Income, democracy and European colonization

Abstract

The Modernization Hypothesis states that economic development drives democracy within countries. Until recently, this view was widely accepted by scholars, with cross-country regressions indicating that higher per capita incomes are indeed associated with higher levels of democracy. However, recent empirical work has shown that the positive effect of per capita income on democracy disappears with the inclusion of country fixed effects. Moreover, a heterogeneous effect of income on democracy has been found for countries that were colonized relative to those that were not. This article revisits the issue by examining whether the identity of the colonizer matters. Results reveal a negative association between income and democracy for former British colonies. The formation of the Commonwealth of Nations together with Dependency Theory is used to explain this finding.

Keywords:

• income
• democracy
• heterogeneous effects
• Dependency Theory

JEL Classification:

• P16
• O10

Notes

¹ Due to small sample size and a lack of variation in the data, the results in the columns using 10-year averages must be interpreted with caution.