The Democratic Transition: Short-run and Long-run Causality between Income and the Gastil Index

This article considers the transformation of the political system as countries pass through the Grand Transition from being a poor developing country to a wealthy developed country. In the process, most countries change from an authoritarian to a democratic political system, as measured by the Gastil index from Freedom House. The basic pattern of correlations reveals that a good deal of the short-to-medium-run causality appears to be from democracy to income. However, the long-run causality is from income to democracy, as shown by instrumenting income with a set of extreme measures of biogeography. The long-run result survives various robustness tests. The article explains how the Grand Transition view resolves the seeming contradiction between the long-run and the short-to-medium-run effects.