A Lecture on Democracy and Development

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A Lecture on

Democracy and Development

Masayuki Kudamatsu

IIES, Stockholm University

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1 Motivations

• # of democracies: ↑ recently (Fig.1)

• Development assistance

practitioners: often advocate democracy as a means to good governance

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Two perspectives to politics

• Accountability

– Conﬂict of interest

between govt & citizens

• Representation

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Accountability Perspective

to Democracy

• Democracy: regularized leadership contest

• Citizens can replace incompetent leaders w/ potentially better ones

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Representation Perspective

to Democracy:

Acemoglu model

• Firm managers and Workers

• Firm managers prefer

– Low tax rate

– Entry barrier to keep wages low

• Workers prefer

– High tax rate for redistribution

– No entry barrier to push up wages

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• Autocracy: Firm managers decide

policies

• Democracy: Workers decide policies

• Autocracy 1. Tax: low

2. Entry barrier: high

3. Short-run growth: high 4. Long-run growth: low

• Democracy 1. Tax: high

2. Entry barrier: low

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Four Sets of Facts

1. Rich countries today: more democratic (Fig.2)

• This could be either due to (a) Democracy ⇒ Development (b) Development ⇒ Democracy

(c) 3rd Factor ⇒

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2. No correlation between changes in income and changes in democracy

• 1975-1990 (Fig.3)

• 1900-2000 (Fig.4)

3. Positive correlation in the very long run: 1500-2000 (Fig.5)

• This could be either due to (a) Very long-run effect of

democracy on development (b) Very long-run effect of

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4. More volatile economic growth in autocracy than in democracy

• Performance varies a lot more for autocracy (Fig.6)

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Taking Stock

• Representation perspective may be correct

⇒ What makes democracy durable?

• Accountability perspective is wrong?

1. Deﬁne democracy wrongly? 2. Look at wrong outcome?

3. Data aggregation makes analysis difficult?

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• How about

1. Focus on leadership competition 2. Look at health?

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3 Impact of

Democratization in

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Motivations

• 1990s: Many African countries

introduced multiparty elections for presidency/parliament

• In some cases, the dictator won elections.

• In other cases, a new person becomes president/PM (Fig.7)

• Infant mortality: highest in Africa

over time (Fig.8)

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Research Method

• Use individual-level data on infant mortality

– Cross-country surveys of women

– When they gave birth

– Whether their children died

– If so, when?

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Causality rather than

correlation?

• An individual mother: unlikely to cause democratization

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Findings

• Infant mortality drops by 1.2% pt

• Larger drop for uneducated mothers

• No change if dictator won multiparty elections

• No change if dictator replaced in non-democratic ways

• Maternal health care provision improved

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4 A Model of

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Basic Ideas

• Heterogeneity of autocracies

• Selectorate: group of citizens with right to select leader

• Accountability & representation

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Two-period Model

Players

• 2 groups of citizens (A,B) & dictator • Period 1 dictator: group A

Actions

• Each period: dictator decides

whether to implement good policy or bad policy

• Between periods 1 & 2: Group A (selectorate) decides whether to retain or oust the dictator

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Information

• Dictator: either good or bad

• Citizens do not initially know whether dictator is good or bad

• What they know: dictator is good with prob. π

Preference

• Good dictator: prefers good policy in both periods

• Bad dictator’s payo_ff:

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Group A Group B Dictator Dictator Good Policy (_∆ + σ, _∆) (_∆, _∆ + σ) Bad Policy (σ, 0) (0, σ)

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Timing

1. Period 1 Dictator decides whether to implement good or bad policy 2. Group A decides whether to retain

or oust Period 1 Dictator

3. • If retained, Period 1 dictator becomes Period 2 dictator

• If ousted, Period 2 dictator is

– from Group A with prob. γ

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Analysis

• Period 2

– Good dictator implements good policy

– Bad dictator implements bad policy

• Period 1: after dictator (from Group A) chooses good policy

– This implies ﬁrst two of the following three cases

1. good

2. bad with R1 < R2

3. bad with R1 > R2

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– Group A expects period 2 payo_ff to be

∗ if retain: σ

∗ if oust:

· π_∆ + σ w/ prob. γ

· π_∆ w/ prob. 1 − γ

⇒ Group A ousts dictator if σ < π_∆ + γσ or

(1 − γ)σ < π_∆

• Period 1 bad dictator with R1 < R2

implements

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Implications

• Bad dictator: disciplined if

(1 − γ)σ < π_∆

• which means:

– γ: high

– σ: smaller than _∆

• Applicable cases: China since 1976, Brazil in the late 60s and early 70s, Thailand in the 60s, Portugal until mid 70s

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5 Conclusions

• Causality vs Correlation

• Leadership competition is key for

democracy to bite

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Academic Papers This

Lecture Draws From:

• Acemoglu (2008) for subsection “Representation Perspective to

Democracy: Acemoglu Model” in Section 2.

• Acemoglu, Johnson, Robinson, and Yared (2007) and Jones and Olken (2005) for subsection “Four Sets of Facts” in Section 2.

• Kudamatsu (2008) for Section 3.

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Sources of Figures

• Figure 1: Figure 1.1 from Besley (2006).

• Figures 2-5: Figures 1, 2, 4, and 5 from Acemoglu, Johnson, Robinson, and Yared (2007).

• Figure 6: Figure 1 from Besley and Kudamatsu (2007).

• Figure 7: Created for this lecture based on Kudamatsu (2008).

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Bibliography

• Acemoglu, Daron (2008) “Oligarchic

versus Democratic Societies,” Journal of the European Economic Association, 6(1), pp. 1-44.

• Acemoglu, Daron, Simon Johnson, James A. Robinson, and Pierre Yared (2007) “Income and Democracy,” American Economic Review, 98(3), pp. 808-842.

• Besley, Timothy (2006) Principled Agents? The Political Economy of Good

Government, Oxford University Press.

• Besley, Timothy, and Masayuki

Kudamatsu (2007) “Making Autocracy Work”, CEPR Discussion Paper, no. 6371, available at

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Micro Data,” Unpublished paper. Available at

http://www.iies.su.se/ masa/imr200808.pdf

• Jones, Benjamin F., and Benjamin A. Olken (2005) “Do Leaders Matter?

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1950 1960 1970 1980 1990 2000

Year

Figure 1: Democracies in the world, 1950-2003

Source: POLITY IV

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Economic Growth Rate

Democracy Autocracy

Figure 6: Economic Growth

Distributions among Democracies and Autocracies

Sources: Penn World Table 6.2 and POLITY IV (version 2004)

Notes: Plotted are the density functions estimated by using the Gaussian kernel and the bandwidth that minimizes the mean integrated squared error (the kdensity command in STATA with the

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1990: Comoros

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1992: Mali

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1994: Malawi and South Africa

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2000: Ghana

Figure 7 (continued): Democratization in the Sample Countries over Time

Notes_{: Grey-colored countries are the sample countries; Black-colored democratized.}

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Middle East & North Africa South Asia

East Asia & Pacific

Latin America & Caribbean