Globalization and Democratization

—Does International Trade Till the Soil for

Democracy?

Jingqian Xu

Department of Political Science, Yale University

New Haven, CT 06520

September 28, 2005

Abstract

Democratization is more consequential than conferring the citizenry po-

litical freedom and civil rights. By handing over the authority of policy

making from the dictator to the voting power of the constituency, a regime

transition from autocracy to democracy also entails important policy ad-

justments.

In an era of globalization, the appeal of democratization for citizens

in an authoritarian society is three-fold. First, on the dimension of citi-

zen rights, democratization guarantees ordinary citizens freedom in speech,

publication and association and confers voters equal voting power in deter-

mination of public policies. Second, on the dimension of domestic economic

policy, democratization brings in political competition among parties which

makes the direction and scale of income redistribution a most salient is-

sue. For the last, on the dimension of foreign economic policy, a democratic

transition more than often entails a trade liberalization process, lowering

the consumption prices and making certain segments of the population bet-

ter off. Against the background of globalization, a study of democratization

neglecting any of the three dimensions might lead to biased estimations and

incautious conclusions.

1

Introduction

As a movement sweeping across countries and over time, democratization has been

a central research topic in contemporary discourse of political science. A demo-

cratic system of government has been almost universally acknowledged as the best

way to ensure a full range of liberties and to provide sustainable solutions to so-

cial, political and economic problems. How to orient non-democratic regimes to

democracy has been of particular interest to many political scientists. A battery

of factors has been set forth in the literature as facilitators of democratic transi-

tion, such as economic prosperity, economic growth, demographic homogeneity in

terms of income and/or ethnicity, vibrant civil society, liberal cultural heritage,

international aid, “Domino” demonstration effect and so on.

The fact that democracy has fallen in waves indicates the necessity to pay

more attention to the mark of epoch of democratization. Democracy has been a

follow-up of industrialization in the 19th century, a byproduct of anti-fascist war

and decolonization in the middle 20th century, and a direct consequence of the col-

lapse of Communist ideology in the late 20th century. In a new millennium, how

would the remaining non-democratic strongholds be transformed to democracy?

The 21th century has been featured by an accelerating trend of economic inte-

gration of countries around the world. The intensified global economic contacts

have had far-reaching impacts on almost every aspect of people’s life. Therefore,

a closer inquiry on the effect of international economic forces on the chances of

democratization is critical in moving the academic inquiry on democratization one

step further.

Despite the breadth and depth of the literature on democratization, surpris-

ingly, the effects of international economic forces on democratization have been

largely overlooked in both theoretical and empirical studies. How would the accel-

erating trend of economic integration affect the duration of the remaining authori-

tarian regimes? Does international trade till the soil for democracy? If the answer

were yes, why would a dictator engage in international trade anyway? Why did

the dictator in North Korea ward off international trade while his counterparts in

China and Singapore are participating enthusiastically in international economic

interactions? How would different levels of foreign trade affect the longevity of

authoritarian regimes?

The close companion of trade and democracy seems to suggest that foreign

2

trade might be one of the important facilitators of democracy. However, despite

the easy impression that trade liberalization and democratization often came hand

in hand, the relationship between democracy and trade is much more complex

than what it looks at the first sight. As Hiscox and Kastner (2004) commented,

“While the recent rush to free trade in the developing world has coincided with

the spread of democracy in a general way, just which of these phenomena is the

cart and which is the horse in not very clear. Increasing trade openness appears

to have pre-dated democratic reform in many cases - e.g. Chile, Turkey, Taiwan

and South Korea, but not others” (Also see Haggard and Webb, 1994). In fact,

the authoritarian order has been sustained well in an array of places with high

volumes of international trade, such as Singapore in East Asian and some oil-

exporting countries (e.g. Kuwait, United Arab Emirates and Saudi Arabia) in the

Middle East.

This paper aim to study democratization against the background of glob-

alization . The discussion is organized in four parts. I begin with a survey of

competing hypotheses on both sides of the debate1. The literature review is fol-

lowed by a theoretic model that analyzes the potential for having a democratic

transition in any given authoritarian society by focusing on the transitional mo-

mentum among the masses. The third part presents an empirical test and the last

part concludes the paper.

1 Literature Review

The literature on trade and democracy presents two contending viewpoints. One

school believes that trade liberalization is the oracle for democratization, while

the contenders express concerns that trade openness might dampen the prospect

of democracy. I’ll now briefly review each side of the debate in turn.

1Li and Reuveny (2003) provide an extensive review of rivaling arguments on the relationshipbetween globalization and democracy, with globalization being defined as four dimensions anddemocracy meaning both the democratic prospect for an autocratic society and the democraticpractices for democratic countries. The survey I present here is with a more narrow focus onthe effect of trade integration on the chances of democratic transition in current authoritarianregimes.

3

1.1 Optimists: Trade Will Facilitate Democracy

The proposition that economic openness will extend the scope of democracy has

a venerable history among liberals. According to new-liberals, economic integra-

tion and democratization share the same fundamental principle or goal – “that

freedom of individual choice generates desirable social consequences” (Im, 1996:

282). More specifically, the free market is a mechanism of free decentralized ex-

changes between producers and consumers, while democracy is a mechanism of

such exchanges between politicians and voters. A competitive global market allo-

cates economic resources fairly and efficiently, and democracy allocates political

resources fairly and efficiently. In this sense, a global market and a global conver-

gence to democracy are “mutually reinforcing” (Im, 1996).

On the specific mechanism that trade in a global market might trigger a de-

mocratic transition process, several channels are proposed by scholars in different

fields:

(1) Trade openness promotes democracy by encouraging economic develop-

ment (Held 1992; Platner 1993; Weitzman 1993; Lipset 1994; Muller 1995, Im

1996). This proposition is one of the derivations of the modernization theory

and is therefore as vulnerable as the modernization theory itself on challenges of

lacking clear causal chains. Additionally, there are still heated debates among in-

ternational economists as to whether trade can spark development for all countries

(as the liberals claim) or will actually expose immature economies to greater risks

and unmanageable competition.

(2) Trade openness promotes democracy by generating a constituency with

vested interest in smooth transaction of international business, world peace and

hence democracy (Kant 1795; Bhagwati 1994; Schmitter 1996; Oneal and Russet

1999). Globalization has strengthened the economic links between countries, and

international commercial interests with a fundamental drive for business prosper-

ity has began to carry more political weights than ever before. Cross-boundary

trade and investment requires a peaceful world environment, while world peace

has been believed to be associated with democratic institutions (e.g. Oneal and

Russett, 1997,1999). Consequently, commercial interests around the world have an

interest in propelling democracy in order to secure business prosperity. Accord-

ingly, “authoritarian countries that open their economies face greater pressures

from international business for political liberalization” (Li and Reuveny 2003, p.

32).

4

However, a powerful counterargument maintains that the emergence of such

an “international constituency” can only complicate the practice of democracy,

since these global actors are not accountable to any citizenry through elections.

“There does not exist a feasible democratic mechanism to force global actors

to be accountable and responsible to the people”(Im, 1996). The autonomy of

transnational firms over global markets can transcend the democratic authority

and might make the principles of democracy obsolete.

(3) Trade openness promotes democracy by levelling down income inequality

in developing countries. The standard two-country two-factor Heckscher-Ohlin

model predicts that trade liberalization or the reduction of tariff barriers benefits

wage earners in the developing countries by increasing the world-wide demand for

labor, raising return to labor (wages), and lowering the relative price of capital-

intensive goods. This process of income convergence is argued to be congenial to

the construction of a democratic order since the resistance from the rich elites to

a redistributive democracy will be mitigated.

Though looks engaging and plausible at the first sight, neither of the two

links of this logic chain is secure under closer examination. First, whether trade

openness reduced income inequality in labor-abundant developing countries is

without controversy. The tide of globalization actually reaches different segments

of the society very unevenly, resulting in intensified income disparity. Many stud-

ies have shown hat the gap of living standards between urban and rural areas

in developing countries has widened instead of being narrowed down, as “many

rural areas never, or only to very limit degrees, become affected by so-called global

forces.” (Jonsson 2002, p115).

Secondly, even if trade openness does bring about income convergence, the

ease of redistributive tensions has two counteracting effects: on the one hand, it

lessens the resistance of rich elites to democracy; on the other hand, it damp-

ens the motivation of poor people to rise against the dictator and struggle for a

redistributive democracy. Therefore, whether or not income convergence favors

democratic transition is still an open question.

(4) Trade openness promotes democracy by certain epiphenomena such as

mobility of capitals. Boix (2003) reasons that the mobility of capitals in an era

of globalization might increase the appeal of democratic institutions since capi-

tal owners can move their capital holdings overseas to circumvent the tax burden

associated with democracy. This conjecture is based on the argument that the

5

formation of a global capital markets might put pressure on governments to lower

tax rates in order to be more hospital locale for international investors who might

finance export industries (e.g. Garret 1998; Mosley 2003). One qualification

applies, however: in the investment decision of international investors, the consid-

eration of corporate tax rates weights far lower than other factors such as labor

cost, the return to capitals, the legal environments for foreign investors, the social

order prevailing in the destination country and so on. Therefore, the degree to

which increased capital mobility in an integrated world eases the capital-owners’

resistance to democracy might be only minimal.

More importantly, in discussing the exit option newly available in an era of

globalization, labors might be more relevant to the story. Not only because they

are far numerous than capital owners, but they also have less stakes with the status

quo and are thus more likely to be initiators of a struggle for change. When na-

tional borders are more open, dissenters of autocracy might simply choose to exit

instead of overcoming all the collective action problems to fight for a democratic

transition, since the latter involves far more costs and risks of failure. More-

over, the expanded flow of labor across national boundaries (immigrants as well

as temporary alien workers)might intensify the conflict over the extension of citi-

zenship to non-natives, which makes the concept, ideal and practice of democracy

even more complex. As a result, either the universal citizenship under democ-

racy becomes more restricted or the appeal of a democracy is dampened by the

anti-foreignist or exclusionist sentiments.

(5) An alternative for examining the exit options would be an investigation

on the chances of permeation and infiltration. A popular conjecture has been that

the technology revolution will open and accelerate the flow of information, which

will in turn facilitate the dispersion of democratic ideas. However, we should heed

the warnings that “Tele-revolution may not lead to tele-democracy but to a new

totalitarian system which can monitor people by computerized networks of infor-

mation” (Im, 1996: 290). It’s true that the modern communication technologies

can make way for a new participatory democracy, but “it might also make way

for a new pan-opticon in which a leviathan can monitor people with a central-

ized computer” (Im 1996:290). Therefore, the rosy picture depicted by optimists

also have a dark side: the arrival of modern communication technologies might

enable an authoritarian government to intensify centralized control of information

to further constrain individual liberty.

6

1.2 Contenders: Trade Will Retard Democratization

In contrast to the optimistic predictions of the new-liberals, some recent scholar-

ship has expressed concerns that the tide of economic integration might impede

further democratization.

(1) International trade will retard democratization since a global market

might impose costs and constraints on governments in ways that limit the possibili-

ties for democracy. Rodrik(2000) illustrates this concern as “political trilemma”(2000),

which suggests that globalization leaves little room for government maneuver and

hence drives the countries under economic pressure to authoritarian means. Hays,

Freeman and Nesseth (2001) also suggest that trade exposure to international

markets brings about more volatile economic performance and probably more

economic and financial crises (“socially harmful, volatile equilibria” in their ter-

minology). As a result, trade openness might create resistance to further democra-

tization and bring back the authoritarian way of decision making, which is believed

to be better able to impose social orders in times of global recession(Im 1987; Dia-

mond 1992, 1999; Haggard and Kaufman 1995; MacDonald 1991; O’Donnell 1994;

Trent 1994; Cammack 1998).

Although it is true that an authoritarian regime is better equipped to mobilize

social resources to concentrate on competition in world markets and to weather the

storm of economic downturn, there are limits to which the authoritarian leader

can use his iron hand because repression beyond the limit might spark revolu-

tionary backlash. Therefore, there are no secure grounds to claim that economic

integration affect autocracies in a way different from it affects democracies.

(2) International trade will retard democratization as it transforms citizens

into some common ’Homo-economicus’ who care more about material benefits

than public and civic commitments. The spread of consumerism throughout the

world begins to construct the identity of people by the goods they consume and

blurs their political ideology (Im 1996). Individuals are only concerned with their

private business, disregarding whether the government practices democratic de-

cision making or not. As the reality of modern western democracies shows, the

public has less interest in casting votes in elections and there are few citizens who

dedicate themselves to the conduct of public policy. As a result, the appeal of

democracy gradually weakens (Whitehead 1993; O’Donnell 1993; Im 1996; Sassen

1996; Cox 1997; Boron 1998).

This argument that citizen’s political identity deteriorates with economic

7

integration and people under dictatorships might thus tolerate a liberty-ripping

dictator holds only when the following multiple conditions are satisfied: citizens

ruled by a dictator have no difficulty in maximizing their economic welfare ( which

means that the dictatorship does not threaten one’s physical security, and the dic-

tator won’t interfere in their economic life or reap rents from them); there are

no conflicts between citizen’s economic interests, and hence there are no needs

for the individuals get organized to compete for political power. However, the

real world displays exactly the opposite scenario: individuals demand for political

rights to protect economic holdings from being confiscated or looted; both polit-

ical competition and political repression are mechanisms of distributing and/or

redistributing material benefits.

The debate preludes an inspiring research topic on the agenda. Nonetheless,

both sides of the debate suffer from two common pitfalls. First, almost all authors

look for an absolute, uniform, unconditional effect of trade openness on democracy,

while the true effects of economic integration on democracy vary across countries,

conditional on the underlying social-economic parameters of the society. Second,

almost all scholars take the level of economic openness as exogenously determined,

while in fact the level of national economic openness originates from the deliberate

choices of the states. By making the choice of trade openness policy endogenous

and by exploring the social-economic factors that condition the effect of trade on

democracy, this paper seeks to rejuvenate and adjudicate the debate on the linkage

between trade and democracy.

1.3 A Research Agenda

As indicated by the literature review above, the political regime choice, trade

openness policy and income redistribution policy are interacting closely with one

another. However, the intertwined relationships have been heretofore only stud-

ied in two discrete literatures, and these two literatures have so far remained on

separate courses. The joint effects of trade and fiscal policies on the probability

of autocracy failure or democratic transition remain a vacuum in the literature.

On the one hand, scholars investigate both the effect of democracy on the

level of income redistribution (Chan, 1997) and the effect of income distribution

on the probability of democratic transition or democratic failure (Boix 2003), but

taking the domestic income distribution as completely unlinked from the external

global market and unaffected by foreign trade interactions. On the other hand, in

8

globalization studies, the effect of economic openness on the distribution of income

has been closely examined in both theoretical and empirical studies (although

only with ambiguous and sometimes conflicting conclusions) (e.g. Held, McGrew,

Goldblatt and Perraton 1999; Rodrik, 1997). However, the political determinants

of the level of trade openness have been largely left out in the discussion.

Moreover, both income taxation and trade contacts with the global econ-

omy have direct consequences on individual’s disposable income, and therefore

might well influence individual’s preference on the type of political regime. The

intertwined interactions of these two policy dimensions makes the reciprocal re-

lationship between trade and democracy much complex than it looks at the first

glance.

Therefore, in an era of globalization, a discussion of democratization with

a focus on either of the two dimensions but neglecting the other will suffer from

the risks of biased estimation and incautious conclusions. A one dimensional

perspective restricted to the policy change on the trade dimension suggests that

in a labor-abundant authoritarian society, the working class as a whole would

embrace a democratic transition since the transition-entailed trade liberalization

would bring a across-the-board increase in wages, while the capital holders have

an interest in blocking a democratic transition to obstruct the trade liberalization

process which will bring down the domestic price for capital.

However, such a one-dimensional perspective oversimplifies the story. When

taking the second policy dimension of redistribution into consideration, some

highly skilled wage earners might choose to stand in the ferry of guarding the

authoritarian order, since the redistribution prospect of democracy might discour-

ages certain well-off workers from rising against the authoritarian regime.

Similarly, studies of democratic transition by focusing the dimension of redis-

tribution more than often build on a false assumption that the income distribution

in the society remains the same before and after a regime transition. However,

the reality demonstrates that a regime transition might well change the economic

opportunities of citizens, for instance by changing the level of trade exposure.

Therefore, as many scholars have realized, bridging these two literatures

on trade and fiscal policies together by adopting a two-dimensional perspective is

essential (Boix and Garicano 2001; Asdera and Boix 2002; Reuveny and Li 2003; Li

and Reuveny 2003; Hiscox and Kastner 2004; Boix 2004). Boix (2004) criticizes

that the current studies on trade and redistribution is flawed in two aspects:

9

First, most of this scholarly literature has neglected the political determinants of

tariffs and taken the level of economic openness as exogenous to political decisions;

Second, the publicly financed redistribution mechanism has in most cases been

taken as a mere derivation of trade openness independent of domestic political

competition. Boix thus appeals for a reconsideration of the level of trade openness

and the size of the public sector as “two political decisions that are simultaneously

taken by political agents in response to the same dilemma: how to cope with the

distributional effects of increasing trade integration.” (Boix, 2004: p. 6)

This paper attempts to fill this theoretical lacuna by explicitly studying the

trade and fiscal policies under different political regimes and explores different

tax-tariff equilibria by constructing a formal model. The interactions of these

two policies forbids intuitive judgements: it’s reasonable to expect that an agent

who would suffer loss on the trade dimension from a democratic transition might

decide to go with democratization anyway if he could expect more gains from

the income redistribution mechanism under democracy. Likewise, a citizen who

embrace democracy on the trade dimension might end up defending the authori-

tarian regime, as a resort to defend her personal wealth from being redistributed

to the worse-off population. A formal approach can greatly facilitate our goal of

disentangling such complexity by abstracting key elements of the environment and

simulating relevant policy equilibria before and after a regime transition, given the

set of underlying social-economic parameters.

2 Formal Model

I study the potential for a democratic transition by focusing on the potential of

mass mobilization against the dictator in the authoritarian society. Social mass

movements had played a major role in the eve of almost all democratic transitions.

Although some transitions were orchestrated by the dictatorial ruler from above,

a dictator won’t forgo his authoritarian order unless the public opposition to the

regime exceeds a critical level, or when the organizational capacity of the masses

overwhelms the repressive capacity of the dictator. Put differently, the potential

of mass mobilization against the dictator gauges the “momentum of transition”

in a society.

I model a society where agents differ in their factor endowments, are posi-

tioned differently along the national income distribution, and therefore have diver-

10

gent policy preferences. The preference profile is transformed into policy outcomes

through different political mechanisms (democracy or dictatorships). Therefore,

a regime transition would disturb the original policy equilibrium, with direct con-

sequences on citizens’ utilities. As a result, some people will find a democratic

transition desirable but others might prefer the authoritarian status quo.

The transitional momentum in a non-democratic society is measured by the

proportion of population who can expect utility gains from a democratic transition,

even after counting the costs involved in the transition2. Given the underlying

social, economic and political conditions, we can then estimate the momentum of

transition in any given authoritarian society.

2.1 The Model

The Economy

Suppose there is a society with three types of agents: the dictator, the capital

owners and the wage earners, with the total Lebesgue measure of the population

normalized to one. Suppose a measure λ of the population are workers, whose

skills are distributed according to a lognormal distribution F (.) with a mean value

of u and a median value of m. The capitalists amount to a measure of 1− λ, and

own together a capital stock κ, measured in per capital term for convenience in

calculation. The dictator can be one single person or a group of hardcore, taking

up only a negligible measure of the whole population. Let the market equilibrium

per unit return to skill be w, and the per unit return to capital be r.

There are two types of goods, X and Y . Both Good X and Good Y are

produced according to a Cobb-Douglas production function.

Xs = f(K, L) = αKaL1−a

Y s = g(K,L) = βKbL1−b

where a and b indicate the capital intensity of the production and α and β indicate

the technology.

2There are multiple possibilities for interpreting such costs. The costs might come from thetransition process per se, such as destruction of capital stock and risks of losing one’s life inrevolution (Przeworski and limongi 1997), or from uncertainty surrounding the outcome of therevolutionary attempt, or from the psychological reluctance to give up the status quo to face alottery, or from the efforts made in adjusting to a new political order

11

Suppose the country exports X at price 1 and imports Y at price p∗. The

government imposes a tariff τ on the imports, so that the prevailing price of good

Y on the domestic market is p = p∗ + τ .

The supply

Firms in the export sector solve the following problem:

maxLx,Kx

Xs − wxLx − rxKx

F.O.C

wx = α · (1− a) · (Kx

Lx

)a

rx = α · a · ( Lx

Kx

)1−a

Firms in the import-competing sector solve the following problem:

maxLy,Ky

p · Y s − wyLy − ryKy

F.O.C

wy = p · β · (1− b) · (Ky

Ly

)b

ry = p · β · b · ( Ly

Ky

)1−b

Assume perfect mobility of capitals across sectors over long term; the return

to capital in the two sectors should be the same:

rx = ry = r

α · a · ( Lx

Kx

)1−a = p · β · b · ( Ly

Ky

)1−b = r

Assume perfect mobility of labor across sectors over long term; the skill pre-

mium offered by these two industries should be the same:

wx = wy = w

α · (1− a) · (Kx

Lx

)a = p · β · (1− b) · (Ky

Ly

)b = w

12

From (1) and (2), we get:

w = α · (1− a) · ( r

a · α)a

a−1

r = p · β · b · ( w

p · β · (1− b))

b−1b

Solving (3) and (4) together:

⇒ w = [pβ(1− b)

α(1− a)· (α(1− a))

1−aa

(pβ(1− b))1−b

b

]ab

b−a

⇒ r = [pβ(1− b)

α(1− a)· (pβb)

b1−b

(aα)a

1−a

](a−1)(b−1)

b−a

The capital investment market must clear:

Kx + Ky = κ

The labor employment market must clear:

Lx + Ly = λ · s

From (1), (2), (5), (6), (7) and (8), we can calculate the capital and labor

inputs in the X and Y industry respectively:

Kx =λ · s− ( r

p·β·b)1/(1−b) · κ

( rα·a)1/(1−a) − ( r

p·β·b)1/(1−b)

Lx =κ− ( w

p·β·(1−b))1/b · λ · s

( wα·(1−a)

)1/a − ( wp·β·(1−b)

)1/b

Ky =( r

α·a)1/(1−a) · κ− λ · s( r

α·a)1/(1−a) − ( rp·β·b)

1/(1−b)

Ly =( w

α·(1−a))1/a · λ · s− κ

( wα·(1−a)

)1/a − ( wp·β·(1−b)

)1/b

We thus have the total domestic supply of good X, Y , denoted by XS ,Y S:

XS = αKaxL1−a

x

13

Y S = βKbyL

1−by

The Demand

Each consumer solves the following problem:

max U(X, Y ) = XcY 1−c

s.t. X + pY = h

This implies:

Xi = c · h

Yi =(1− c) · h

p

The total income, which is also the mean income of the society (since the whole

population sums up to a measure of 1), is µ = r · κ + λ · w · s.

Thus we have total demand for good X, Y , labelled by XD, Y D:

XD = c · µ

Y D =1− c

p· µ

The tariff revenue is then given by:

R(τ) = τ · (Y D − Y S) (1)

2.2 The Policies

Policy Equilibrium Under Autocracy

A dictator cares about two things: the resources in his control for the multiple

purposes of governance, repression and personal luxury (R), and his probability

of remaining in power (π).

Let the dictator’s utility function be:

Ud = π ·R

This means that the dictator is interested in his expected income, which equals

14

the probability of staying in power times his income.

A dictator’s supply of political freedom, media access, association rights and

autonomy lags behind citizen’s demand for it. Thus, the dictator has to use

political repression to impose social order and foreclose opposition. There is a

cost of repression to the dictator, as political repression requires putting aside a

considerable amount of resources for that purpose. Let ` be the level of repression.

Then the cost of repression is c(`), measured again in per capita terms. Suppose

the function c(`) takes on the following form:

c(`) = γ · `2

Denote the ruling resources collected through channels other than tariff revenue

by Ro, and R(τ) for the tariff revenue the government grabs as a middle merchant

who buys in foreign goods at price p∗ and sells out to the domestic market at an

additional price τ .

Then, given a policy pair chosen by the dictator (`, τ), his available income is

given by:

R(`, τ) = Ro + R(τ)− c(`)

There are two main determinants for the probability that a dictator can remain

in power, namely the social momentum for a regime transition and the level of

repression imposed by the dictator. Social momentum against the dictatorial rule

has a clear effect of shadowing the dictator’s chance of survival. The more social

grievance and dissatisfaction there is in the authoritarian society, the less likely

that a dictator can successfully clinch on his office.

The level of political repression, in comparison, is actually a double-edged

sword with an ambiguous effect on the dictator’s chances of resisting democrati-

zation. On the other hand, political repression might intimidate opposition and

hinder political dissidents from organizing. On the other hand, however, repression

might also exacerbate mass resentments against the dictatorship.

This double-edged effect is modelled by the following probability function:

π(σ, `) = 1− ρσ

e`(2)

where σ denotes the proportion of the citizens who prefer democracy to the

status quo, or the size of the set of citizens whose expected utilities under democ-

15

racy exceed their current utilities under autocracy. Obviously the size of this set

is a direct function of the policy bundle (`, τ) chosen by the dictator, as the dic-

tator’s policy decisions interfere directly with citizen’s current utility. It’s worth

noting that σ is in itself an strictly increasing function of the repression level `,

indicating that the larger disutility there is due to repression, the more appealing

the image of democracy will be to citizens.

Intuitively, the dictator’s probability of remaining in power is a function of the

power contrast between the dictator and the masses. Given the size of opposition

σ, the tighter the control of the dictator over the society ( the bigger ` is), the

smaller the chance of a successful democratic transition. Such power contrast is

expressed mathematically as σ/e`. The coefficient ρ (0 < ρ < 1) is designed to

measure the effectiveness of political repression in obstructing the dissidents from

organizing (such that the actual size of opposition coalition is only a fraction of

the coalition σ indicated by the preference configuration). The smaller ρ is,

the more effective political repression is in scaring away opposition. Taking an

extreme case, when ρ = 0, a little repression can totally mute opposition! At the

other extreme, when ρ = 1, repression has almost no effect in muffling dissent and

dissatisfaction.

Overall, this probability function suggests that political repression might help

keep opposition down by obstructing the dissidents from organizing or scaring

away contestants, but might also exasperate social grievances and resentments

(such that the set of citizens who can expect utility gains from a regime transition

σ expands), which in turn threatens his chance of staying in power.

Given the amount of Ro, the dictator’s problem is then:

max`,τ

Ud(`, τ) = π ·R = (1− ρ · σ(`, τ)

e`)(R(τ)− γ · `2) (3)

Denote the equilibrium policy vector by (`∗, τ ∗A).

Policy Equilibrium Under Democracy

Once a democratic regime is installed, policies are no longer determined by a

dictatorial ruler but are generated through public political competition. Therefore,

by changing the ruling ideology as well as the policymaking process, a democratic

transition causes important policy changes, which in turn will have direct impacts

on citizens’ utilities.

16

To simulate the would-be political competition following a democratic transi-

tion on more than one policy dimensions, I use the concept of Endogenous Party

Ideological Equilibrium (EPIE) developed by John E. Roemer (2005). This model

of political competition has two advantages over the traditional Downsian model.

First, Downsian model is an oversimplification of the reality of politics in assuming

that parties compete over one single issue. The concept of EPIE, on the other

hand, “liberates formal political economy from the handicap of having to conceive

of politics as unidimensional.” (Roemer, 2001; p. 12). Second, as the name of equi-

librium suggests, instead of dividing the entire population by the point where the

median citizen (if there was a well-defined median citizen) stands, EPIE attempts

to derive how parties come into being given citizen preferences and endowments.

Therefore, EPIE can simulate the endogenous formation of parties.

Posterior a democratic transition, two political parties would form to repre-

sent two different segments of the society, the rich people and the poor people,

and compete over the setting of public policies. We denote the two parties by

Left(L) and Right(R). The segmentation of the society along a cut-off income

level and representation of voters’ preferences through political parties has far-

reaching implications. In particular, political competition between the rich camp

and the poor ferry brings the issue of income redistribution up onto the political

agenda. Income redistribution is a “latent” political issue under autocracy, since

the ruling rich elite can dismiss the poor’s request for redistribution by repres-

sive means3. Intuitively, the right party representing the wealthy members in the

society would strive to defend their members’ wealth from being redistributed to

less well-off people, while on the contrary the left party would campaign for more

redistribution through taxing the rich people.

Each party then proposes a policy vector (t, τ) ∈ [0, 1]×<+, where t denotes

the income tax rate and τ for the tariff rate. After observing the two parties’

proposals, each voter casts a vote for one of the two parties. Assume that voters

vote sincerely, i.e., each citizen votes for the party whose policy renders him a

higher utility.

Suppose there exists some wage income threshold h∗, or a skill threshold s∗,

3Without a political mechanism that holds the government accountable to the poor majority,authoritarian regimes tend to pursue policies that benefit the rich minority at the expense of themajority-policies that maintain or aggregate income inequality (Lenski 1966). Although somedictatorships also have certain redistribution policies, a dictator is unable to make the promiseof redistribution credible, since the poor working class is excluded from the decision-makingprocess and the dictator can renege on his offer anytime.

17

such that given (tL, τL), (tR, τR), h∗ is such that vD(tL, τL, h∗) = vD(tR, τR, h∗).

Put it in words, the citizen of type h∗ is indifferent between the tax policy proposed

by the Left party and the Right party. We call h∗ the separating income or the

pivot income. Then, party L represents the agents with income levels below the

pivot income and party R represents the agents with income levels above it.

Suppose further that both parties have von Neuman-Morgenstern preferences

on policies, and that each party member receives equal weight in the determination

of the party’s preference. A party’ von Neuman-Morgenstern utility functions can

thus be expressed as the utility function of its average constituent. Formally,

V J(t, τ, s∗) = vD(t, τ ; hJ),

for J = L,R, where

hL =w · ∫ s∗

0dF

F (s∗); hR =

λ · w · ∫∞s∗ dF + (1− λ)k

λ · (1− F (s∗)) + (1− λ)

where k = (r · κ)/(1− λ)

Let Ω(τL, tL; tR, τR) be the set of types who prefer the policy bundle (τL, tL)

proposed by the Left party to the Right party’s proposal (τR, tR). Assuming that

there is no voter who is indifferent between two different policy bundles(τL, tL)

and (τR, tR), then F(Ω(τL, tL; τR, tR))is the fraction of population who will vote

for the Left party when facing the choice between the two policy vectors. Assume

further that a voter votes for the party he or she belongs to if the two parties

propose the same policy bundle.

The type of citizen s who is indifferent between the two platforms (τL, tL) and

(τR, tR) is:

s∗ = s : vD(τL, tL, s) = vD(τR, tR, s)

That is:

s∗ =TR/p1−c

R − TR/p1−cR

(1− tL) · wL/p1−cL − (1− tR) · wR/p1−c

R

where Tj = tjµ(1− tjθ) + R(τj), j = L,R and pj = p∗ + τj, j=L,R

Therefore,

F(Ω(τL, tL; τR, tR)) = F (s∗) (4)

18

Given that the whole population has a measure of one, F (s∗) measures for the

probability that the Left party will win the office and implement policy bundle

(τL, tL), and 1 − F (s∗) measures for the probability that (τR, tR) will win out.

Then, the expected policies outcomes are:

τ = F (s∗)× τL + (1− F (s∗)× τR (5)

t = F (s∗)× tL + (1− F (s∗)× tR (6)

Definition: An Endogenous Party Ideological Equilibrium (EPIE)is a parti-

tion H = ΓL⋃

ΓR, ΓL⋂

ΓR = Ø, and a pair of policy platform (τ ∗L, t∗L; τ ∗R, t∗R))

such that:

1. Given the policy platform (τ ∗R, t∗R) proposed by the Right party,

(τ ∗L, t∗L) = arg maxτL,tL

V L(τ, t)

2. Given the policy platform (τ ∗L, t∗L) proposed by the Left party,

(τ ∗R, t∗R) = arg maxτR,tR

V R(τ, t)

3. Given (τ ∗L, t∗L; τ ∗R, t∗R)),

h ∈ ΓL ⇒ vD(τL, tL, h) ≥ vD(τR, tR, h)

h ∈ ΓR ⇒ vD(τR, tR, h) ≥ vD(τL, tL, h)

In arriving at the EPIE, we need to solve the following five equations simulta-

neously:

∂V L(τL, tL; τR, tR)

∂τL

= 0 (7)

∂V L(τL, tL; τR, tR)

∂tL= 0 (8)

∂V R(τL, tL; τR, tR)

∂τR

= 0 (9)

19

∂V R(τL, tL; τR, tR)

∂tR= 0 (10)

s∗ =TR/p1−c

R − TR/p1−cR

(1− tL) · wL/p1−cL − (1− tR) · wR/p1−c

R

(11)

Typically, there exists a unique ideological equilibrium (See discussion in Moreno-

Ternero and Roemer (2005, pp. 12-13)). The unique equilibrium is actually a

good compromise between the manifold of equilibria generated by PUNE, a con-

cept developed by Roemer (2001). “More precisely, it can be seen that the convex

combination of the policies obtained in a PUNE, weighted by the share of the

vote obtained by each party (that can be computed from teh pivot income given

in the description of the equilibrium) is basically constant and it coincides with

the resulting policy obtained from the [EPIE] after repeating the same weighting

process.” (Moreno-Ternero and Roemer, 2005; p. 14)

The Transitional Momentum

By changing the equilibrium policy bundles, a democratic transition has far-

reaching implications for every citizen’s material welfare. An individual prefers

a democratic transition to the status quo if and only if for whom the would-be

utility under a perspective democratic regime exceeds the current utility under

the dictatorship. The transitional momentum is then measured by the proportion

of population who have an interest in transiting to democracy.

As discussed in the very beginning of the model, there are two types of com-

modities X and Y in the society, and each individual derives utilities from con-

suming X and Y , subject to his budget constraint h.

U(X, Y ; h) = XcY 1−c s.t. X + pY = h

where h = w · s or (r · κ)/(1− λ)

Utility maximization then implies that

U(X, Y ; h) = cc(1− c

p)1−c · h (12)

20

People’s utilities are subject to the intervention of government policies. Given

the equilibrium policy bundles under the two types of political regimes, as de-

ducted above, we can compare citizen h′s pre and post-transition utilities to learn

his preference on a democratic transition. Let the subscript A denotes an author-

itarian regime and D denotes democracy, I now derive citizen h′s indirect utility

function under autocracy and democracy, respectively.

Autocracy

Aside from the two private goods X and Y , political repression imposed by the

dictator generates a public bad that causes a disutility for every citizen. Citizen

h′s direct utility function under an autocracy is given as:

UA(X,Y, `; h) = cc(1− c

p)1−c · h− `

Given the equilibrium policy vector (`∗, τ ∗A), his indirect utility function would

be:

vA(`∗, τ ∗A; h) = cc(1− c

p∗ + τ ∗A)1−c · h− `∗ (13)

Democracy

A democratic transition entails three modification of people’s utility function.

First, a democratic transition confers political rights and freedom on the citizenry

and therefore eliminates the public bad of political repression. Second, extension

of suffrage to the poor population makes the state responsive and attuned to the

redistribution request of the less well-off people, and party representation of people

with contrasting levels of wealth holdings makes the issue of income redistribution

politically salient. Third, trade revenue, which is squandered by the dictator

under autocracy, is now used by the democratic government to provide public

service which is of equal value to every citizen.

Accordingly, given the equilibrium policy vector (τ ∗D, t∗) under democracy, cit-

izen h′s indirect utility function under a would-be democracy is:

vD(τ ∗D, t∗; h) = cc(1− c

p∗ + τ ∗D)1−c · [(1− t∗)h + T (τ ∗D, t∗)] (14)

21

where T (τ, t) = tµ(1− tθ)+R(τ), with θ denoting the deadweight cost of per unit

tax.

Change of the political order is costly. There are multiple possibilities for

interpreting such costs. The costs might come from the transition process per se,

such as risks of losing one’s life in revolution or destruction of capital stock, or

from uncertainty surrounding the outcome of the revolutionary attempt, or from

the psychological reluctance to give up the status quo to face a lottery, or from the

efforts made in adjusting to a new political regime. Suppose the transition cost

is a portion δ of one’s current material holdings. Consequently, the set of citizen

who prefers a democratic transition to the continuation of the authoritarian order

would be:

Ωh = h : vA(τ ∗A, `∗; h) ≤ (1− δ)vD(τ ∗D, t∗; h) (15)

The transitional momentum is then indicated by:

σ = λ · F (Ωh) + (1− λ) · I (16)

where I indicates whether a typical capitalist prefers a regime transition, or

I =

1, if vA(τ ∗A, `∗; k) ≤ (1− δ)vD(τ ∗D, t∗; k)

0, otherwise

As discussed in Section 3.1.3, the probability of a democratic transition π is

increasing with the scale of the transitional momentum σ: the more citizens are

unsatisfied with the authoritarian order, the more likely that a regime transition

will erupt. Given the dictator’s policy choice `∗, the probability of transition is

then:

π(σ, `∗) = 1− σρ

e`∗

2.3 An Example

Now let’s take a concrete example to calculate the transitional momentum in an

authoritarian society. Suppose the social economic parameters characterizing an

authoritarian country are: α = 1; β = 0.975; a = 0.1; b = 0.3; c = 0.5; pstar =

1; λ = 0.8; θ = 0.35; ρ = 0.5; γ = 0.5. The distribution of skills F (s) follows a log-

normal distribution with a mean value of u = 30 and a median value of m = 25.

22

The capital-labor ratio in the society is 0.5 (such that κ = 0.5 λ u = 12)

In this society, the policy pair chosen by the dictator is:

(`∗, τ ∗A) = arg max(`,τ)

Ud(`, τ) = (0.2097, 0.1314)

Accordingly, under the authoritarian regime, a worker with a skill level of s

receives a utility of:

vA(`∗, τ ∗A; s) = cc(1− c

p∗ + τ ∗A)1−c · w · s− `∗ = −0.209702 + 0.369088s

How would a democratic transition affect his utility? The Endogenous Party

Ideological Equilibrium (EPIE) suggests that once a democratic polity is installed,

workers with skill levels less than s∗ = 21.014 would conglomerate and constitute

the Left party, while workers with skill levels above s∗ = 21.014 would collaborate

with the capitalists and form the Right party. Each party proposes a policy vector

(t, τ) to maximize the utility of its average member. In this setting, the Left party

would propose a policy bundle (tL, τL) = (0.6850, 0.0259), in competition with

the Right party’s proposal (tR, τR) = (0, 0.0106). The probability that the Left

party wins a majority would be π = 0.3095, and the probability that the Right

coalition defeats the Left party is 1− π = 0.6905. According to equations (5) and

(6), the expected policy vector implemented by the democratic government would

be:

(t∗, τ ∗D) = (0.2120, 0.0153)

Then, the level of utility a worker with a skill level of s can expect from a

democratic transition is:

vD(τ ∗D, t∗; s) = cc(1− c

p∗ + τ ∗D)1−c · [(1− t)w · s + T (t∗, τ ∗D)] = 2.25751 + 0.318311s

Therefore, the set of wage earners who prefer a democratic transition to the

status quo is:

Ωs = s : vA(`∗, τ ∗A; s) ≤ (1− δ)vD(τ ∗D, t∗; s) = s : s ≤ 21.6047

Similarly, we can compare the utilities a capital owner receives under the cur-

rent autocracy and an expected democracy:

23

vA(`∗, τ ∗A; k) = cc( 1−cp∗+τ∗A

)1−ck − `∗ = 9.42228

vD(τ ∗D, t∗; k) = cc( 1−cp∗+τ∗D

)1−c · [(1− t∗)k + T (t∗, τ ∗D)] = 8.04776

It is easy to observe that the whole class of capital owners would be loyal support-

ers for the authoritarian regime since vA(`∗, τ ∗A; k) > (1− δ)vD(τ ∗D, t∗, ; k)

Therefore, the momentum of transition in the entire society is:

σ = λ · F (Ωh) + (1− λ) · ×0 = 0.323598 (17)

The probability of transition in this society would be:

π(σ, `∗) = 1− σ · ρ

e`∗ = 0.27508

Decomposition of the Total Momentum

In an era of globalization, the appeal of democratization for citizens in an author-

itarian society is three-fold. First, on the dimension of citizen rights, democrati-

zation guarantees ordinary citizens freedom in speech, publication and association

and confers voters equal voting power in determination of public policies. Sec-

ond, on the dimension of domestic economic policy, democratization brings in

political competition among parties which makes the direction and scale of in-

come redistribution a most salient issue. For the last, on the dimension of foreign

economic policy, a democratic transition more than often entails a trade liberal-

ization process, lowering the consumption prices and making certain segments of

the population better off.

To isolate the three effects of democratization, I conduct the following two

counterfactual analyses. The first counterfactual is carried out by assuming that

the dictator chooses a tariff policy identical to the choice of a would-be democratic

regime on the foreign policy dimension. If we call σ the momentum of transition in

the original equilibrium, and σ′ the momentum of transition in this counterfactual,

then the difference of σ − σ′ is a measure for the trade effect of democratization.

This counterfactual allows us to predict how the momentum of mass move-

ment against the dictatorship would change if the authoritarian leader had adopted

a freer stance on the foreign economic policy to blurry the difference between his

24

authoritarian regime and a democratic government on the trade dimension (such

that the citizens are under the same level of trade exposure as they would ex-

perience under democracy). In the example presented above, the counterfactual

analysis reveals that the cutoff level of skill is 21.6047 in the original equilibrium,

but 15.9595 in the counterfactual. Accordingly, the trade effect of democratization

is 0.140668, or 43.47% of the total transitional momentum σ = 0.323598.

The second counterfactual is conducted by assuming that the dictator does

not use political repression when in office. If we call σ the momentum of transition

in the original equilibrium, and σ′′ the momentum of transition in the second

counterfactual, then the difference of σ− σ′′ is a measure for the freedom effect of

democratization.

The second counterfactual indicates to what extend the authoritarian leader

can buy off political support by stoping using an iron hand to control the soci-

ety, but remaining entirely authoritative in policy making. While in the original

equilibrium 21.6047 is the cutoff point in the population, the pivotal citizen in the

counterfactual is the one with a skill level of 14.3872. Accordingly, the freedom

effect of democratization is 0.0389, or 12.02% of the total transitional momentum.

The remaining 0.1441, or 44.51% of the total transitional momentum is due

to the transition-induced differential on the redistribution dimension, or the re-

distributional effect 4. The decomposition of the total transitional momentum

indicates that in this particular society, the appeal of a perspective democratic

regime comes mainly from the image of democracy as a free trader and a redis-

tributive machine.

2.4 Comparative Statics

This section presents some comparative statics to show the effects of some of

underlying social economic parameters on the momentum of transition.

4An alternative way to calculate the redistributional effect would be to conduct a thirdcounterfactual assuming that the dictator implemented the same scale of income redistributionby imposing an income tax rate equal to the democratic tax policy t∗. However, as discussedbefore, a democratic transition changes individual’s income opportunities and reshuffles thedomestic income distribution, making the effects of the same level of taxation incomparablebefore and after transition.

25

Skill Profile of the Labor Force

Most scholars intuitively subscribe to the idea that the wage earners as a class

have different “class interest” from those of capital owners. However, nowadays

the importance of human capital in production and technology development indi-

cates that a simple classification of labor against capital is no longer sufficient for

diagnosing the interest delineation and alignment in the society. How would the

skill differentials among the wage earners influence the transitional momentum

in the society? Using the median-mean ratio as a proxy for the degree of skill

differentials in the labor force, I tabulate the transitional momentum against the

skill profile of the workforce in the following table.

[Table 2.4.1 about here]

As indicated by the table, as the skill disparity in the labor force moderates, the

solidarity among the workers strengthens, with an effect of increasing the power

in hand of the masses. The dictator responds by raising the level of repression

(from 0.5504 to 0.6503). To pay off the additional resources expended on brain-

washing, media screening, police force and so on, the dictator charges a higher

import tariff to collect additional revenues. The upward adjustment in repression

and tariff rate worsens the citizenry’s welfare. On the one hand, more repression

causes more disuility and more political discontent, magnifying the freedom effect

of a democratic transition. On the other hand, the higher price for the foreign

good virtually lowers the real wages in the labor market, diminishing the con-

sumer’s purchasing power and reducing therefore their welfare. As the result, the

appeal of democracy as a freer trader becomes magnifies and the trade effect of

democratization enlarges.

The other side of the story is the declining redistribution effect. As the skill

distribution becomes more even, the income disparity among workers accordingly

shrinks, and hence the equilibrium level of redistribution under a prospective

democracy also declines, resulting in diminishing redistribution effect.

Figure 3.5.3 discomposes the total transitional momentum into three bands.

As the skill distribution becomes more even, both the trade effect and the freedom

effect rise but the redistribution effect of a democratic transition shrinks. Overall,

26

as the skill disparity among wage earners falls, the total transitional momentum

climbs and the chances of a democratic transition increments.

[Figure 2.4.1 about here]

This result evidences that skill differentials will possibly ruin the solidarity of

workers. More specifically, those with skills and hence better material rewards

might be content with current welfare, hesitate to engage in social moments to

demand a regime change, especially when the prospect of democracy involves

redistribution of their income to those didn’t invest in education and professional

training.

Capital-Labor Ratio

Capital-labor ratio is the amount of capital stock per employed person. As will be

shown below, capital-labor ratio is actually an index for the share of production

revenue that goes to the labor owners.

Let G be the per capita GDP, K be the total capital stock in the society and

L be the total labor pool. The exponent n is a number between 0 and 1.

G = KnL(1− n)

G/L = (K/L)n

Take the logs of both sides of the production function, we would have:

log(G/L) = nlog(K/L) (18)

If we interpret logarithm in terms of percentage changes, equation says that

one percentage point difference in the capital-labor ratio would bring n percentage

point difference in output per worker. Therefore, if workers in country A have 10

percentage more capital to work with than workers in country B, then we would

expect that country A has 10n percent higher output per worker.

As presented in Table 2.4.2, the transitional momentum in an authoritarian

society diminishes as the capital-labor ratio increases. This descending trend is

resulted mainly from a weakened trade effect. As an index for labor productiv-

ity, the higher the capital ratio is, the more productive the national economy is

27

and the more competitive it is in international trade competition. Therefore, it’s

reasonable to expect that an authoritarian country with a relatively high capital-

labor ratio has a relatively low equilibrium tariff rate, as shown in Table 2.4.2. A

democratization process can still bring down the tariff wall, but the pulling effect

is smaller when the starting point is lower. As a result, holding the size of the

working force constant, the trade effect of a democratic transition decreases as

capital in the society accumulates.

[Table 2.4.2 about here]

Moreover, the redistribution effect of a democratic transition slightly steps

down when the average worker has more capital assets to work with. Why? As

mentioned above, capital-labor ratio determines how the revenue of production

is divided between capital and labor. A high capital-labor ratio implies an ad-

vantage of labor owners in the balance of power in markets, since capital owners

have to compete for workers; while a low capital-labor suggests advantage capital,

as workers have compete for working with that capital. Therefore, the income

disparity between the average capital owner and the average wage earner is less

outstanding in a society with a higher capital-labor ratio. Consequently, the ap-

peal of a democratic political regime as a stage for class politics diminishes as the

capital-labor ratio rises.

Lastly, the freedom effect of a democratic transition also decrements as

the capital stock per employed worker in the economy expands. The source of

this dwindling effect is a loosening of the dictator’s iron hand. Recall that the

capital/labor ratio is a critical determinant of labor productivity and therefore

wages paid to workers. An increase in the capital/labor ratio augments a worker’s

wage income, making them less motivated to embrace a political change. The

dictator then feels less need to tighten political control.

[Figure 2.4.2 about here]

28

Technology Shock

Technology defines total productivity in one industry. A technology upgrade can

multiply the output at the same amount of labor and capital inputs. How would

a technology shock affect the momentum of transition in the society?

[Table 2.4.3 about here]

Table 2.4.3 shows that a positive technology shock in the import-competing

industry can greatly moderate the transitional momentum, mainly by lowering

down the optimal tariff level in the authoritarian society and hence the trade effect

of a democratic transition. Anticipating the moderation in the societal momentum

against the autocracy when more trade openness is allowed, the authoritarian

leader responds by loosing his political repression. As a result, the freedom effect

of a regime transition also diminished. The redistribution effect of a transition

roughly remains the same, as a technology progress augments the per unit return

to both capital and labor and there turns out to be no significant adjustment in

income disparity among the citizenry. Figure 2.4.3 exhibits these trends visually.

[Figure 2.4.3 about here]

2.5 A Brief Summary

As shown by the computational results above, the equilibrium tariff rate under

a democratic regime will in most cases be around the free trade level, suggest-

ing that democratization usually entails a trade liberalization process. However,

there is large variation in the scale of such a trade liberalization process among

different economies, depending on both the starting level under the authoritarian

regime and the policy equilibrium under a democracy. For those autocracies that

are already very open in foreign trade, the trade effect of democratization will

be relatively small. On the other hand, for some countries, due to uncompetitive

structure of its national economy, protectionist policies always tend to prevail in

29

spite of the type of the political regime; therefore there are limits to which a de-

mocratization process can bring down tariff level and only a weak tariff adjustment

can be expected with a regime transition.

The variation in the degree of trade openness among autocracies is a result

of the variation in the underlying characteristics of their economies, such as the

technology level, labor productivity and skill distribution of the labor force. In

particular, the equilibrium tariff protection level chosen by a dictator falls as the

technology employed in the import-competing sector upgrades, or labor productiv-

ity (as indexed by the capital-labor ratio) improves, or the skill distribution in the

economy becomes more even. These findings are consistent with the predictions of

the Grossman-Helpman’s political economic model of tariff setting and empirical

investigations of the by Goldberg and Maggi (1999), Gawande and Bandyopadhyay

(2000), and Mitra et al (2002). This explains why some authoritarian countries

(Singapore) have virtually free trade, but others still hold on to trade protection

policies (China) or even remain an autarky economy (North Korea).

As shown in figure 2.5.1 to 2.5.3, the transition-induced policy adjustment

on the foreign trade dimension would descend with improvement in technology,

accumulation of capital stock and development of mass education and vocational

training. When the social-economic parameters play in favor of the authoritarian

leader, it is to his best interest to adopt trade openness, engage actively in in-

ternational exchanges and reap gains from the game. By taking the initiative to

liberalize on the foreign trade dimension, the dictator can reduce the transitional

momentum in the society by diminishing the trade effect of a democratic transi-

tion, as citizens would desist from attempting a political change if the expected

gains cannot compensate for the cost involved in dismantling the old order and

adjusting to a new system.

[Table 2.5.1, 2.5.2, 2.5.3 about here]

In short, an authoritarian leader would voluntarily choose trade openness

only when this initiative is beneficial given the underlying social-economic para-

meters. Therefore, international trade can actually help sustain an authoritarian

regime by giving the authoritarian government credit in bringing in cheap for-

eign goods (by not imposing high tariffs)and (possibly) enriching the population.

30

Besides, the image of being open and liberal might by itself win over additional

political support. This will then start a virtuous circle: as more people are con-

tent with the status quo, the motivation to rise against the authoritarian order

becomes lower, the dictator responds by repressing less, and as a result the tran-

sitional momentum in the society is even abated.

In the next section, I’ll assess empirically the effects of trade liberalization

on the probability of democratic transition by examining a dataset spanning 22

years and covering 199 countries/regions .

3 Empirical Analysis

The relationship between trade and democracy has just started receiving serious

empirical attention. Empirical analysis attempted in this project differs from

current scholarship on this subject (Li and Renuevi (2003) and Hiscox and Kastner

(2002)) on two important aspects:

1. First, I employ a policy variable of average tariff rate (World Bank 2005),

instead of following the common practice of measuring the level of trade

openness by the trade share of GDP 5.

2. Second, my research interest lies explicitly on the incidence of democratic

transition from authoritarian rule, while the focus of most of the current

empirical scholarship on trade and democracy is democratic stability. 6

“While we would expect democracy and stability to be somewhat correlated,

they remain analytically distinct, and there is evidence that they also are

empirically distinct” (Bollen 1980; Bollen and Jackman 1985).

3.1 Data and Variables

The dataset consists of 3871 observations for 199 countries /regions 7over the

period 1981-2002, with the unit of analysis being country-year. 1981 is the first

5Hiscox and Kastner (2004) is an exception. Based on a gravity model, they composed theirown measure for evaluating a country’s policy orientation on trade openness.

6Hiscox and Kastner(2004), for instance, are concerned with democratic consolidation. Theirresult suggests that rapid trade liberalization without the development of a government taxationsystem capable of insuring citizens against income fluctuation related to trade openness may posea significant danger to the consolidation of democratic institutions in unfledged democracies.

7The number of existing countries in the current world is 194. However, some countries havemultiple identifications: for instance, Germany has records under three identifications: EastGermany (1981-1989), West Germany (1981-1989), and Germany (1990-2002).

31

year for which we have World Bank data for average tariff, and 2002 is the final

year for which regime types were coded by Cheibub and Gandhi (2004). This

dataset includes 67 cases of democratic transitions, as listed in Table 3.1.

[Table 3.1 about here]

Dependent Variable

The dependent variable in the regression model is regime type, measured by a

dichotomous measure of democracy.

REG : A dichotomous variable that takes on a value 1 if a country is democratic

in a given year and 0 otherwise.

(Source: Cheibub and Gandhi 2004)

Independent Variable

The key regressor of interest in this project is the degree of trade openness. The

theoretical model suggests that the further away the tariff policy under the au-

tocracy deviates from the laissez faire level, the greater would be the trade effect

of a democratic transition. Since the trade effect constitutes a chunk of the total

transitional momentum, holding everything else equal, less trade openness would

negatively affect the dictator’s chances of remaining dictatorial. I now submit this

hypothesis to empirical tests.

AVRTAR : Average tariff rates indicating the level of trade barriers for a coun-

try in any given year, calculated by taking unweighted averages for all goods

in applied rates, or MFN rates whichever data are available in a longer pe-

riod. (Source: World Bank, 2005)

Control Variables

Based on the practices of Przeworki et al (2000), Boix (2003), Li and Revueney

(2003) and Hiscox and Kastner (2004), I include several control variables on the

right-hand-side of the regression model:

32

1. Economic Development Level

It has long been suggested that economic development might explain the origin

of democratic regimes 8 (Lerner, 1958; Lipset 1960; Deutsch 1961; Culright 1963;

Lenski 1966; Smith 1969; Boix and Stoke 2003 ). It’s a strong empirical regular-

ity that there are a higher proportion of democracies among rich countries than

among poor countries, although the debate over whether this strong empirical

regularity should be interpreted by an “endogenous theory” – that economic de-

velopment increases the likelihood that poor countries will undergo a transition or

an “exogenous theory” – that democracy is simply more likely to survive in rich

countries is never settled. To control for the possible correlation between the level

of economic development and transition to democracy, I include two variables on

the right hand side of the regression model. One is logged real per capita income

(GDP) indicating the level of income and the other is percentage change in per

capita income from the previous year, or economic growth (GRTH).

GDP : GDP per capita based on purchasing power parity (PPP) measured in

constant 2000 international dollars 9. It is calculated without making deduc-

tions for depreciation of fabricated assets or for depletion and degradation

of natural resources. (Source: World Development Indicators, 2005)

GRTH : Annual percentage growth rate of PPP adjusted per capita GDP.

(Source: WDI, 2005)

2. Population

The size of the population is often mentioned as affecting the type of political

regime installed in a society, although the sign of this influence is not clear on

theoretical grounds. The general suspicion is that a large population tends to

place more pressure on the authoritarian regime to democratize, probably because

8See Lerner, Daniel (1958): The Passing of Traditional Society. Glencoe, IL: Free Press;Lipset, Seymour Martin (1959): “Some social requisites of democracy: economic developmentand political legitimacy”, American Political Science Review 53: 69-105; Lipset (1960): PoliticalMan: The Social Bases of Politics London: Heinemann; Deutsch, Karl W. (1961): “Social mo-bilization and political development”, American Political Science Review 55: 493-514; Culright,Phillips (1963): “National political development: measurement and analysis”, American Soci-ological Review 28: 253-64; Lenski, Gerhard (1966): Power and Privilege: A Theory of SocialStratification. New York: McGraw-Hill; Smith, Arthur K. (1969): “Socioeconomic developmentand political democracy”, Midwest Journal of Political Science 13:95-125.

9An international dollar has the same purchasing power over GDP as the U.S. dollar has inthe United States.

33

a large population is almost always more heterogeneous, more spread out, with

more diverse interests and demands, and therefore harder to be controlled by an

iron hand.

POP : The number of all residents regardless of legal status or citizenship -

except for refugees not permanently settled in the country of asylum, who

are generally considered part of the population of their country of origin.

(Source: World Development Indicators, 2005)

3. British Colonial Heritage

Thirdly, it has been argues that the colonial public policies instituted in British

territories, protectorates, and colonies were more conducive to the establishment

of a democratic rule following independence than those controlled by French, Por-

tuguese, Dutch and other European imperial administrations. 10 (Emerson, 1960;

Theobold, 1960; Porter and Alxander 1961; Smith, 1978; Bolen and Jackman

1985a; Muller 1995; Pzeworski et al 2000). Unlike other metropolitan conquerors,

“Britain reacted to colonial discontent by gradually introducing reforms that in-

corporated a more representative forma of rule” (Bollen and Jackman 1985b: 445).

As a result, a country that was formerly a British colony, self-governing depen-

dency, protectorate, or trust territory is believed to be more likely to develop

democracy. I thus include a variable indicating the British colonial origin.

BRITCOL : A dummy variable coded 1 if a country’s territory was once part of

the British Empire, 0 otherwise. (Source: Przeworski et al, 2000)

4. Income Inequality

Whether or not an economically more equal society is more likely to adopt a

democratic order has been a decade-long debate. A famous argument in the liter-

ature says that income equality facilitates democracy by mitigating the rich elite’s

10See Emerson, Rupert (1960): From Empire to Nation: The Rise to Self-Assertion of Asianand African Peoples, pp. 230-37. Cambridge: Harvard university Press; Theobold, Robert (ed.)(1960): The New Nations of West Africa, p. 37. New York: H. W. Wilson; Porter, CharlesO. and Robert J. Alexander (1961): The Struggle for Democracy in Latin America, pp. 9-19. New York: Macmillan; Smith, Tony (1978): “A comparative study of French and Britishdecolonization”, Comparative studies in Society and History 20: 70-102; Bollen and Jackman(1985a): “Economic and noneconomic determinants of political democracy in the 1960s”, pp.27-48 in Richard G. Braungart (ed. ), Research in Political Sociology. Greenwich, CT: JAIPress.

34

resistance to democracy, when the tax losses due to redistribution to the poor

under a perspective democracy are lower than the repression costs for maintain-

ing the authoritarian rule (Meltzer and Richards,1981; Boix and Garicano, 2001;

Acemoglu and Robinson 2001, 2004; Rueveny and Li 2003; Boix, 2003). Muller

demonstrates that income inequality measured by the GINI index has a robust

negative impact on democratization in a series of empirical studies on democra-

tization (Muller 1988; Muller and Seligson 1994; Muller 1995), and this negative

effect of income disparity on chances of democratization is echoed by Boix (2003).

However, it is equally arguable that the more numerous poor population will be

less motivated to struggle for democracy when income disparity is less visible. To

test the relationship between income inequality and emergence of democracy, I

include a variable GINI on the right hand side of the regression.

GINI : Gini index measures the extent to which the distribution of income (or,

in some cases, consumption expenditure) among individuals or households

within an economy deviates from a perfectly equal distribution.11 A Gini

index of 0 represents perfect equality, while an index of 100 implies perfect

inequality.

(Source: Deininger and Squire 1996, the updated version; WDI, for year

1996-2002)

5. Religion

The percentage of the population that is Protestant, Islamic or Catholic is also

believed to affect the chances for a country to experience democracy. For in-

stance, many have suggested that a Protestant culture facilitate the construction

of democracy, since the emphasis of Protestantism on individual responsibility is

resonant with values and the practice of democracy (Lipset 1959: 85; Walzer,

1965; Lenski and Lenski, 1974; Bollen 1979; Bollen and Jackman, 1985a). By con-

trast, Huntington (1984) argues that the Islamic religious culture is inhospitable

to the development of political democracy because in Islam “no distinction exists

between religion and politics or between the spiritual and the secular, and po-

litical participation was historically an alien concept” (Huntington, 1984: 208).

11A Lorenz curve. The Gini index measures the area between the Lorenz curve (which plots thecumulative percentages of total income received against the cumulative number of recipients)and a hypothetical line of absolute equality, expressed as a percentage of the maximum areaunder the line.

35

Secondly, the percentage of the population that is Protestant, Islamic or Catholic

is also believed to affect the chances for a country to experience democracy. For

instance, many have suggested that a Protestant culture facilitate the construction

of democracy, since the emphasis of Protestantism on individual responsibility is

resonant with values and the practice of democracy 12 (Lipset 1959: 85; Walzer,

1965; Lenski and Lenski, 1974; Bollen 1979; Bollen and Jackman, 1985). By con-

trast, Huntington (1984) argues that the Islamic religious culture is inhospitable

to the development of political democracy because in Islam ”no distinction exists

between religion and politics or between the spiritual and the secular, and political

participation was historically an alien concept” (Huntington, 1984: 208).

PROT : The percentage of the population that is Protestant.

MUSL : The percentage of the population that is Muslims.

CATH : The percentage of the population that is Catholic.

(Source: La Porta et al, 1998)

6. Education

Mass literacy is commonly considered to be another important determinant of

democracy (Lipset 1959; Coleman 1965; Meyer and Rubinson 1975; Kamens 1988;

Benavot 1996). It has been proposed that an authoritarian country with edu-

cational expansion is more likely to democratize, as education strengthens demo-

cratic values and attitudes on the individual level, which will eventually crystallize

into public demands for democracy. However, authoritarian leaders in most cases

have full control on the content of public education and might even tailor political

education to their ruling needs. I include a variable of literate rate among the

population to cope with the theoretical ambiguity.

EDU : Literacy rate, adult total ((Source: United Nations Educational, Scien-

tific, and Cultural Organization (UNESCO) Institute for Statistics)

12See Walzer, Michael (1965): The Revolution of the Saints: A Study in the Origins of RadicalPolitics. Cambridge: Harvard University Press; Lenski, Gerhard and Jean Lenski (1974): HumanSocieties, p 349. New York: McGraw-Hill; Bollen, Kenneth A. (1979): ”Political democracy andthe timing of development”, American Sociological Review 44: 572-87; Bollen and Jackman(1985a).

36

7. Diffusion Effect

Some scholars have suggested that the type of political regime in one country is

likely to be affected by the overall political color of the world (Przeworksi et al,

2000; Li and Reuveny, 2003). I thus control for the percentage of democracies

around the world for any given year.

ODWP : Percentage of democratic regimes in the current year in the world,

other than the country under consideration.

(Source: Przeworski et al, 2000)

8. Fragmentation of the Society

The population’s degree of ethno-linguistic heterogeneity might also matter for

democracy. The established argument in the literature is that homogeneity with

respect to ethnicity, language and culture is congenial to the establishment of de-

mocratic insinuations and practices, while complex ethnic and linguistic cleavages

might ferment political conflicts and are unfavorable to the development of de-

mocratic order. I used the standard measure for a population’s heterogeneity–the

degree of ethno-linguistic fractionalization in the population.

ETHFRA : A time-invariant variable measuring the disparity of languages and

ethnicity within a country. The variable is calculated as the probability that

two randomly chosen persons in a country are from different groups, with

0 being the most homogeneous and 1 being the most heterogeneous (See

Mauro 1995 for more detailed discussion). (Source: Easterly and Levine

1997)

9. Political Barometer

The number of incidences of large public gathering can serve the function of a

political barometer. To control for political grievance and resentment that is

originated from sources that cannot be explained by the above social-economic

or historical variables, such as accidental events or natural disasters, I include a

count of the number of peaceful demonstrations in a given year.

DEMONS : Number of peaceful public gathering of at least 100 citizens for

the primary purpose of displaying or voicing their opposition to government

37

policies or authority in any given year (demonstrations of a distinctly anti-

foreign nature are excluded.)

(Source: Cross-national Time-series Data Archive, 2005)

10. Other Variables

Two additional variables are included mainly for methodological reasons:

AGE : A control for the number of years since entry into the sample in the

current state. For example, if a country has been a dictatorship since year

1960, then in year 1990 this variable would be coded 30 (since year 1990

would be its 30th year as a dictatorship). Including such a variable helps

to control for temporal dependence in the data (Beck et al 1998). (Source:

Przeworski et al, 2000)

PRIOR : Political regimes tend to have an inertia and change only slowly over

time. I thus include a five year lag average of the dependent variable.

The inclusion of a lagged dependent variable is a strategy adopted in many

empirical studies on democratization (Bollen 1979; Muller 1993; Muller and Selig-

son 1994; Burkhart and Lewis-Beck 1994; Boix 2003; Li and Reuveny 2003) and

has two methodological functions, as the standard methodological literature rea-

sons: First, as Beck and Katz (1995a and 1995b) suggest, the inclusion of the

lagged dependent variable models the temporal dynamics and helps to deal with

serial correlation 13.

Second, this variable controls for the inertia resulted from attributes of the

society for which we can hardly find control variables for. In this sense, the

variable helps to take care of the effect of omitted variables and the possible serial

correlation in the error term.

More importantly, there might be endogeneity problem in the regression

model, since as we mentioned before, the level of trade openness is a discrete policy

decision of the ruling regime and democracies are suspect to adopt freer stance on

international trade. In view of the risk of simultaneity bias, I follow a common

approach to deal with this problem by lagging trade openness. Though this is

13Nathaniel Beck and Jonathan N. Katz, “Nuisance vs. Substance: Spedifying and Estimt-ing Time-Series Cross-Section Models”, Political Analysis, 6 (1995a), 1-34: Nathaniel Beck andJonathan N. Katz, “What to Do (and Not to Do) With Time-Series Cross-Section Data”, Amer-ican Political Science Review, 89 (1995b), 634-47.

38

partial solution, I follow this practice before I can find a justifiable instrument

variable to treat the endogenous relationship between trade and democracy.

3.2 Regression Model

Log-linear Models

Logistic and Probit regressions are commonly used when the dependent variable

is binary or dichotomous, also known as the log-linear approaches to non-linear

models14. Both Probit and logistic models explores the association of the inde-

pendent variables with the probability that the dependent variable taking on a

value of either one or zero.

Along with the standard Probit15 and Logit model, I also estimate a dy-

namic Probit model, which also generates maximum-likelihood estimations for

regression models with dichotomous dependent variable by assuming a standard

normal distribution of the population but differs from Probit regression in report-

ing the change in the probability for an infinitesimal change in each independent

variable.

The regression is done on those country-year units which was recently (within

the last five years)an autocracy and is aimed to examine among this pool what

factors are likely to have induced transitions to a democratic regime.

Duration Models

To be worked on............

14Probit and Logit models are similar in many ways, with the major difference in the as-sumption about the underlying distribution of the population. Probit model assumes a standardNormal (or Gaussian) cumulative distribution function while Logit model assumes a logistic dis-tribution function. Both the cumulative standard normal curve used by probit as a transformand the logistic (log odds) curve used in logistic regression display an S-shaped curve. Thoughthe probit curve is slightly steeper, differences are small.

15To deal with the potential risks of heteroscedasticity and serial correlation in the error term,I estimate the probit model by suing a variant of the White estimator of robust standard errorsthat adjusts for clustering over country. The white estimator yields consistent estimation of thecovariance matrix under very genera conditions of heteroscedasticity and serial correlation. SeeH. White, “A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test forHeteroskedasticity”, Econometrica, 48 (1980), 817-38.

39

3.3 Regression Result

The regression results for the three log-linear models (Probit model, Dynamic

Probit Model and Logistics Model) are presented in Table 3.3. Across the three

models, a positive coefficient indicates an association with the occurrence of value

1 on the dependent variable, or a role of facilitating the rule of an autocracy; a

negative coefficient indicates an association with the occurrence of value 0 on the

independent variable, or a role of facilitating and sustaining a democracy. The

regression results from model 1 to model 3 tell a consistent story.

[Table 3.3 about here]

First, there’s a significant path-dependent effect. The estimated coefficient

on the average regime score of the past five years (reg5lag) is highly significant

across all three models. The positive sign of the coefficients across the three mod-

els suggests that the type of regime is highly persistent over time: All else held

equal, past autocracies are likely to continue to be autocratic and past democra-

cies have a tendency to continue to be democratic. The path-dependent effect is

also evidenced by the regressor of the age of the current regime, which is highly

significant with a positive sign, showing that the longer a political regime has been

autocratic, the more likely that it will continue to be autocratic.

Second, trade openness helps to sustain authoritarian orders. The policy

measurement of trade openness turns out to be a significant predictor for the

chances of the autocratic regime transiting to a democratic order within five years

across all three models. All else being equal, higher trade barriers are associated

with lower probability of sustaining the authoritarian rule. Given that a majority

of the citizenry can benefit from trade openness by consuming cheaper foreign

goods, a dictator who finds it to his own interest to actively engage in foreign

trade interactions with countries around the world has better chances to sustain

his dictatorial rule, by reducing the potential gains on the trade dimension that a

democratic transition can confer on the society.

Third, the incidence of peaceful demonstration helps to keep down the

transitional momentum in an authoritarian regime. Peaceful demonstrations are

likely to let out the steam of social discontents and resentments, with an effect

40

of sustaining the non-democratic regime. In autocracies where display of political

dissatisfaction in the form of peaceful demonstrations are to any degree tolerated,

the chances that the dictatorial rule will last tend to be higher.

Fourth, the regression results show that mass education might facilitate the

maintenance of a non-democratic order. Mass education level measured by liter-

ate rate of youth is significant at the 0.10 level across all three models, with the

positive sign showing association with more incidence of autocracy. The empirical

result lends credit to the theoretical hypothesis that authoritarian regimes with

substantive schooling and training programs survives better than those without.

This finding calls reconsideration of the normally accepted wisdom that educa-

tional expansion is the oracle for democracy. The authoritarian leader in most

cases has absolute control on the content of education, especially the content of

political education. Schooling is actually one of the most effective tools of brain-

washing that the dictator relies on. An educated citizenry in an authoritarian

regime does not necessarily believe in the virtue of democracy but might appreci-

ate the achievements of the current authoritarian government instead.

Fifth, the degree of heterogeneity in the population on the dimensions of

ethnicity and languages also matters for the chances of democratic transition.

Complex ethnic-linguistic heterogeneity in the population appears to help sustain

the authoritarian order. The more delimited the society is by ethno-linguistic

differences, the less likely that a democratic order would be adopted. Put al-

ternatively, the more deeply a society is based on traditional delimitations such

as religion and ethnicity, the less attractive the democratic means of distributing

political influence would be. It is reasonable to expect that the more explicit the

religious, ethnic and/or linguistics fractionalizations are, the less likely societal

members will turn to political identification and colligate into modern political

groups. Therefore, in a society based on traditional cleavages, uncertainty sur-

rounding a modern democratic experiment will be higher, and accordingly the

psychological cost of giving up the current order to attempt an electoral game

would be bigger.

Sixth, countries with a large percentage Islamic population are less likely to

inaugurate democratic order. This is consistent with Huntington (1984)’s point

view that Islam has been inhospitable to the development of democracy.This find-

ing puts into question the modernization proposition that education in the process

of economic growth propels the adoption of democratic order. The authoritarian

41

leader in most cases has absolute control on the content of education, especially

the content of political education. Schooling is actually one of the most effec-

tive tools of brainwashing that the dictator relies on. An educated citizenry in

an authoritarian regime does not necessarily believe in the virtue of democracy

but might appreciate the achievements of the current authoritarian government

instead.

Seventh, the empirical evidence is highly supportive of the Lipset hypothesis

that economic development facilitates the emergence of democracy, or the “en-

dogenous theory”. This result is consistent with that of a most recent empirical

study on democratization by Boix and Stoke (2003). Improvments in the standard

of living measured by GDP per capita tend to increase the chances for a country to

experience democracy. In particular, after controlling for other historical, social,

economic, political, religious and ethnic factors, the more prosperous a country

is, the more likely it is for a democratic order to be installed and sustained. In

particular, as predicted by the dynamic probit model, one percentage increase in

GDP per capita is associated with about 0.002 percentage more chances of being

democratic politically.

Eighth, the regression analysis reveals a significant world-wide demonstra-

tion effect. Other democracies in the world (odwp) are likely to exert a powerful

pressure on the remaining authoritarian countries to democratize. As the dynamic

Probit model predicts, when all other variables are held at their mean values, one

marginal increase in the percentage of democracies (other than the country be-

ing examined) in the world is likely to decrease the probability that a country

continues to be autocratic by 0.009 units.

Ninth, despite the impression that authoritarian countries with oil resources

sustain longer than those without, the empirical analysis suggests that democratic

transition is more likely to take place in countries with petroleum reserves. Oil

resources might enrich the dictator and the citizenry, but it doesn’t help to sus-

tain the dictatorship after the level of social prosperity is controlled for. On the

contrary, in a country where the oil reserve is abundant, the scramble for the con-

trol of the oil resources is more intense and the political stake associated with the

public office is heavier, complicating the wrestle of political power and putting the

ambition of political monopoly on more tests.

Tenth, the regression results are ambiguous in adjudicating the debate on

whether economically more unequal autocracies are more inclined to switch to

42

a democratic order. On the one hand, as Boix (2003) elaborates, when the in-

come distribution in the society is relatively equal, the resistance to the adoption

of a democratic regime from the traditional supporters of the dictatorship (the

wealthy estate holders) will be weaker, since the expected degree of redistribution

is lower. On the other hand, however, the appeal of a perspective democracy as

a redistribution machines will also be weaker for the poor citizens, discouraging

their enthusiasm for paying the transitional costs. Additionally, contrary to the

mechanism proposed by Boix (2003) that income equality propels democracy, it

might be income disparity that can stimulate regime transitions, as there might

be more social discontent and disputes when there are striking contrast between

the extreme rich and the extreme poor.

Lastly, there are no apparent evidences for the argument that a larger place

is more likely to democratize. The attribution of successful construction of democ-

racy to the protestant culture also falls short of empirical support.

4 Conclusion

The accelerating trend of economic integration presents both chances and chal-

lenges to countries around the world, democratic or autocratic. Those who make

an easy judgment that international economic integration will necessarily engineer

a political convergence to the democratic order have reasoned too fast to digest one

critical fact: the degree of entanglement in international trade is in itself a policy

decision; like all other policy instruments, it’s subject to the manipulation of the

dictator and is cunningly designed in a way to better serve the ruling purposes.

A dictator will decide to stay out of the game, if what he sees from trade inter-

actions are threats to his authoritarian rule. Some others, however, might choose

active engagement in foreign trade, if the national economy is well equipped to

participate in international competition and reap gains from the game to enrich

himself and/or his citizenry. In the second case, trade might help sustain the

authoritarian order by making citizens content with the status quo and reluctant

to bear the cost of attempting a political change and adapting to a new regime.

43

Table 2.4.1: Skill Profile and the Transitional Momentum

mean median Aτ Dτ Dt s σ

30 20 0.5504 0.1658 0.0267 0.3142 26.07 0.4926

30 21 0.561 0.1652 0.0247 0.29 26.597 0.4881

30 22 0.5761 0.1647 0.0226 0.2653 27.242 0.4856

30 23 0.597 0.1645 0.0202 0.2399 28.086 0.4864

30 24 0.624 0.1653 0.0177 0.2134 29.293 0.4938

30 25 0.6503 0.1682 0.0149 0.1855 31.104 0.513

Table 2.4.2: Capital-Labor Ratio and the Transitional Momentum

capital/

labor Aτ Dτ Dt s σ

0.2 0.6329 0.2523 0.0251 0.1782 45.2351 0.6696

0.225 0.5791 0.2504 0.0235 0.179 44.6183 0.665

0.25 0.575 0.243 0.0221 0.1798 42.2159 0.6458

0.275 0.5521 0.2289 0.0208 0.1806 38.9673 0.6151

0.3 0.5303 0.2163 0.0196 0.1814 36.331 0.5856

0.325 0.5093 0.2045 0.0184 0.1823 34.1097 0.5573

0.35 0.4886 0.1934 0.0174 0.1832 32.1812 0.5297

0.375 0.4678 0.1829 0.0164 0.1841 30.4801 0.5029

0.4 0.4466 0.1729 0.0155 0.1849 28.9724 0.4772

Table 2.4.3: Technology and the Transitional Momentum

β Aτ Dτ Dt s σ

0.9 0.3468 0.1832 0.0138 0.202 26.1718 0.4242

0.925 0.301 0.1643 0.0119 0.2049 24.4224 0.3876

0.95 0.2561 0.1472 0.01 0.2081 22.9841 0.3557

0.975 0.2097 0.1314 0.0153 0.212 21.6047 0.3236

0.1 0.1709 0.1171 0.0187 0.2163 20.6674 0.3011

1

Figure 2.4.1

Skill Profile and Transitional Momentum

0

0.1

0.2

0.3

0.4

0.5

0.6

20 21 22 23 24 25

Median (Mean=30)

Mom

entu

m

Trade Effect Redistribtion Effect Freedom Effect

Figure 2.4.2

Capital-Labor Ratio and Transitonal Momentum

0

0.2

0.4

0.6

0.8

0.2 0.225 0.25 0.275 0.3 0.325 0.35 0.375 0.4

Capital-Labor Ratio

Mom

entu

m

Trade Effect Redistribution Effect Freedom Effect

2

Figure 2.4.3

Technology and the Transitional Momentum

0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.4

0.45

0.9 0.925 0.95 0.975 0.1

Technolgy in the Import-competing Industry

Mom

entu

m

Redistribution Effect Freedom Effect Trade Effect

Figure 2.5.1

Transition-induced Tariff Adjustment (1)

0

0.05

0.1

0.15

0.2

0.25

0.3

0.11 0.12 0.13 0.14 0.15 0.16 0.17 0.18 0.19 0.2

a (Capital intensity of the exported good)

Tarif

f rat

e

Tariff_Democracy Tariff_Autocracy

3

Figure 2.5.2

Transition-induced Tariff Adjustment (2)

0

0.05

0.1

0.15

0.2

0.25

0.3

0.2 0.225 0.25 0.275 0.3 0.325 0.35 0.375 0.4

Capital-labor ratio

Tarif

f rat

e

Tariff_Democracy Tariff-Autocracy

Figure 2.5.3

Transition-induced Tariff Adjustment (3)

00.020.040.060.08

0.10.120.140.160.18

0.2

0.9 0.925 0.95 0.975 0.1Technology in the Import-competing Industry

Tarif

f

Tariff_Autocracy Tariff_Democracy

4

Table 3.1: Cases of Democratic Transitions

+---------------------------------------------------------------------------------------------------+ | Country Name Year | |---------------------------------------------------------------------------------------------------| 34. | Albania 1992 | 79. | Andorra 1993 | 135. | Argentina 1983 | 297. | Bangladesh 1991 | 407. | Benin 1991 | |---------------------------------------------------------------------------------------------------| 442. | Bolivia 1982 | 560. | Bulgaria 1990 | 607. | Burundi 1993 | 693. | Cape Verde 1991 | 717. | Central African Republic 1993 | |---------------------------------------------------------------------------------------------------| 758. | Chile 1990 | 824. | Comoros 1990 | 848. | Congo, Rep. 1992 | 900. | Cote d'Ivoire 2000 | 949. | Cyprus 1983 | |---------------------------------------------------------------------------------------------------| 978. | Czech Republic 1990 | 1088. | East Germany 1990 | 1148. | El Salvador 1984 | 1221. | Estonia 1991 | 1421. | Ghana 1993 | |---------------------------------------------------------------------------------------------------| 1456. | Grenada 1984 | 1480. | Guatemala 1986 | 1538. | Guinea-Bissau 2000 | 1552. | Guyana 1992 | 1576. | Haiti 1994 | |---------------------------------------------------------------------------------------------------| 1586. | Honduras 1982 | 1616. | Hungary 1990 | 1691. | Indonesia 1999 | 1910. | Kenya 1998 | 2035. | Latvia 1991 |

5

|---------------------------------------------------------------------------------------------------| 2081. | Lesotho 1993 | 2144. | Liechtenstein 1990 | 2235. | Madagascar 1993 | 2258. | Malawi 1994 | 2322. | Mali 1992 | |---------------------------------------------------------------------------------------------------| 2440. | Mexico 2000 | 2480. | Moldova 1996 | 2498. | Mongolia 1992 | 2584. | Namibia 1990 | 2629. | Nepal 1991 | |---------------------------------------------------------------------------------------------------| 2688. | Nicaragua 1984 | 2719. | Niger 1993 | 2726. | Niger 2000 | 2747. | Nigeria 1999 | 2802. | Pakistan 1988 | |---------------------------------------------------------------------------------------------------| 2847. | Panama 1989 | 2925. | Peru 2001 | 2932. | Philippines 1986 | 2957. | Poland 1989 | 3024. | Romania 1990 | |---------------------------------------------------------------------------------------------------| 3113. | Sao Tome and Principe 1991 | 3166. | Senegal 2000 | 3206. | Sierra Leone 1996 | 3208. | Sierra Leone 1998 | 3247. | Slovak Republic 1993 | |---------------------------------------------------------------------------------------------------| 3336. | South Africa 1994 | 3397. | Sri Lanka 1989 | 3482. | Sudan 1986 | 3506. | Suriname 1988 | 3509. | Suriname 1991 | |---------------------------------------------------------------------------------------------------| 3624. | Taiwan 1996 | 3677. | Thailand 1983 | 3686. | Thailand 1992 | 3787. | Turkey 1983 |

6

3861. | Ukraine 1991 | |---------------------------------------------------------------------------------------------------| 3943. | Uruguay 1985 | 4191. | Zambia 1991 | +---------------------------------------------------------------------------------------------------+

7

Table 3.3. Regression Results

Model 1 Model 2 Model 3

probit dprobit logit

Reg5lag 3.965*** 0.009*** 8.125***

(0.000) (0.000) (0.000)

ODWP -4.066*** -0.009*** -6.478***

(0.001) (0.001) (0.006)

Tariff rate -0.025** -0.000** -0.041*

(0.032) (0.032) (0.068)

Pop (logged) 0.133 0 0.287

(0.263) (0.263) (0.243)

GDP pc (logged) -0.841*** -0.002*** -1.533***

(0.000) (0.000) (0.000)

GINI -0.019 0 -0.033

(0.132) (0.132) (0.187)

Demonstration 0.105** 0.000** 0.185**

(0.027) (0.027) (0.031)

Education 0.016* 0* 0.033*

(0.10) (0.10) (0.084)

Ethfraction 2.510** 0.006** 4.174**

(0.000) (0.000) (0.000)

Britcolony 0.077 0 0.053

(0.784) (0.784) (0.923)

Protestant -0.008 0 -0.016

(0.451) (0.451) (0.478)

Moslim 0.010** 0.000** 0.017*

(0.025) (0.025) (0.053)

Catholic -0.002 0 -0.003

(0.572) (0.572) (0.662)

AgeRegime 0.135*** 0.000*** 0.250***

(0.000) (0.000) (0.000)

Oil -1.162*** -0.013*** -2.059***

(0.000) (0.000) (0.001)

Observations 790 790 790

Robust p values in parentheses

* significant at 10%; ** significant at 5%; *** significant at 1%

8

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