A Lecture on Democracy and Development

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Masayuki Kudamatsu

IIES, Stockholm University October 27, 2008

# of democracies: ↑ recently (Fig.1)

Development assistance
practitioners: often advocate democracy as a means to good governance George W Bush & Iraq •

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Two perspectives to politics

Accountability

Conﬂict of interest

– between govt & citizens

Representation

Conﬂict of interest

– among citizens

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Accountability Perspective to Democracy

Democracy: regularized leadership

contest Citizens can replace incompetent
leaders w/ potentially better ones

⇒ Incentives for leaders to behave well

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Representation Perspective to Democracy:

Acemoglu model

Firm managers and Workers

Firm managers prefer
Low tax rate

– Entry barrier to keep wages low
– Workers prefer

High tax rate for redistribution

– No entry barrier to push up
– wages

Tax ↑ ⇒ Investment ↓ ⇒ Short-run

growth ↓ Entry barrier ↑ ⇒ Innovation ↓ ⇒
Long-run growth ↓

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Autocracy: Firm managers decide

policies Democracy: Workers decide policies
Autocracy •

1. Tax: low

2. Entry barrier: high

3. Short-run growth: high

4. Long-run growth: low Democracy

1. Tax: high

2. Entry barrier: low

3. Short-run growth: low

4. Long-run growth: high

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Four Sets of Facts

This could be either due to

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1. Rich countries today: more democratic (Fig.2)

(a) Democracy ⇒ Development (b) Development ⇒ Democracy

1975-1990 (Fig.3)
1900-2000 (Fig.4)
This could be either due to

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2. No correlation between changes in income and changes in democracy

3. Positive correlation in the very long run: 1500-2000 (Fig.5)

(a) Very long-run effect of democracy on development (b) Very long-run effect of development on democracy

4. More volatile economic growth in autocracy than in democracy Performance varies a lot more for

autocracy (Fig.6) Within regime, autocracy is
more susceptible to who is in power

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Taking Stock

Representation perspective may be

correct

⇒ What makes democracy durable? Accountability perspective is

wrong?

1. Deﬁne democracy wrongly?

2. Look at wrong outcome?

3. Data aggregation makes analysis difficult?

4. Deﬁne autocracy wrongly?

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How about

1. Focus on leadership competition

2. Look at health?

3. Use individual-level data?

4. Build a model of autocracy?

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3 Impact of Democratization in

Africa

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Motivations

1990s: Many African countries

introduced multiparty elections for presidency/parliament In some cases, the dictator won
elections. In other cases, a new person
becomes president/PM (Fig.7) Infant mortality: highest in Africa • over time (Fig.8) Did democratization affect infant
mortality?

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Research Method

Use individual-level data on infant

mortality

Cross-country surveys of women

– When they gave birth
– Whether their children died
– If so, when?
– ⇒

We can compare death rate of infants (under 1 yr old) born to same mother before and after democratization

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Causality rather than correlation?

An individual mother: unlikely to

cause democratization

⇒ Changes in infant mortality for the same mother: likely to be a result of democratization

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Findings

Infant mortality drops by 1.2% pt

Larger drop for uneducated mothers
No change if dictator won
multiparty elections No change if dictator replaced in
non-democratic ways Maternal health care provision
improved No change in affluence of mothers
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4 A Model of Autocracy

Basic Ideas

Heterogeneity of autocracies

Selectorate: group of citizens with
right to select leader Accountability & representation
Selectorate’s power may or may not
depend on leader

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Two-period Model

Players 2 groups of citizens (A,B) & dictator

Period 1 dictator: group A •

Actions Each period: dictator decides

whether to implement good policy or bad policy Between periods 1 & 2: Group A •

(selectorate) decides whether to retain or oust the dictator If ousted, a new dictator is picked

from Group A w/ prob. γ

– from Group B w/ prob. 1 − γ
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$ Information Dictator: either good or bad

Citizens do not initially know
whether dictator is good or bad What they know: dictator is good
with prob. π

Preference Good dictator: prefers good policy

in both periods Bad dictator’s payoff:
_t 0 from good policy

– – R

₁

₂

₁

₂

(R or R : random)

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Citizens’ payoff:

– Good policy ⇒ ∆
– Bad policy ⇒ 0
– Same group dictator ⇒ σ
– Diff. group dictator ⇒ 0
– LEFT: Group A citizens’ payoff
– RIGHT: Group B citizens’ payoff

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Group A Group B Dictator Dictator

Good Policy (∆ + σ, ∆) (∆, ∆ + σ)

Bad Policy (σ, 0) (0, σ) Timing

1. Period 1 Dictator decides whether to implement good or bad policy

2. Group A decides whether to retain or oust Period 1 Dictator 3. • If retained, Period 1 dictator becomes Period 2 dictator

If ousted, Period 2 dictator is

from Group A with prob. γ

– from Group B with prob. 1 − γ
– 4. Period 2 dictator decides whether to implement good or bad policy

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Analysis

Period 2

Good dictator implements good

– policy Bad dictator implements bad
– policy

Period 1: after dictator (from

Group A) chooses good policy

This implies ﬁrst two of the

– following three cases

1. good _{1 < R} ₂ 2. bad with R ₁ ₂

> R 3. bad with R

⇒ Group A retains him

Period 1: after dictator (from

Group A) chooses bad policy

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– to be ∗ if retain: σ

Group A expects period 2 payoff

∗ if oust: · π

∆ + σ w/ prob. γ · π

∆ w/ prob. 1 − γ ⇒

Group A ousts dictator if σ < π

∆ + γσ or (1 − γ)σ < π∆ ¹ ²

< R Period 1 bad dictator with R implements good policy if he will be kicked

– out by implementing bad policy (ie. (1 − γ)σ < π∆) bad policy if he will be retained
– by doing so

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Implications

Bad dictator: disciplined if

(1 − γ)σ < π∆ which means:
– γ

: high

– σ

: smaller than ∆ Applicable cases: China since 1976,

Brazil in the late 60s and early 70s, Thailand in the 60s, Portugal until mid 70s Cases out of the model: Franco in
Spain, Park Chung Hee in South Korea

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Causality vs Correlation

Leadership competition is key for
democracy to bite Autocracy is heterogeneous
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Academic Papers This Lecture Draws From: Acemoglu (2008) for subsection

“Representation Perspective to Democracy: Acemoglu Model” in Section 2. Acemoglu, Johnson, Robinson, and Yared • (2007) and Jones and Olken (2005) for subsection “Four Sets of Facts” in Section 2. Kudamatsu (2008) for Section 3.
Besley and Kudamatsu (2007) for Section • 4.

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Sources of Figures Figure 1: Figure 1.1 from Besley (2006).

Figures 2-5: Figures 1, 2, 4, and 5 from
Acemoglu, Johnson, Robinson, and Yared (2007). Figure 6: Figure 1 from Besley and
Kudamatsu (2007). Figure 7: Created for this lecture based on
Kudamatsu (2008). Figure 8: Figure 1 from Kudamatsu • (2008).

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Bibliography

Acemoglu, Daron (2008) “Oligarchic

versus Democratic Societies,” Journal of the European Economic Association , 6(1), pp. 1-44. Acemoglu, Daron, Simon Johnson, James •

A. Robinson, and Pierre Yared (2007) “Income and Democracy,” American Economic Review , 98(3), pp. 808-842. Besley, Timothy (2006) Principled Agents?

The Political Economy of Good Government , Oxford University Press.

Besley, Timothy, and Masayuki

Kudamatsu (2007) “Making Autocracy Work”, CEPR Discussion Paper, no. 6371, available at http://www.cepr.org/pubs/dps/DP6371.asp Kudamatsu, Masayuki (2008) “Has
Democratization Reduced Infant Mortality in Sub-Saharan Africa? Evidence from "

$ Micro Data,” Unpublished paper. Available at http://www.iies.su.se/ masa/imr200808.pdf Jones, Benjamin F., and Benjamin A.

Olken (2005) “Do Leaders Matter? National Leadership and Growth Since World War II,” Quarterly Journal of Economics , 120(3), pp. 835-64.

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100 ₉₀ _c _ra _c _ie _s ₇₀

80 o _m _e _o _f _d ₆₀ ₅₀ _rc _e _n _ta _g e ₃₀ ₄₀ Pe ₁₀ ₂₀

1950 1960 1970 1980 1990 2000 _Year Figure 1: Democracies in the world, _{democracies to the number of all countries in the POLITY IV dataset for each year. Note that the}

_{dataset is greater than zero. The percentage of democracies is calculated as the ratio of the number of}

_{Notes: A country in a given year is classified as a democracy if variable POLITY2 in the POLITY IV}

_{Source: POLITY IV}

1950-2003

_{colonies, the break-up of a country, and the integration of countries.}

_{note that the number of all countries in the dataset changes over time due to the independence of}

POLITY IV dataset only includes countries with the population of more than 500,000 in 2003. Also

25 _te ₍ _% ₎

20 _it _y _E _s _ti _m a ¹⁵ _s _De _n ₅

.1 _{Democracy Autocracy} _{Economic Growth Rate} ^{.1 .2 .3}

Figure 6: Economic Growth Distributions among Democracies and

_{Notes: Plotted are the density functions estimated by using the Gaussian kernel and the bandwidth}

_{that minimizes the mean integrated squared error (the kdensity command in STATA with the}

_{Sources: Penn World Table 6.2 and POLITY IV (version 2004)}

Autocracies

gaussian

1990: Comoros

1991: Benin and Zambia

1992: Mali

1993: Lesotho, Madagascar, and Niger

1994: Malawi and South Africa

1999: Nigeria

2000: Ghana

Figure 7 (continued): Democratization in the

_{In 1990, Comoros was democratized but due to its small area size it is not visible.}

_Notes

_{: Grey-colored countries are the sample countries; Black-colored democratized.}

Sample Countries over Time

hs 180

Sub-Saharan birt

160 Africa ve

140 Middle East & li

North Africa 120 000

South Asia 1,

100 per

East Asia & Pacific

80 ity

60 al

Latin America &

ort M Europe & Central

20 nt

Asia a Inf

1960 1970 1980 1990 2000

Figure 8: Infant Mortality by Developing Region, 1960-2000

_{Notes: The definition of regions follows the World Bank’s classification.}

_{Source: World Development Indicators, April 2006.}

A Lecture on Democracy and Development