The effect of income on democracy revisited : a flexible distributional approach

We reexamine the effect of economic development on the level of democracy based on the data sets of Acemoglu et al. (2008) with a novel regression specification utilizing a zero-one-inflated beta distribution for the response variable democracy. The zero-one-inflated beta distribution is more appropriate for continuous but bounded responses with non-zero probabilities for the boundaries of the support than the other frequently used distributions such as the normal. Contrary to the results of Acemoglu et al. (2008), some support of causality is found particularly when explaining the variance of the democracy variables. Since our analysis highlights that the distribution of democracy is bimodal, we approximate the modes using two separate samples of OECD and non-OECD countries. Our results indicate that there are differences not only in the mean but also in other features of the response distribution between the two groups. For instance, higher incomes are associated with higher democracy levels in the OECD sub-sample, however for non-OECD the association is insignificant.