The Democratic Transition 1870-2000 - OECD

The Democratic Transition

1870-2000*

Fabrice Murtin – Romain Wacziarg

OECD – UCLA, NBER and CEPR

March 2010

PRELIMINARY AND INCOMPLETE – PLEASE DO NOT QUOTE

* Murtin acknowledges financial support from the Mellon Foundation when he was hosted by the Stanford Centre for the Study of Poverty and Inequality. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors and do not necessarily represent the views of the OECD.

1 Introduction In its “Bill for the more general diffusion of knowledge” (1779), Thomas Jefferson

envisioned that education would be a cornerstone of democracy, as he argued that “the

most effectual means of preventing [tyranny] would be, to illuminate, as far as

practicable, the minds of people at large, and more especially to give them knowledge of

those facts, which history exhibiteth, that, possessed thereby of the experience of other

ages and countries, they may be enabled to know ambition under all its shapes, and

prompt to exert their natural powers to defeat its purposes”. This vision has been largely

shared by other observers throughout history. For instance, Tocqueville (1835) noted that

the vigor of democracy in the United States was resting partly on mass education, which

was already a leading country in terms of educational attainment at the time (see Lindert

(2006) and Morrisson-Murtin (2009)). He argued that “the education of the people

powerfully contributes to the maintenance of the democratic republic. That will always

be so, in my view, wherever education to enlighten the mind is not separated from that

responsible for teaching morality”1.

Is there any robust empirical foundation to the argument developed by Jefferson,

Tocqueville and others? Is the later argument specific to the United States or does it

describe a general experience shared by other countries? Can the expansion of education

be seen as a trigger of the democratic transition, and what is the magnitude of its potential

effect, if any? Is the direction of causality from education to democracy unidirectional or

is there a mutually beneficial relationship between the two?

1 Volume 1 chapter 9, “The main causes that tend to maintain a democratic republic in the United States”.

This paper focuses on the two-way relationship between education and democracy using

a large panel of countries starting in 1870. On a first step, it addresses the link from

economic development to democracy, while concentrating on two dimensions of socio-

economic standards, namely GDP per capita and average years of schooling among the

adult population. On a second stage, the paper looks at the potential effect of democracy

upon child education as measured by average years of schooling completed by young

cohorts.

The issues raised by this paper relate to a large and controversial literature on the dual

relationship between economic development and democracy, which can be organized as

follows. A first body of literature investigates the relationship from economic

development to democracy. Continuing a stream of idea that goes back in time as far as

Aristotle, Lipset (1959) argued in a seminal article that improvements in economic

standards would ultimately lead to democratization, or, quote, that “the more well-to-do a

nation, the greater the chances that it will sustain democracy”. Lipset’s “modernization

hypothesis” has then received empirical support from Barro (1999), who isolated among

other variables GDP per capita and primary schooling as positive determinants of

democracy in a large sample of countries spanning from 1960 to 1995. However, in a

series of studies Acemoglu et al. (2005, 2007, 2008) have revisited and contradicted the

empirical significance of the later two major determinants of democracy. Once country

fixed-effects are accounted for, GDP per capita is no longer a significant determinant of

democracy. More recently, Bobba and Coviello (2007) as well as Castello-Climent (2008)

have re-examined the evidence. The former isolated a significant effect of GDP per capita

while using a SYS-GMM estimator, while the later found a significant effect of education

attained by the majority of population, even after controlling for fixed-effects.

Conversely, a second strand of literature has looked at the consequences of

democratization on economic performance, and in particular, on the expansion of

schooling. Generally speaking, democratization entails mixed economic outcomes. For

instance, Barro (1997) finds a nonlinear effect of democracy on growth, with an initial

increase in growth and a negative relation once some modest level of democracy has been

reached. Tavares and Wacziarg (2001) assess a positive effect of democracy on human

capital accumulation and a negative one on physical capital accumulation, while Rodrick

and Wacziarg (2005) find a positive short-term effect of democratization on the flow of

investments and a decrease in growth volatility. More specifically related to education,

Lindert (2004) documents how the extension of the franchise in rising European

democracies has gradually led to the introduction of public funding for education over the

XIXth and XXth centuries. In contrast, Murtin and Viarengo (2010) do not find any

effect of democracy on the amount of compulsory years of schooling in Western

European countries after 1950.

Adopting a larger perspective, the two-way relationship between education and

democracy is at the core of an important debate on the ultimate sources of economic

prosperity. Does education help raising the quality of institutions as well as productivity,

or is an efficient institutional framework a pre-requisite condition for the blooming of

education and economic growth in general? The direction of causality between education

and democracy has ignited a debate between the advocates of institutions as the prime

engine of growth (Acemoglu and Robinson (2000), Acemoglu et al. (2001, 2002, 2005)),

and the tenants of the opposite thesis that views human capital as the origin of economic

development (Glaeser et al. (2004, 2007), Glaeser-Campante (2009)). Deciphering the

respective effects of democracy and education upon each other would therefore shed

some light on this larger and crucial debate.

The contributions of this paper are threefold. Firstly, taking stock of Morrisson and

Murtin (2009) data set on educational attainment in 74 countries since 1870, the paper

finds strong empirical support for the modernization hypothesis over the XXth century. It

shows that primary schooling, rather than GDP per capita, has been the major trigger of

global democratization over that period. Then, the paper addresses the reverse causality

issue and finds no robust evidence of the effect of democracy upon child education.

Next section describes the empirical facts related to democracy and development over the

XXth century. Section three tests the Modernization Hypothesis in light of new

educational data, while Section four addresses the reverse causality issue. Last section

concludes.

2 Democracy and Development 1870-2000 The following section describes the sample of countries and takes a bird’s-eye view on

the main structural transformations that have marked global economic history over the

twentieth century. As differences across countries are central to our analysis, we focus on

convergence effects and disentangle three particular periods: 1870-1910, 1910-1960, and

1960-2000. This corresponds roughly to the two globalization periods as well as the

deglobalization period of the interwar period. In practice, the full sample is composed of

seventy countries spanning over all continents, while there are nineteen countries forming

a balanced panel that starts in 1870. Table 1 provides elementary descriptive statistics

that we comment below.

2.1 Democracy Our main measure of democracy is the Polity IV index developed by Marshall and

Jaggers (2004), which is rescalled between 0 (pure autocracy) and 1 (pure democracy).

This index captures consists of six component measures that record key qualities of

executive recruitment, constraints on executive authority, and political competition. It

also records changes in the institutionalized qualities of governing authority. We plot the

world distribution of scores of democracy on Figure 1 (unbalanced panel) and Figure 2

(balanced panel). Boxplots represent the 25th and 75th percentiles as well as the median of

the global distribution. These two Figures illustrate an overall increase in democratic

attainment between 1870 and 1920, followed by a marked decrease until Second World

War. The immediate postwar period witnessed a new rise in democracy that has lasted

until the end of our period in the balanced panel. In the global panel assembling all

observations, democracy has stagnated or even regressed between 1960 and 1980 but has

rised again since then. The world distribution of democracy has widened from 1930

onwards, while at the end of the period, cross-country differences in democracy have

been dramatically reduced.

The later aspect is related to global inequality in democracy: Has democracy converged

across countries over time? The full sample shows that democracy has indeed converged

within any of the three periods described above, and at almost the same pace. Indeed,

when calculated on an annual basis2, the speed of convergence of democracy happens to

be equal to 4.7% over the 1870-1910 period, 3.4% in 1910-1960 and 3.7% in 1960-

2000.3 The first panel of graphs at the top of Figure 3 illustrates those calculations.

How to reconcile convergence in democracy with the increase in cross-country

democracy inequality observed between 1930 and the mid-1980s? Convergence entails

inequality reduction if shocks affecting democracy are stationary over time. But as made

clear by Figure 1 and Table 1, the occurrence of two World Wars and the associated

political turmoil have significantly enlarged the distribution of democracy. Hence, the

distribution of democracy has been framed by a convergence effect, but heteroskedastic,

time-specific, shocks have considerably widened it.

2.2 Income and Schooling

Economic development can be proxied either by the level of GDP per capita or by

average years of schooling among the adult population, the later two variables being

highly correlated across countries and over time. In this study, GDP per capita is taken

from Maddison (2006) while average years of schooling is provided by Morrisson-Murtin

(2009).

There is an extensive literature that describes the global evolution of key aggregate socio-

economic variables across countries over the XXth century, and it is obviously much

2 The annual convergence rate is given by –log(ρ)/T where ρ is the estimated coefficient of initial democracy in an absolute convergence regression, and T is the length of the period over which the difference in democracy is calculated. 3 There are respectively 34, 39 and 59 countries involved in the latter computation. In the balanced panel, the results are almost identical: a convergence process has taken place in the 1910-1960 and 1960-2000 periods at an annual rate of respectively 3.2% and 3.6%. In the first period, convergence occurred but only among a club of advanced democracies.

beyond the scope of this paper to describe and comment these transformations.4 Let us

simply recall a few facts, mirrored by elementary statistics provided by Table 1: in broad

terms, modern economic growth has taken off in Western Europe and offshoots in the

first half of the XIXth century, and has spread to Asia and Latin America in the eve of the

XXth century as well as to Africa after Second World War. In terms of education, the

Western world had the quasi-monopoly of schooling in 1870, but Eastern Europe as well

as some fast-developing Asian countries, most notably Japan, have caught up along the

XXth century. A polarized schooling distribution in 1870 has been transformed in a

substantially heterogeneous distribution in 2000: On top, high-income countries reaching

mass scolarization in primary and secondary schooling with growing enrolment in

tertiary education; in the middle of that distribution, Latin America, the Middle-East and

North-Africa as well as most of developing Asian countries achieving mass scolarization

in primary and partly in secondary school; at the bottom, South Asia and Sub-Saharan

barely achieving mass scolarization in primary schooling.

In terms of differences across countries, economic development does not reflect the

convergence in democracy described above. As well-known, income inequality across

countries has increased throughout the XXth century, except among a convergence club

of relatively high-income countries before First World War and after Second World War.

Similarly, there has not been any convergence in average education at any period, except

among two clubs of advanced countries during the first and second globalization periods.

4 A shortlist of references could include Bourguignon-Morrisson (2002), who describe the world income distribution since 1820. Galor and Weil (1999, 2000) and Galor (2005) analyze the joint variations of income and population over the long run as well as the structural forces that have triggered the Industrial Revolution. O’Roorke and Williamson (1999) and Hatton and Williamson (2005) focus on the effect of globalization on economic performance. Morrisson-Murtin (2008, 2009) describe the spread of education at a global level. Murtin (2009) investigates the determinants of the demographic transition over the XXth century.

These two facts are clearly illustrated by the second and third panels of graphs on Figure

3. As a sum, democracy and economic development do not exhibit any common growth

pattern at any time, as the former has always converged across countries while the latter

has displayed dissimilar time variations across levels of wealth. Next, we examine the

correlation between the two variables in a more quantitative fashion.

2.3 The Joint Distribution of Democracy and Development

Figures 4 presents a kernel estimation of the bivariate distribution of democracy and

average years of schooling within four different sub-periods: 1870-1970, 1920-1940,

1950-2000 and 1980-2000. 5 As similar graph can be obtained with GDP per capita

instead of education, and results are qualitatively identical. Some interesting facts emerge:

at the eve of the twentieth century, the bivariate distribution of democracy and schooling

was clearly bi-modal, splitting rich democracies on one hand from poor autocracies on

the other. Over the next sub-period, a large share of initial autocracies witnessed

economic growth and joined the club of democracies at the same time, ensuring a strong

positive correlation between democracy and income. After 1950, and even most visibly

after 1980, there have been two distinct groups of unequal size, poor autocracies on one

hand and rich democracies on the other. Among the latter, the correlation between

democracy and income has flattened out as countries had already reached high levels of

democracy in 1950 while experiencing continuous economic growth.

5 We have used an Epanchenikov kernel with bandwidth adjusted to the finite sample size.

4 Testing the Modernization Hypothesis

4.1 Democracy and Income In his original framework, Lipset (1959) hypothesized that economic development would

lead to the emergence of democracy. As a convenient starting point, a natural

econometric framework that tests this hypothesis can be written as follows

D(i,t) = a(i) + b(t) + c X(i,t-1) + u(i,t) (1)

where D(i,t) is an index of democracy in country i at time t rescaled between 0 and 1, a(i)

and b(t) are respectively country-specific and time-specific effects, X a variable that

proxies economic development such as log GDP per capita or average education, and u a

residual. We introduce the first lag of this variable in the regression, and as a benchmark,

consider a 10-year time span between subsequent observations.

Alternatively, one may also include the lagged value of the dependent variable inside the

regression. A rationale for this is that the political structure of a country changes slowly

over time, as the introduction or the modification of laws, constitutions and the changes

in political regimes meet resistance. Consequently, the score in democracy is likely to be

a time persistent variable. Classically, autocorrelation in the dependent variable is taken

into account within a dynamic panel model

D(i,t) = a(i) + b(t) + ρ D(i,t-1) + c X(i,t-1) + u(i,t), |ρ|<1 (2)

which can be estimated with GMM methods developed respectively by Arellano-Bond

(1995) (henceforth AB) and Blundell-Bond(1998) (henceforth BB).

In Table 2 we focus on log GDP per capita as an explanatory variable and we disclose the

estimates of (1) and (2) over the whole period as well as over three sub-periods, 1960-

2000, 1930-2000 and 1870-2000, which enable us to gauge the influence of time-specific

sample selection. As regards the choice of countries, we use first the whole sample of

countries, then a sample that excludes countries already at the maximum level of

democracy at initial year, and finally the balanced panel of countries. Thus, Table 2

examines the relationships between democracy and development using a full range of

econometric procedures, time-periods, and country samples.

The overall conclusion is straightforward: among 36 specifications, there are 27 in which

lagged income has a positive and significant sign. Let us now detail the results by type of

sample.

In the first part of Table 2, we use the full sample of countries. Using a fixed-effects

estimator (henceforth FE), lagged income is not significant over the 1960-2000 period as

emphasized by Acemoglu et al. (2008), but is significant in other sub-periods and highly

significant over the whole period. Most likely, a weak instruments problem affects AB

estimates, as none of them is significant. This is the reason why BB techniques have been

introduced in the literature, and BB estimates are all highly significant and identical in

magnitude across all sub-periods. This confirms a result found by Bobba and Coviello

(2007). Moreover, the BB estimation passes all robustness tests even if a limited number

of instruments has been chosen in order to avoid instruments proliferation problems.6

A feature that could explain the non-significance of some estimates in the previous

exercise is sample selection. Countries already at the “democratic frontier” at initial date

are unlikely to experience large decreases in democracy, even if this fact has been

6 As described by Anderson and Sorenson (1996), Bowsher (2002) and Roodman (2009), instruments proliferation generate implausibly low values of Hansen tests of instruments exogeneity. This is because the size of the variance matrix of the moments is too large to be estimated accurately within a finite sample. Limiting the number of instruments therefore limits that problem. Besides, we use Windmeijer (2005) finite sample correction of standard errors in order to increase robustness.

observed several times in history, notably after First World War.7 To gauge the influence

of this group of countries, it is convenient to run the former regressions while excluding

the countries that were already at the maximum level of democracy at initial date. As

shown by the second part of Table 2, excluding these countries from the analysis has a

large influence over the results, as the 1960-2000 fixed-effects estimates and the two

most recent AB estimates become significant.

Then, sample composition could further affect our results as the sample does not remain

fixed over time. In practice, countries join the sample at their date of independence, but

many young countries have experienced erratic political processes, including declines in

democracy in some cases. Their inclusion in the sample could create compositional

effects and spuriously affect the long-term interpretation of our results. In the last part of

Table 2, we therefore restrict the sample to a balanced panel of nineteen countries

observed since 1870. Within this sample, lagged GDP per capita appears to be a strongly

significant determinant of democracy in ten specifications over twelve. In the FE

regression pertaining to the 1870-2000 period, the coefficient of lagged income appears

to be equal to 0.23. This implies that doubling GDP per capita entails closing 16 percent

of the gap between the worst dictatorship and the best democracy. 8 Recalling that

countries from the balanced panel had an average GDP per capita of about $ 1500 in

1870 and $ 14 600 in 2000, started at a level of democracy equal to 0.44 and ended up at

a level equal to 0.95, this means that economic development accounts for virtually all of

7 In statistical terms, this raises the issue of the measurement of democracy, which is proxied by a bounded variable. Even if some countries have already converged towards the maximum reported level of democracy at initial date, institutions have most likely kept on evolving, most likely on improving, within these countries. 8 As 0.23 x log(2)=0.16

the progress in democracy within that sample.9 However, this interpretation should be

taken cautiously as point-estimates differ across econometric procedures and because

specification tests of AB and BB estimations are not fully satisfactory.

Our findings differ from Acemoglu et al. (2008) who show that the relationship between

democracy and lagged income is statistically insignificant when calculated over the XXth

century, and turns significant only over the very long term, say between 1500 and 2000.

Figure 5 best illustrates their finding. It shows the seemingly null correlation between the

change in the Polity IV score of democracy and growth in GDP per capita between 1900

and 2000.

This divergence in results can be firstly explained by the difference in the time span used

across the two analysis. Acemoglu et al. (2008) consider a 25 years time span, while the

present study focuses on a decennial time span. Suppose that we were using a larger one,

say 30 years, then we would also find that lagged income is insignificant. Note that this

finding would be mostly explained by a smaller sample size. Indeed, regressing

democracy on log income lagged 30 years, but using a 10 years time span as in our

study10, we would still find a highly significant coefficient for lagged income11. Whether

a 10 years or 25 years time span is more appropriate is left at the appreciation of the

reader, although simple econometric intuition would plead for a larger sample size.

Furthermore, the non-significant correlation depicted on Figure 5 can be easily explained

by the omission of the initial level of democracy from the analysis. Indeed, the pairwise

correlation between growth in GDP per capita and the change in democracy can be

9 As calculations show that 0.23xlog(14600/1500)/(0.95-0.44)=1.02 10 Therefore using a sample of 456 observations and 67 countries rather than a sample of 156 observations and 61 countries. 11 Using log GDP per capita lagged 10 years while using a 30 years time span, we also find a significant coefficient for lagged income at a 10 percent confidence level.

spuriously contaminated by unobserved variables. Among those, the initial score of

democracy is a potential candidate, as convergence in democracy has taken place over all

periods as described earlier. The negative correlation between the change and the initial

level of democracy might therefore contaminate the relationship between the change in

democracy and per capita GDP growth. Table 3 presents a simple set of regressions

where the dependent variable is the change in democracy between 1900 and 2000, while

explanatory variables include per capita GDP growth (column I), the latter variable and

initial democracy (column II), the latter two variables and initial log GDP per capita

(column III). As made clear from these simple cross-country regressions, per capita GDP

growth is highly significant once the initial level of democracy is included inside the

sample as in columns II and III.

This suggests that the non-significance of per capita GDP growth on column I is in fact

an omitted variable bias arising from the exclusion of the initial level of democracy.

Interestingly, both the initial level and the growth in GDP per capita have a significant,

positive, association with the change in democracy over the period, suggesting both

accumulation and level effects12.

Let us now examine our findings obtained with a different proxy for economic

development, namely education.

4.2 Democracy and Education In this section, we run the same analysis while replacing GDP per capita by average years

of schooling of the adult population (population older than 15 years).

12 On a different issue, Aghion, Howitt and Murtin (2010) find positive causal effects of both the change and the initial level of life expectancy on per capita GDP growth, which correspond respectively to Lucas and Nelson-Phelps interpretations of the effect of human capital on economic growth.

First, the second part of Table 3 describes the same cross-sectional regressions of change

in democracy between 1900 and 2000 on the corresponding change in mean years of

schooling among the adult population, initial democracy and initial average years of

schooling. We find qualitatively the same results. The change in schooling is not

significant on column IV – although the p-value equals 0.11 – and is significant at a 1

percent confidence level on columns V and VI once other explanatory variables are

added. Controlling for the whole set of income and education-related variables as in

column VII, we find positive and significant coefficients for the changes in log GDP per

capita and average schooling, as well as for initial levels of log GDP per capita and

democracy.

Coming back to a higher data frequency that might ensure more robustness, we report on

Table 4 some results that can be compared to those depicted in Table 2. In this setting, we

estimate equations (1) and (2) using various samples and econometric methods, replacing

log GDP per capita by average years of schooling.

Overall, we find mixed evidence as education is significantly associated with democracy

in only 15 specifications over 36. As regards the full sample of countries, education

seems to be weakly associated with democracy, as found by Acemoglu et al. (2005),

when using FE methods. It is indeed only significant at a 10% level over the 1870-2000

and 1900-2000 periods. Also, it is never significant with the AB estimator, but strongly

significant with BB.

As regards the following parts of Table 4, the former results are not modified by the

exclusion of initial democracies from the sample. Over a balanced panel, though, few

coefficients remain significant, and when so, they are only weakly significant or display

implausibly high values such as the AB estimates. At first sight, the relationship between

democracy and education seems therefore weaker than that prevailing between

democracy and income.

However, this result can be explained quite easily. Large progress in democratic

achievement is often achieved when countries are still at their infancy in terms of

educational development. In other words, increased political participation might rather

involve the transition between illiteracy and literacy than further developments of

secondary schooling and higher education, which take place in already mature societies.

Consequently, what matters for democracy may rather be the average number of years of

primary schooling of the adult population than its average total number of years of

schooling. Table 5 investigates this issue, first controlling for average years of primary,

secondary and tertiary schooling independently, then controlling for all three variables.

As in former Tables 2 and 4, most of Hansen specification tests failed for AB regressions,

we rule out the AB estimator in the remaining sections of the paper, and focus on both the

FE and BB estimators.

Firstly, Table 5 shows that average years of primary schooling is a strongly significant

determinant of democracy in both FE and BB regressions, and across all periods. All

specification tests are valid and point-estimates of primary schooling are consistent

across all regressions. Secondary and tertiary schooling deliver more mixed results when

taken individually. FE and BB estimates are strongly significant over the 1930-2000 and

1960-1960 periods, but not over the whole period. Secondary schooling delivers better

results than tertiary schooling as at least BB estimates are significant over any period

with satisfactory specification tests. Plausibly, as higher education has reached mass

enrolment rates in high-income countries over the last quarter of the XXth century where

democracy was already well-established, higher education can hardly explain the

emergence of democracy.

Last part of Table 5 presents one of the main findings of the paper. When disaggregating

average years of schooling into its three main components, it turns out that across all

specifications and time-periods, primary education is highly significant with a constant

coefficient close to 0.05 and valid specification tests. In contrast, secondary and higher

education are almost never significant in any regression.

4.3 Channels of Democratization: Income or Primary Education? The former section has given empirical flesh to two highly discussed issues of the

political economy and political science literatures: Quantitative evidence demonstrates

that economic development, more precisely log GDP per capita and average years of

primary schooling, are strongly significant determinants of democracy. This result is

obtained after controlling for fixed-effects, persistence in the dependent variable and after

instrumenting by a reduced number of lagged explanatory variables.

Table 6 investigates which of the two variables log GDP per capita and average years of

primary schooling has the highest explanatory power using the full sample of countries.

The results are not fully conclusive, but we tend to think that primary education is a more

robust determinant. Indeed, it is significant in 7 specifications over 8, while lagged log

GDP per capita is significant in 5 regressions over 8. Focusing on FE regressions, lagged

income and primary education are both highly significant over any period, except in the

1960-2000 period for income. Then, focusing on a BB estimator, we find satisfactory

specification tests in all cases, and a significant coefficient for primary schooling over

any period except during the 1930-2000 period. In contrast, lagged GDP per capita is

significant in BB analysis only in periods starting after 1930. Over the whole period in

particular, it fails to reach significance contrary to primary schooling. The coefficient of

the latter variable is equal to 0.06, entailing an increase in 0.06x6 = 0.36 points of the

democracy score when the country shifts from complete illiteracy to full literacy

(assuming a duration of 6 years for primary schooling). As in the balanced sample, the

average score of democracy has increased by 0.51 points and average primary schooling

by 3.5 years between 1870 and 2000, this means that 0.06*3.5/0.51 = 40% of the average

variation in democracy in high-income countries between 1870 and 2000 can be

explained by the increase in primary schooling and associated literacy achievements.

4.4 Robustness Analysis In the following, we provide some robustness analysis. Do our main results still hold over

the two globalization periods (1870-1910 and 1960-2000) and the deglobalization period

(1910-1960)? Table 7 focuses on the benchmark BB analysis and clearly shows that

primary education has been the key determinant of democracy in all sub-periods. In terms

of magnitude of the effect, it is comparable across all three sub-periods. Interestingly,

income has not been a significant determinant of democracy until the postwar period.

Furthermore, in unreported results we found that our results are unchanged when using a

different democracy index, namely the Freedom House indices of political rights and

civil liberties over the period 1960-2000.

Next section focuses on the reverse causality from democracy to schooling.

5 From democracy to schooling?

In theory, it is possible that education and schooling influence each other without

hampering the identification of this two-way relationship. Indeed, one direction of

causality involves the stock of schooling among adult population as a determinant of

democracy, while the other direction involves the effect of democracy on the flow of

schooling, namely schooling enrolment among younger cohorts. As the education

variables differ across the two analyzes, inference remain possible.

In this section we explore the impact of democracy on schooling enrolment. We relate the

level of democracy at date t to average years of schooling of cohorts of pupils aged

between 5 and 14 at the same date. This group starts with pupils at the beginning of

primary schooling and closes with pupils at the middle of secondary schooling. Ten years

later, this cohort gathers pupils aged between 15 and 24 years, which are possibly at mid-

secondary or at the end of tertiary schooling. In other words, the level of democracy

taking place between two subsequent observations of our panel affects the whole

spectrum of pupils at school, which is well captured by the cohort aged between 5 and 14

at initial date.

In practice, average years of schooling of the latter cohort is estimated as the value of the

cohort aged between 25 and 34 years twenty years later. This value is taken from data on

education by age borrowed from the same sources than those underlying Morrisson-

Murtin (2009) for the period 1870-1960 and Cohen-Soto (2007) after 1960. We explain

in details in annex 1 the construction of this variable.

Other variables than democracy may affect enrolment at school. In particular, past

enrolments might capture a sum of persistence factors ranging from religion, cultural

traits, public schooling policies or imitative behavior. Then, variables capturing the level

of development, such as average schooling of the adult population or log GDP per capita,

are expected to be positive determinants of the level of enrolment, for several reasons: a

simple income effect with wealthier parents investing more in child education,

substitution between quantity and quality of children in the course of economic

development (Becker (1981), Galor and Weil (1996, 2000), Murtin (2009)), higher life

expectancy that increases the lifetime benefits reaped from schooling investments

(Kalemzi-Ozcan et al. (2000), Soares (2005), Cervellatti-Sunde (2005)) and so on.

Thus, accounting for the later factors we run the dynamic panel model

E(i,t) = a(i) + b(t) + ρ E(i,t-1) + α D(i,t) + β S(i,t) + γ y(i,t) + u(i,t), |ρ|<1 (3)

where E(i,t) is average years of schooling completed by the cohort aged between 25 and

34 twenty years later, D(i,t) the score of democracy, S(i,t) average years of schooling of

population older than 15, y(i,t) log GDP per capita, a(i) and b(t) respectively country and

time fixed-effects. In particular, this specification allows to test whether α > 0, namely

whether improvement in democracy leads to increases in educational attainment of young

cohorts, conditional on past increases, global trends or improvements in living standards.

Table 8 presents the results of OLS estimates (imposing a(i) = 0 and ρ = 0), panel fixed

effects (ρ = 0) and BB estimation, controlling or not for the level of development. Two

sets of regressions are run, one spanning over the whole period, the other focusing on

1960-2000. In order to eliminate some persistence in residuals, all variables have been

first-differenced in the BB regressions, and as a result, Arellano-Bond autocorrelation

tests on residuals and the Hansen test of joint exogeneity of instruments are satisfied in

all cases.

Overall, mixed and inconclusive results arise regarding the potential role of democracy

for human capital. Over the 1870-2000 period, democracy is a seemingly significant

determinant of average years of schooling attained by young cohorts in OLS and FE

regressions in columns I and III, but it is no longer significant once the level of

development is controlled for as in columns II and IV. In BB regressions, democracy is

never significant (columns V and VI). Over the 1960-2000 period, democracy is

significant in OLS regressions but switches sign when other variables are introduced. In

BB estimation, it is significant and positive in all cases (columns XI and XII). As a sum,

democracy is a positive and significant determinant of schooling attained by young

cohorts in 5 specifications over 12. Hence, we do not find strong and robust evidence that

democracy leads to a larger quantity of years of schooling.

6 Conclusion

Schumpeter (1943, p.296) argued that “modern democracy rose along with capitalism,

and in causal connection with it (…). Democracy in the sense of our theory of

competitive leadership presided over the process of political and institutional change by

which the bourgeoisie reshaped, and from its own point of view rationalized, the social

and political structure that preceded its ascendancy (…). Modern democracy is a product

of the capitalist process”. This paper provides empirical support to this view, as it clearly

establishes an empirical link from the level of development, be it the level of GDP per

capita or average years of primary schooling among the adult population, to democracy.

Investigating the reverse causality from democracy to the educational attainment of

young cohorts, the paper finds mixed evidence of a positive and significant link. Over the

long term, this relationship does not hold empirically. However, a case might be made

for public spending in education across types of political regimes. Democracies may not

entail larger quantity of schooling among young cohorts, but higher quality, say, in the

form of larger teacher-pupils ratio, or bigger expenditure per pupil at each stage of

education. We leave that question opened for future research.

7 References (TO BE COMPLETED)

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model: a Monte Carlo study. Journal of Business and Economic Statistics 14: 328-52.

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Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in

dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-

143, August.

Bowsher, C.G. 2002. On testing overidentifying restrictions in dynamic panel data

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Cervellati, M. and U. Sunde (2005). Human Capital Formation, Life Expectancy, and the

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Annex

18701880189019001910192019301940195019601970198019902000

−10

−8

−6

−4

−2

0

2

4

6

8

10

Dem

ocra

cy In

dex

Figure 1 - Distribution of Democracy Index Over Time (Unbalanced Panel)

18701880189019001910192019301940195019601970198019902000

−10

−8

−6

−4

−2

0

2

4

6

8

10

Dem

ocra

cy In

dex

Figure 2 - Distribution of Democracy Index Over Time (Balanced Panel)

Figure 3 - Convergence in Democracy, GDP per capita and Average Years of Schooling by Period

Average Years of Schooling

Dem

ocra

cy S

core

1870−1910

5 10 15

−10

−5

0

5

10


Dem

ocra

cy S

core

1920−1940

5 10 15

−10

−5

0

5

10


Dem

ocra

cy S

core

1950−2000

5 10 15

−10

−5

0

5

10


Dem

ocra

cy S

core

1980−2000

5 10 15

−10

−5

0

5

10

Figure 4 - The Joint Distribution of Democracy and Schooling by Period - Kernel Estimation

ARG

AUT

BEL

BGR

BRA

CAN

CHL

DNK

ESP

FRA

GBR

HUNIRN

ITA

JPN

MEX

NLD

PER

PRTSWE

THA

TUR

VEN

−.5

0.5

1C

hang

e in

Dem

ocra

cy S

core

190

0−20

00

1 1.5 2 2.5 3Change in Log GDP per capita 1900−2000

Figure 5 – Change in Democracy and Economic Growth 1900-2000

ARG

AUT

BEL

BGR

BRA

CAN

CHL

DNK

ESP

ETH

FRA

GBR

GTM

HND

HUNIRN

ITA

JPN

MEX

NICNLD

PER

PRT

PRY

SLV

SWE

THA

TUR

VEN

−.5

0.5

1C

hang

e in

Dem

ocra

cy S

core

190

0−20

00

0 1 2 3 4 5Change in Average Years of Primary Schooling Among Population 15+ 1900−2000

Figure 6 – Change in Democracy and in Average Years of Primary Schooling 1900-2000

Table 1 - Descriptive Statistics

1870 1910 1960 2000 1870 1910 1960 2000

Democracy

average 0.42 0.58 0.58 0.77 0.44 0.61 0.64 0.95coefficient of variation 0.65 0.54 0.64 0.36 0.73 0.56 0.63 0.09p25 0.25 0.35 0.15 0.65 0.25 0.30 0.15 0.90p75 0.60 0.80 1.00 1.00 0.70 0.95 1.00 1.00

Income

average 1520 2910 3810 8470 1490 2950 6110 14600coefficient of variation 0.66 0.48 0.82 0.98 0.53 0.50 0.56 0.48p25 740 1690 1390 1430 720 1790 3070 7220p75 2000 4060 6070 16010 1880 4200 8750 20320


Total

average 2.27 3.40 4.13 7.29 2.53 4.09 5.95 9.51coefficient of variation 0.86 0.73 0.73 0.45 0.75 0.64 0.46 0.25

Primary


Secondary


Tertiary


Number of countries 27 26 59 69 19 19 19 19

Full sample Balanced sample

Table 2 – Democracy and GDP per Capita 1870-2000

FE AB BB FE AB BB FE AB BB FE AB BB

Full sampleD(-1) 0.27

(0.11)**0.41 (0.10)***

0.25 (0.12)**

0.36 (0.11)***

0.19 (0.10)**

0.32 (0.11)***

0.26 (0.10)**

0.32 (0.10)***

Log y(-1) 0.14 (0.04)***

-0.09 (0.17)

0.15 (0.03)***

0.16 (0.04)***

-0.06 (0.19)

0.16 (0.03)***

0.15 (0.05)***

0.14 (0.14)

0.18 (0.03)***

0.08 (0.06)

0.11 (0.16)

0.19 (0.03)***

N 567 483 560 512 456 505 424 372 417 309 275 307N countries 69 69 69 69 69 69 69 69 69 69 68 69N instruments 58 83 55 78 56 73 45 5AB1 p-value 0 0 0 0 0 0 0AB2 p-value 0.34 0.28 0.36 0.3 0.29 0.22 0.71 0.58Hansen p-value

Excluding initialdemocraciesD(-1) 0.25

(0.11)**0.41 (0.10)***

0.26 (0.11)**

0.38 (0.11)***

0.17 (0.11)

0.31 (0.10)***

0.15 (0.09)*

0.29 (0.10)**

Log y(-1) 0.15 (0.04)***

-0.09 (0.18)

0.16 (0.03)***

0.17 (0.05)***

0.00 (0.23)

0.16 (0.03)***

0.20 (0.06)***

0.40 (0.18)**

0.19 (0.03)***

0.26 (0.08)***

0.41 (0.15)***

0.21 (0.03)***

N 541 459 534 450 397 444 309 267 306 216 190 215N countries 67 67 67 63 63 63 54 54 54 50 49 50N instruments 58 83 55 78 56 73 45 5AB1 p-value 0 0 0 0 0.01 0 0 0AB2 p-value 0.35 0.27 0.44 0.37 0.47 0.36 0.80 0.71Hansen p-value

Balanced PanelD(-1) -0.02

(0.23)0.08 (0.25)

-0.01 (0.26)

0.09 (0.24)

0.41 (0.22)*

0.41 (0.29)

0.31 (0.14)**

0.38 (0.20)*

Log y(-1) 0.23 (0.07)***

0.21 (0.58)

0.09 (0.02)***

0.30 (0.08)***

0.27 (0.60)

0.38 (0.63)

0.36 (0.10)***

0.87 (0.90)

0.49 (0.68)

0.33 (0.12)***

0.67 (0.34)**

0.23 (0.13)*

N 247 228 247 209 209 209 152 152 152 95 95 95N countries 19 19 19 19 19 19 19 19 19 19 19 19N instruments 58 83 55 78 56 73 45 5AB1 p-value 0.24 0.17 0.27 0.17 0.04 0.05 0.08 0.06AB2 p-value 0.77 0.94 0.72 0.91 0.78 0.64 0.64 0.24Hansen p-value

Note: second and third lags (respectively second to fourth and second to fifth) of democracy and log income as instruments over periods 1870-2000 and 1900-2000 (resp. 1930-2000 and 1960-2000). Robust standard errors and Windjmeier correction for standard errors in BB.

1 1 1 11

0.81

Dependent variable is standardized Polity IV index of democracy

1 1 1

0.630.12 0.81 0.13 0.65 0.93 0.27

0.42 0.04 0.230.07 0.66 0.180.08 0.75

1870-2000 1900-2000 1930-2000 1960-2000

60

6

6

Table 3 – OLS results using long-differences between 1900 and 2000

I II III IV V VI VII

change in log GDP per capita 0.07 0.17 0.23 0.19(0.13) (0.10)* (0.09)** (0.07)**

initial level of log GDP per capita 0.18 0.15(0.06)*** (0.06)**

initial level of the score of democracy -0.84 -1.03 -0.84 -0.97 -1.04(0.06)*** (0.05)*** (0.06)*** (0.06)*** (0.05)***

change in average years of schooling 0.06 0.06 0.05 0.05(0.03)* (0.02)** (0.02)** (0.03)

initial level of average years of schooling 0.03 0.01(0.01)*** (0.01)

R2 0.01 0.83 0.89 0.07 0.85 0.88 0.92

N 30 30 30 37 37 37 30note: robust standard errors. * (respectively ** and ***) stand for significance at 10 (resp. 5 and 1) percent.

Dependent variable: change in score of democracy between 1900 and 2000

Table 4 – Democracy and Average Years of Schooling 1870-2000

FE AB BB FE AB BB FE AB BB FE AB BB

Full sampleD(-1) 0.41

(0.11)***0.51 (0.08)***

0.37 (0.12)***

0.49 (0.09)***

0.20 (0.11)

0.36 (0.10)***

0.20 (0.10)**

0.31 (0.11)***

E(-1) 0.02 (0.01)*

-0.02 (0.03)

0.04 (0.01)***

0.02 (0.01)*

-0.02 (0.03)

0.04 (0.01)***

0.01 (0.02)

-0.05 (0.04)

0.04 (0.01)***

-0.02 (0.03)

-0.09 (0.05)*

0.05 (0.01)***

N 657 534 613 583 498 540 465 389 427 335 278 310N countries 70 70 70 70 70 70 70 70 70 70 69 70N instruments 58 83 55 78 56 73 45 56AB1 p-value 0 0 0 0 0 0 0AB2 p-value 0.2 0.18 0.21 0.18 0.22 0.16 0.91 0.76Hansen p-value

Excluding initialdemocraciesD(-1) 0.39

(0.11)***0.51 (0.09)***

0.37 (0.12)***

0.48 (0.09)***

0.23 (0.12)**

0.41 (0.10)***

0.18 (0.11)*

0.31 (0.10)***

E(-1) 0.02 (0.01)*

-0.00 (0.04)

0.04 (0.01)***

0.03 (0.02)*

-0.01 (0.04)

0.04 (0.01)***

0.00 (0.02)

-0.02 (0.05)

0.04 (0.01)***

0.01 (0.03)

-0.04 (0.04)

0.05 (0.01)***

N 631 510 587 518 435 476 349 283 316 240 193 218N countries 68 68 68 64 64 64 55 55 55 51 50 51N instruments 58 83 55 78 56 73 45 56AB1 p-value 0 0 0 0 0 0 0AB2 p-value 0.2 0.17 0.27 0.24 0.32 0.23 0.95 0.82Hansen p-value 0.41 0.82

Balanced PanelD(-1) 0.03

(0.80)0.38 (0.39)

-0.11 (0.67)

0.27 (0.44)

-0.25 (0.41)

0.28 (0.41)

0.28 (0.23)

0.31 (0.41)

-0.00 (0.15)

0.04 (0.06)

N 247 228 247 209 209 209 152 152 152 95 95 95N countries 19 19 19 19 19 19 19 19 19 19 19 19N instruments 58 57 55 78 56 73 45 56AB1 p-value 0.71 0.13 0.77 0.31 0.71 0.03 0.15 0.30AB2 p-value 0.9 0.66 0.7 0.93 0.54 0.48 0.18 0.12Hansen p-value 1 1


1 1

1870-2000 1900-2000 1930-2000 1960-2000

1 1Note: second and third lags (respectively second to fourth and second to fifth) of democracy and education as instruments over periods 1870-2000 and 1900-2000 (resp. 1930-2000 and 1960-2000). Robust standard errors and Windjmeier correction for standard errors in BB.

1 1

-0.01 (0.07)

E(-1) -0.02 (0.03)

0.37 (0.17)**

0.06 (0.21)

0.01 (0.04)

0.15 0.9 0.2

0.33 (0.18)*

0.60 0.97

0.34 (0.57)

-0.00 (0.05)

0.14 (0.12)

-0.06 (0.12)

0.86

0.16 0.51 0.130.14 0.83 0.11 0.71 0.12

0

0

Table 4 – Democracy and Average Years of Primary, Secondary and Tertiary Schooling

FE BB FE BB FE BB FE BB

PrimaryD(-1) 0.51

(0.09)***0.48 (0.09)***

0.38 (0.11)***

0.31 (0.10)***

0.06 (0.01)***

N 657 613 583 540 465 427 335 310N countries 70 70 70 70 70 70 70 70N instruments 83 78 73 5AB1 statistics 0 0 0 0AB2 statistics 0.18 0.19 0.16 0.80Hansen statistics 0.87 0.67 0.50 0.19

SecondaryD(-1) 0.60

(0.08)***0.56 (0.09)***

0.40 (0.11)***

0.40 (0.11)***

S(-1) -0.00 (0.02)

0.07 (0.03)***

-0.01 (0.02)

0.08 (0.02)***

-0.06 (0.03)**

0.08 (0.03)***

-0.12 (0.04)***

0.09 (0.03)***

N 657 613 583 540 465 427 335 310N countries 70 70 70 70 70 70 70 70N instruments 83 78 73 5AB1 statistics 0 0 0 0AB2 statistics 0.16 0.16 0.14 59Hansen statistics 0.87 0.75 0.38 0.08

TertiaryD(-1) 0.70

(0.08)***0.67 (0.08)***

0.51 (0.10)***

0.52 (0.11)***

H(-1) -0.15 (0.10)

0.12 (0.15)

-0.20 (0.10)*

0.17 (0.14)

-0.30 (0.11)***

0.20 (0.13)

-0.32 (0.14)**

0.23 (0.18)


AllD(-1) 0.52

(0.09)***0.49 (0.10)***

0.37 (0.11)***

0.32 (0.11)***

P(-1) 0.04 (0.02)**

0.07 (0.02)***

0.05 (0.02)***

0.07 (0.03)**

0.05 (0.03)**

0.07 (0.03)**

0.06 (0.04)*

0.09 (0.03)***

S(-1) 0.02 (0.03)

-0.00 (0.05)

0.01 (0.03)

0.00 (0.05)

-0.03 (0.04)

0.02 (0.06)

-0.10 (0.05)**

0.03 (0.06)

H(-1) -0.14 (0.13)

-0.06 (0.21)

-0.15 (0.13)

-0.09 (0.21)

-0.16 (0.15)

-0.09 (0.23)

-0.01 (0.18)

-0.15 (0.26)



P(-1)

1870-2000 1900-2000 1930-2000 1960-2000

Note: second and third lags (respectively second to fourth and second to fifth) of democracy and education as instruments over periods 1870-2000 and 1900-2000 (resp. 1930-2000 and 1960-2000). Robust standard errors and Windjmeier correction for standard errors in BB. Comparable results are obtained with BB estimator when excluding initial democracies.

0.07 (0.02)***

0.08 (0.03)**

0.09 (0.02)***

0.05 (0.02)***

0.06 (0.02)***

0.07 (0.01)***

0.07 (0.02)***

6

6

6

6

Table 5 – Democracy, GDP per Capita and Average Years of Primary Schooling

FE BB FE BB FE BB FE BB

D(-1) 0.67 (0.08)***

0.65 (0.08)***

0.68 (0.12)***

0.76 (0.16)***

Log y(-1) 0.14 (0.04)***

0.01 (0.04)

0.15 (0.04)***

0.01 (0.04)

0.14 (0.05)***

-0.01 (0.04)

0.07 (0.06)

-0.09 (0.07)



0.05 (0.02)**

P(-1)

1870-2000 1900-2000 1930-2000 1960-2000

0.06 (0.02)***

Note: third lags of democracy, primary education and log income as instruments.

0.09 (0.04)**

0.11 (0.04)***

0.04 (0.02)**

0.07 (0.02)***

0.05 (0.02)**

0.08 (0.03)***

6

Table 6 - Effect of Democracy on Average Years of Schooling of Young Cohorts

I II III IV V VI VII VIII IX X XI XII

Full sample Lagged dependent variable -0.01

(0.11)0.06 (0.12)

-0.03 (0.11)

0.01 (0.18)

Democracy index 5.31 (0.33)***

0.07 (0.16)

0.42 (0.21)**

-0.21 (0.19)

0.29 (0.45)

0.21 (0.46)

5.35 (0.58)***

-0.44 (0.27)*

-0.24 (0.38)

-0.23 (0.37)

0.80 (0.44)*

1.21 (0.54)**

Average Years of Schooling of population 15+

0.99 (0.03)***

0.53 (0.06)***

-0.13 (0.28)

0.95 (0.05)***

-0.25 (0.21)

-0.60 (0.46)

log GDP per capita 0.67 (0.11)***

0.84 (0.19)***

1.52 (0.46)***

0.73 (0.17)***

1.33 (0.43)***

2.84 (1.01)***

R2 0.51 0.93 0.28 0.85 - - 0.35 0.92 0.02 0.17 - -N 497 446 497 446 364 325 181 181 181 181 137 137N countries 64 64 64 64 56 56 64 64 64 64 56 56N instruments 66 66 34 34AB1 p-value 0 0 0 0AB2 p-value 0.72 0.99 0.39 0.35Hansen p-value 0.95 0.98 0.48 0.45

FE BB 2

2 Differentiated dependent and explanatory variables.

Dependent variable is proxied average years of schooling of population aged 5-14 1

1870-2000 1960-2000

1 Proxy is average years of schooling of population aged 25-34 observed 20 years later.

Note: second and third lags (respectively second to fifth) of democracy and average schooling of population 15+ as instruments over periods 1870-2000 (resp. 1960-2000). Robust standard errors and Windjmeier correction for standard errors in BB.

OLS FE BB 2 OLS

The Democratic Transition 1870-2000 - OECD

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