Economic development and democracy: The modernization hypothesis in sub-Saharan Africa

We acknowledge comments received at the brown bag seminars (University of Pretoria), the Economics Society of South Africa Conference in Bloemfontein, the 8th New Frontiers in African Economic History’ Workshop at Lund University, the 15th Global Development Network Conference in Accra, the Annual International Conference of the Research Group on Development Economics in Passau, the 20th Annual International Conference on Macroeconomic Analysis and International Finance in Crete, the African Econometric Society Meeting in Nelspruit, the African Studies Association of Africa Conference in Accra, and funding from Economic Research Southern Africa (ERSA). We also acknowledge comments received from the anonymous reviewers.

Abstract

Previous empirical literature focuses on income per capita as a measure for economic development. Using Lipset's modernization hypothesis as our theoretical framework, we contend that this measure does not capture the fundamental quality of economic development and as such may disadvantage low income regions when conducting empirical analysis. Our initial results using income per capita highlight this, showing a negative relationship between income per capita and democracy for sub-Saharan Africa between 1960 and 2010. However when we create a composite measure for economic development by employing the principle component analysis on the indicators that are suggested by Lipset, we obtain positive and significant results for democracy. This evidence suggests that we need to be wary of income per capita as a measure for economic development as the two are not synonymous. Income per capita may not capture other factors that also encompass development in a country.

JEL classification:

• C38
• O43
• O55

Keywords:

• Economic development
• Democracy
• Sub-Saharan Africa
• Principle component

Notes

We acknowledge comments received at the brown bag seminars (University of Pretoria), the Economics Society of South Africa Conference in Bloemfontein, the 8th New Frontiers in African Economic History’ Workshop at Lund University, the 15th Global Development Network Conference in Accra, the Annual International Conference of the Research Group on Development Economics in Passau, the 20th Annual International Conference on Macroeconomic Analysis and International Finance in Crete, the African Econometric Society Meeting in Nelspruit, the African Studies Association of Africa Conference in Accra, and funding from Economic Research Southern Africa (ERSA). We also acknowledge comments received from the anonymous reviewers.

1 Post-independence literacy rates have improved in the region in line with the Sustainable Development Goals (SDG4 – inclusive and quality education for all). According to the United Nations Educational, Scientific and Cultural Organization (UNESCO) Institute for Statistics, between 2000 and 2012, the percentage of children not in school among primary school children has declined from 40% to 22% in sub-Saharan Africa (http://www.un.org/sustainabledevelopment/wp-content/uploads/2017/02/ENGLISH_Why_it_Matters_Goal_4_QualityEducation.pdf).

2 Sample of countries: Angola, Benin, Botswana, Burkina Faso, Burundi, Cameroon, Cape Verde, Central African Republic, Chad, Comoros, Congo (Democratic Republic), Congo (Republic), Cote d’Ivoire, Djibouti, Equatorial Guinea, Eritrea, Ethiopia, Gabon, Gambia, Ghana, Guinea, Guinea Bissau, Kenya, Lesotho, Liberia, Madagascar, Malawi, Mali, Mauritania, Mauritius, Mozambique, Namibia, Niger, Nigeria, Rwanda, Senegal, Sierra Leone, Somalia, South Africa, Sudan, Swaziland, Tanzania, Togo, Uganda, Zambia, Zimbabwe.

3 Other papers that rescale democracy indices include Acemoglu et al. (2008), Barro (1999) and Murtin (2013).

4 See Papaioannou and Siourounis (2008b) for the country classification of democracy.

5 According to Pinkovskiy and Sala-i-Martin (2016), the Penn World Table (PWT) version 7.1 chain-based GDP series outperforms the constant-price series in the more recent PWT versions.

6 More empirical support for democracy causing economic growth can be found in Barro (1996), Bates et al. (2013) and Papaioannou and Siourounis (2008b).

7 Results for the scree test validate the use of the first principle component. The other three components fall below the break and are therefore assumed to explain an insignificant proportion of our variables in relation to the first component. The results are available on request.

8 Other robustness checks we undertake include substituting Penn World income per capita with World Bank income per capita, replacing primary enrollment rates with secondary enrollment rates, urbanization with telephone lines per 100 people, and carbon dioxide emissions with the share of industry as a percentage of GDP. All variables are taken from the World Development Indicators. The economic interpretation of the generated composite measures remain consistent, although we lose significance in some of the regressions. Results are available on request.