The Democratic Transition By Fabrice Murtin, OECD and Romain Wacziarg, UCLANBER Working Paper No. 17432 http://www.nber.org/papers/w17432
Is democracy good for economic growth? Or, is it the other way round and countries become more democratic as they become richer? How important are literacy and schooling to democracy? These are questions that have been debated for long and Fabrice Murtin and Romain Wacziarg take another stab at it in this paper.
They examine the record of a large panel of countries that have made the transition towards more democracy from 1870 onwards. The question they seek to answer is: What is the relationship between education, democracy and economic growth? Whether education promotes democracy or the causality is the other way around, has been the subject of a heated debate, with some economists saying that institutions are the prime engine of growth, while others view human capital as the root cause of economic development.
The authors start off by showing that measures of democracy have converged among countries over time. Democracy has been getting stronger in most countries and the differences in terms of political participation have been narrowing. On the other hand, they do not find any such convergence in the income of countries—indeed, in the last century, income differences between countries widened appreciably, except among the most advanced economies.
Similarly, there has not been any convergence in average education over the period, again with the exception of some advanced countries. The evidence is clear that, in general, both development and democracy levels experienced a transition from a regime of low education, low income and low democracy to a regime of higher education, higher income, and higher democracy. The question is: What led to the other? The authors found that economic development accounts for 70% of the progress of democracy within their sample over the entire period since 1870. A similar calculation over the 1960-2000 period suggests that economic development accounts for 80% of observed democratization. They also found that 47% of the average variation in democracy in high-income countries between 1870 and 2000 can be accounted for by the increase in primary schooling and associated literacy achievements. Over 1960-2000, this magnitude rises to 54%. By contrast, they found little evidence that secondary and tertiary schooling matter much for democracy. The authors write, “These results suggest that progress in democracy is achieved mostly when countries are still in their infancy in terms of educational development. In other words, increased political participation might involve the transition between illiteracy and literacy rather than further developments of secondary schooling and higher education, which often take place in already mature societies.”
But while literacy improves democracy, does democracy also lead to more literacy? The authors say, “Investigating reverse causality from democracy to the educational attainment of young cohorts over the long run, we found little evidence of a positive and significant link.” And why not? Literacy in China is much higher than in India.
They also find that “the level of income is more likely to be a determinant of the level of democracy than the other way around...and that the level of democracy has hardly been a significant determinant of economic growth over the 20th century”.
There are several implications to the findings in this paper. Developing countries in East Asia, for instance, slowly became more democratic as they became richer. That could hold true for China as well. And for India, the success of the Sarva Shiksha Abhiyan and the concomitant higher levels of literacy, together with higher per capita income, will lead to a more meaningful participation in our democracy.