. Mei-Ling Chang 
Department of Economics, Chinese Culture University. 

 
Abstract: The study of democratization is a central topic in comparative politics, particularly 
regarding the likelihood of rich dictatorships transitioning to democracies compared to poor 
dictatorships. This debate revolves around two main approaches: the "modernization hypothesis," 
which suggests that economic development drives democratization, and the "critical junctures 
hypothesis," which posits that a variety of historical factors, rather than income alone, determine 
political trajectories. This paper delves into these contrasting perspectives to analyze the complex 
relationship between wealth and democracy in different nations. 
Keywords: Democratization, Modernization Hypothesis,Critical Junctures Hypothesis, 
Dictatorship 
Economic Development 
  
I. Introduction   
The study of democratization lies at the heart of contemporary comparative politics. One of the most 
heated debates focuses on if rich dictatorships are more likely than poor dictatorships to collapse and 
be replaced by democracies. As indicated by Acemoglu et al. (2008), two distinct approaches have been 
applied to this problem in empirical social science. The first approach is based on the “modernization 
hypothesis” proposed by Lipset (1959). In his view, economic development and related activities, such 
as education, industrialization, and urbanization, stimulate democracy. If a dictatorship becomes as 
rich as the economically advanced nations, then it is highly probable that it will transition to a 
democracy. At this point, democracy is itself endogenous, since it results from development under 
authoritarianism.  
The second approach, which is referred to as the “critical junctures hypothesis” by Acemoglu et al. 
(2005, 2007, and 2008), and exemplified by Moore (1966), considers that a dictatorship may tumble 
for many different reasons, because development, with all its modernizing consequences, plays no 
privileged role. Even though income and democracy are positively correlated, there is no evidence to 
suggest that income has a significant causal effect on democratization. Instead, it is the combination of 
many omitted, most probably historical, factors that shapes the divergent political and economic 
development paths of various countries, leading to the positive association between income and 
democracy.  
Since there are only two types of regimes - democracy and autocracy - one emerges when the other one 
dies. The question would be essentially the same regardless of whether democracy emerges because of 
economic development or autocracy dies as a country becomes more developed. Thus, this article will 

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couch the discussion in terms of the breakdown of autocracy. In particular, based on the duration of a 
country’s autocratic episode(s), it aims to justify which hypothesis is a more likely explanation of the 
relationship between autocratic breakdown and income. Based on the preliminary investigation, the 
evidence appears to show that the probability of any given dictatorship becoming democratic almost 
does not change when its income grows. However, if income does not cause democracy, then what does? 
The evidence indicates that the failure of autocracy is mostly due to the accumulated negative effects of 
rotten dictatorship over time. Besides, this kind of effect is exogenous to economic development. This 
result provides some supports to the argument that the emergence of democracy is exogenous to 
income. 
The remainder of this paper proceeds as follows. Section II discusses the relevant literature and 
presents the propositions to be tested. Section III describes the data. Sections IV presents the 
relationship between democratization and income. Finally, Section V concludes the article. 
II. Democratization and Economic Development 
A. Modernization Hypothesis.  This line of argument proposes that better economic performance 
drives institutional change. The seminal study is Seymour Martin Lipset’s (1959) modernization 
hypothesis. In his view, economic development and increasing prosperity stimulate democracy. Not 
only development but also variables closely associated with it, such as the levels of educational 
attainment and urbanization, can facilitate the transition to democracy. This argument emphasizes that 
once a poor dictatorship becomes as rich as the economically advanced nations, it is highly probable 
that it will transit to democracy. Thus, poor authoritarian countries will become democratic when they 
reach a certain level of income threshold. Basically, this hypothesis emphasizes that there is a causal 
effect of income on democratization. Democracy is itself endogenous, since it results from development 
under authoritarianism. Examples of these studies include Londregan and Poole (1996), Barro (1999), 
Boix and Stokes (2003), and Epstein et al. (2006).  
The fact underlying this hypothesis is that, as autocratic countries develop, the social structure becomes 
complex, production processes begin to require the active cooperation of employees, and individuals 
turn out to be more assertive. New groups, such as labor unions and the middle class, correspondingly 
emerge and become crucial in determining the choice of political regime. Simultaneously, education 
also becomes more widespread, technological change endows the society with more autonomy and 
information, and finally civil society materializes. At this point, the old political system can no longer 
be effectively controlled by a dictatorship. Various groups rise against the dictatorial regime, and this 
inevitably marks the end of the dictatorship. The modernization hypothesis thus suggests that 
democracies are more likely to emerge as countries develop economically.   
B. Critical Junctures Hypothesis.  The second approach, which is referred to as the “critical 
junctures hypothesis” by Acemoglu et al. (2005, 2007, and 2008), is proposed by Moore (1966) and 
regards the breakdown of autocracy as being caused by many different factors, but that economic 
development, with all its modernizing consequences, plays no privileged role. For instance, some 
countries democratized because of wars (Weber, 1950; Therborn, 1977), some because of the 
organization of agriculture and the intensities of feudal legacies (Moore, 1966), some because of the 
death of a founding dictator (Londregan and Poole, 1996; Przeworski and Limongi, 1997), some because 
of foreign pressures (Przeworski and Limongi, 1997), and some former colonial countries because of 

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settler mortality and latitude (Acemoglu et al., 2001). At this point, the dictatorships are equally likely 
to die and democracies to emerge at any level of development. The democratic transition or dictatorial 
breakdown is exogenous to economic development rather than endogenous.  
However, on the other hand, it is a stylized fact that democracy is highly correlated with economic 
development. How, then, can this hypothesis explain the fact that there are more democracies among 
wealthy countries than among poor ones? An interesting rationalization is provided by Przeworski et 
al. (2000) (hereafter referred to as PACL), who claim that the development or an increase in income is 
not a causal factor in the process of democratization. By contrast, the positive association between 
income and democracy results from the reduced likelihood of democracy sliding back into autocracy 
once a country has “randomly” become democratic. They take Lipset at his own word - “the more well-
to-do a nation, the greater the chances it will sustain democracy.” Even if the transition to democracy 
(autocratic breakdown) is exogenous and independent of the level of income, the probability that such 
a democratic regime will survive is greater if it has been established in a rich country. One will thus 
observe the fact that democracies appear randomly with regard to levels of income, but they die in the 
poorer countries and survive in the wealthier ones. “History gradually accumulates wealthy 
democracies, since every time a dictatorship happens to die in an affluent country, democracy is there 
to stay. This is therefore no longer a modernization theory, since the emergence of democracy is not 
brought about by development. Rather, democracy appears exogenously as a deus ex machina. It 
survives if a country is modern, but it is not a product of modernization (PACL 1997, p. 159).” They 
thus assert that their findings represent the “exogenous” theory of regime change.   
As indicated by Epstein et al. (2006), the finding of PACL has been treated as received wisdom by the 
literature. However, it requires two hypotheses to be proved correct. The first one is that a democratic 
country is increasingly likely to stick with democracy as its per capita income grows. The second one is 
that a dictatorship is not more likely to die as the economy grows. Boix and Stokes (2003) graphically 
illustrate these two hypotheses in Figure 1, which depicts per capita income on the horizontal axis and 
the probability of regime transition on the vertical axis. Statistically, Figure 1 indicates that the 
probability of a democratic breakdown is negatively correlated with income and that the probability of 
an autocratic breakdown is independent of the level of economic development. In one the status quo is 
democracy; in the other the status quo is dictatorship.  
In the former case, the literature has widely recognized the fact that income growth indeed increases 
the stability of a democracy, but it has strong doubts about the latter (Boix and Stokes 2003; Epstein et 
al. 2006).   
In actual fact, Figure 1 is consistent with the stylized fact that the probability of democratic breakdown 
in a country with an income of over $7,000 is “zero”, compared with 12.5% of that in a country with an 
income of under $1,000 (PACL, p. 161). Besides, the literature also shows that a positive rate of 
economic growth promotes a stable democracy. For instance, Haggard and Kaufman (1995) report that 
in a collection of 462 country-year observations of positive economic growth between 1960 and 1990, 
democracies survive 97% of the time. Economic growth thus has a beneficial effect on the survival of an 
already-existing democracy by reducing the frustrations and conflicts resulting from inequality or other 
social cleavages. However, when the status quo is dictatorship, the proposition of PACL that autocratic 
regimes do not transition to democracy as incomes rise has been vigorously challenged in the literature. 

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For instance, Boix (2002) and Boix and Stokes (2003) argue that PACL’s findings are subject to both 
sample selection and omitted variable biases. The correct causal relation should be that economic 
development increases the likelihood of autocratic breakdown. Epstein et al. (2006) also point out that 
the findings of PACL are incorrect in the classification of political systems.  
C. Purpose of This Article.  Since the first proposition of PACL that democracy survives in affluent 
countries has been widely accepted by the literature, it does not need any specific confirmation. This 
following thus instead explains that a dictatorial regime is not more likely to experience a transition to 
democracy as it reaches higher levels of income per capita.  
III. Relationship between Democratization and Income  
A. Relationship between Income and Democratization Might be Nonlinear  
There might exist a critical threshold such that some level of development is a prerequisite for a 
transition to democracy. In the early stage of development, an increase in income tends to strengthen 
dictatorship because the dictator may make use of his good economic performance to consolidate his 
power and more easily rule the country by providing more basic needs to the people. Provisionally, the 
dictator may benefit from the short-run effect of growth by keeping himself in power. The growth of 
income can ensure that the authoritarian regime proceeds successfully, and thus the dictatorship can 
survive its tumultuous youth. However, on the other hand, the dictatorship will sow the seeds of its own 
dissolution. Once the society has already achieved a moderate level of living, each increment in the level 
of the economy may raise the odds of autocratic breakdown. As indicated by Pennar et al. (1993), this 
is because continually rising incomes make democracy become a luxury good. A betterfed population 
tends to demand political freedom and civil rights and hence further increases in income impair an 
autocratic regime in the long-run. The interaction of the long-run and short-run effects of development 
on democracy thus results in a nonlinear relationship between these two variables.  
B. Positive Duration Dependence - Accumulated Effects of Rotten Dictatorship.  
There are various factors may affect the hazard rate for each dictatorship, and more importantly, there 
exists a positive duration dependence between democratization and the time span of autocracy. This 
means that the hazard of dictatorial breakdown is upward-sloping over time. For a particular 
dictatorship, the instantaneous rate of being overthrown increases with the duration of the dictatorship. 
This result implies that the transition to democracy is deeply affected by historically persistent 
weaknesses of dictatorship. 
The numerous weaknesses of centralization under authoritarian rule, such as a tendency toward 
absolute corruption, a distorted distribution of wealth, and a limited capacity of the center to handle 
problems in the periphery of society, will be accumulated over time as the regime’s burden and hence 
will stimulate a surge of demands on the part of previously quiescent and perhaps even actively 
repressed groups. While the dictators can repress their opponents in the short-run, such discontent 
from below would grow and finally culminate in a tremendously destabilizing factor in the long run. 
One could reasonably expect that the longer the autocracy has lasted, the more likely it is that it will 
end. The core insight is that institutional effects unfold over time, sometimes a great deal of time, and 
that these temporal effects are cumulative (Gerring et al., 2005). It is the accumulated negative effects 
of these historically rotten legacies that ought to be of central concern if one wishes to understand the 

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duration of an autocratic regime as well as its causal effect on a variety of current outcomes – political, 
or economic.  
C. Autocracy Breakdown May Depend upon Previous History. 
Regimes do not begin again de novo each year. Today’s regime transition depends upon yesterday’s 
history. Dictatorship constructs deep legacies, spanning several decades, perhaps even centuries. One 
has to look backwards and even forwards in time to understand the path of democratization of a 
country. In particular, the result of positive duration dependence means that one has to investigate the 
democratization through the accumulated effects of rotten dictatorship, rather than through the level 
of development at a particular moment in time. More importantly, this article emphasizes that this kind 
of time-dependent duration is exogenous to economic development. It is this exogenous duration that 
has a major impact on autocratic breakdown, but not economic development or income level. PACL 
emphasize that modernization or an increase in income is not a causal factor in the process of 
democratization.   
Solely depending on a causal relationship between income and democratization might therefore 
wrongly attribute to development what may have been just a culmination of random hazards during the 
“time” of the economic development. As a matter of fact, the dictatorship most likely democratized due 
to the deaths of the dictators, international pressures from the US, or even geopolitical reasons, and not 
purely because of economic development (Oyang and Ma, 2011). At this point, even if economic 
development is significant in explaining the duration of autocracy, its causal power in bringing 
dictatorships down may be less than the one that modernization hypothesis claims.    
V. Conclusion   
This article uses duration data to investigate whether or not economic development is the main factor 
in determining democratization. The result obtained supports the argument that democratization is 
exogenous. Rich countries tend to be more democratic than poor ones is not by itself enough to resolve 
the relationship between income and democratization. This is because democracy can be initiated by 
any exogenous events at any levels of development.    
Where does one go from here? I believe that the direction for future research is to investigate the kinds 
of exogenous events that can contribute to the failures of dictatorships. As indicated by Londregan and 
Poole (1996), most of these variables fall within the realm of countries’ historical backgrounds and 
political cultures. However, on the other hand, not only are they difficult to measure, but they are also 
sufficiently collinear with income to have produced the appearance that democracy is an entailment of 
a high level of economic development. To address this issue, I believe that the one should go in the 
direction of discriminating against those factors that bring about the divergent historical/political and 
economic development paths of various countries. This might be done by adopting a strategy of analytic 
induction based on a case study method that takes successive individual histories into account. I am 
not sure what the final conclusion is. However, I firmly believe that any theory that fails to take into 
account the exogeneity of democratization may lead to biased inferences regarding the causal 
relationship between development and democratization. 

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American Research Journal of Economics, Finance and Management 

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