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When Does Economic Crisis Lead to Democratization?

Joseph Wright
jw4@princeton.edu

Princeton University
Center for Globalization and Governance

July 2007

Abstract

Earlier research suggests that poor economic performance is an important determinant of au-
thoritarian regime breakdown and democratization. However, many dictatorships appear to be
impervious to economic crisis. In this paper, I argue that the availability of exit options for cit-
izens and a dictator’s access to non-tax revenue resources condition the relationship between
economic crisis and democratization. In open economies where citizens have viable exit alter-
natives, economic crisis causes citizens to exit rather than protest, making democratization less
likely. Furthermore, when dictators can use natural resource rents or credible power-sharing
instead of tax revenue transfers to retain their support coalition, economic crisis is less likely
to lead to democratization. I use time series, cross-section data on 122 authoritarian regimes
in 102 countries from 1960-2002 to test these arguments and find evidence consistent with
the hypotheses that economic openness and credible power-sharing institutions insulate dic-
tators from the liberalizing effects of economic crisis. There is less evidence, however, that
dependence on natural resource rents conditions the relationship between economic crisis and
democratization.
Many scholars have examined whether democracy impacts economic growth (Rodrick & Wacziarg
2005, Persson & Tabellini 2005, Papaioannou & Siourounis 2004, Alvarez et al. 2000, Sirowy &
Inkeles 1993). Yet, we still know relatively little about the reverse question: Does economic
growth sustain dictatorships? When does economic crisis lead to democratization? Earlier re-
search contends that economic crisis is an important determinant of democratization, suggesting
that poor economic performance affects the likelihood of democratization (Richards 1986, Markoff
& Barreta 1990, Gasiorowski 1995, Haggard & Kaufman 1995, Bratton & Van de Walle 1997, Al-
varez et al. 2000, Acemoglu & Robinson 2001). The basic causal story in this literature is that
economic crises can: (1) create a focal point for opposition mobilization; (2) cause business elites
and capitalists to defect from the authoritarian bargain; and (3) create division within the regime
over economic policy in response to the crisis.1
However, there are prominent examples to the contrary. In Zimbabwe, Mugabe’s regime
has remained in power and in fact become more authoritarian during the protracted economic crisis
that began in 1999. In Togo, numerous, severe economic contractions failed to unseat Eyadema;
his rule lasted 38 years until his death in 2005.2 In both cases, economic crisis both provided a
focal point for regime opposition and created division within the ruling elite over economic policy.
Though rattled at various times, both Mugabe and Eyadema appear to have weathered the storm.3
Further, there are numerous dominant single-party regimes that have survived protracted periods
of economic decline, including Kenya, North Korea, and Tanzania. That some dictators appear to
be impervious to economic crisis while others democratize when faced with a crisis, suggests that
we need a more nuanced answer to the question of whether economic growth keeps dictators in
power.
In this paper, I argue that the attractiveness of exit options available to citizens and the ex-
tent to which dictators rely on domestic tax revenue condition the relationship between economic
crisis and democratization. Economic openness provides citizens with more attractive exit options
during an economic crisis, enabling them to fell instead of pressing the regime for democratic
reforms. Second, when dictators rely more heavily on non-tax sources of revenue or institution-
alized power-sharing than tax revenue, a severe economic downturn is less likely to weaken their
ability to retain their support coalition. If these arguments are correct, economic openness, access
to non-tax revenue sources, and the existence of credible power-sharing institutions should sever
the causal link between economic crisis and political liberalization.
In addressing the relationship between economic crisis and democratization, this research
also engages the literature examining globalization’s effect on democracy. Recently, scholars
1
Geddes’ (1999) explanation for why military regimes are much more likely to democratize than single-party
regimes builds on this third causal link. Further, numerous scholars argue that policy responses to economic crisis
trigger popular protest and regime instability (Bienen & Gersovitz 1986; Nelson 1990; Walton & Seddon 1994).
2
From 1981-1983 and again from 1990-1994, per capita GDP decreased by over 7% annually; in the three years
from 1998 to 2001, annual growth averaged less than -4%.
3
Eyadema died in office in February 2005; Mugabe remains in power in July 2007.

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have begun to investigate whether democratization causes changes in trade openness (Milner
& Kubota 2005a) and the conditions under which democratization might influence trade policy
(Kono 2006, Kono 2007). But the empirical literature on whether trade openness causes democ-
ratization is relatively scant. Li & Reuveny (2003), test whether trade helps or hinders democracy
and find that trade openness decreases democracy. This research, however, does not address im-
portant questions about the direction of causation, nor does it discuss how economic openness
might condition the effect of growth on democracy.4 Rudra (2005) also examines how globaliza-
tion affects democratization, arguing that globalization increases democracy when countries spend
more on social welfare. Because this research studies welfare spending, however, the scope of the
empirical tests are limited and weighted heavily towards democracies.
Many scholars have also asked whether investmenting in and trading with China will lead
to political liberalization (Gallagher 2001, Chan 2001, Guthrie 1998). Further, the need to sus-
tain rapid growth, many argue, drives much of China’s behavior in the international system– for
example, China’s quest to gain control over abundant natural resources; China’s entry into the for-
eign aid game (Hyden & Mukandala 1999, Kurlantzick 2006, Naim 2007); and China’s entry into
the World Trade Organization (WTO) (Fewsmith 2001, Adhikari & Yang 2002). The debate over
China’s entry into the WTO spurned many questions concerning the relationship between growth,
trade, and democracy. Yet surprisingly, there is little scholarship that systematically addresses,
in a cross-country analysis, how growth and trade interact to promote or deter democratization.
Despite classical liberals contention that economic openness should increase the likelihood of de-
mocratization, we still do not have a satisfactory account of whether this is true.
In the next section, I explore how economic openness and alternatives to tax revenue in-
sulate dictators from the liberalizing impact of economic crisis. In the third section, I discuss the
data and research design used to test the main hypotheses. In the fourth section, I present the
results of empirical tests on 122 authoritarian regimes in 101 countries from 1960-2002. I use
multiple operationalizations of economic openness (trade, foreign direct investment, and capital
flows) and economic crisis (per capita GDP growth and inflation), two measures of democratiza-
tion (dichotomous and continuous), multiple sample sizes, and address questions of endogeneity
with two-stage models where I instrument for trade. In the fifth section, I test whether dependence
on oil rents and the existence of credible power-sharing institutions ameliorate the liberalizing ef-
fect of economic crisis. I find strong evidence that economic openness insulates dictators from the
liberalizing effects of economic crisis, especially in the absence of credible power-sharing institu-
tions. However, there is little evidence that oil rents condition the relationship between economic
crisis and democratization.
Before proceeding, it is important to point out that I focus exclusively on the conditions
under which economic crisis should affect the likelihood of democratization in authoritarian
4
Unpublished manuscripts, though, have made important improvements on this start (Lopez-Cordova & Meissner
2006, Xu 2006).

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regimes. Thus, the theory and empirical tests rely exclusively on the experiences of dictator-
ships, and do not address what makes new democracies endure or consolidate. Previous em-
pirical research explaining how trade or natural resource dependence affect the level of democ-
racy uses samples of both dictatorships and democracies (often including wealthy, well estab-
lished democracies), and thus necessarily mixes questions about democratization in authoritarian
regimes with questions about democratic survival and consolidation (Rudra 2005, Lopez-Cordova
& Meissner 2006, Smith 2004, Li & Reuveny 2003, Ross 2001). The samples used in the empirical
tests in this study include only authoritarian regimes.5

Economic crisis and democratization


While one of the most studied questions in comparative politics is the relationship between eco-
nomic development and the prospect of democratization (Acemoglu & Robinson 2006, Epstein &
O’Halloran 2006, Boix & Stokes 2003, Przeworski 2000, Lipset 1959), scholars have also long
noted that economic crisis, or a short-term negative shock to economic output, can destabilize dic-
tatorships and lead to democratization (Bratton & van de Walle 1997, Gasiorowski 1995, Haggard
& Kaufman 1995, Callaghy 1990, Markoff & Barreta 1990, Richard 1986).6 An economic crisis
can disrupt the equilibrium of power in an authoritarian regime in a number of ways. Crisis can
(1) provide a focal point for opposition protest (Bratton & van de Walle 1997); (2) create division
within the regime itself over the appropriate response to the economic downturn (O’Donnell &
Schmitter 1986); or (3) deplete the resources available to the regime to pay off nominal allies or
repress potential opponents, leading to the defection of key supporters (Haggard & Kaufman 1995)
and/or a decrease in collection action costs for potential protestors.
As Haggard and Kaufman (1995) demonstrate, these causal mechanisms that link economic
crisis to “authoritarian withdrawal” are likely interrelated. For example, dictators may garner
support from business elites. When economic crisis hurts their profits, business elites may defect
from the coalition of regime supporters and may even join the opposition. The response to business
5
For example, because countries such as Costa Rica, Israel and Venezuela are democracies during the period
under study (1960-2002), I do not include them in the sample. Nor do I consider countries after they democra-
tized during the “third wave” and remained democracies (e.g. Albania, Argentina, Bolivia, Brazil, Chile, Dominican
Republic, Ecuador, El Salvador, Guatemala, Honduras, Hungary, Madagascar, Malawi, Mali, Moldova, Mongolia,
Nepal, Panama, Paraguay, Peru, Philippines, Poland, Portugal, Romania, South Africa, South Korea, Spain, Turkey,
Uruguay, Zambia). I do include dictatorships that followed previous democratic periods, though (e.g. Nigeria 1984-
1998). Further, because I use an updated data set on authoritarian regimes (?), the sample in this analysis includes
many more authoritarian regimes than have been used in previous research (e.g. Central Asian republics and Belarus)
(Smith 2004, Li & Reuveny 2003, Ross 2001). Li & Reuveny even include OECD democracies in their sample.
In contrast, Ulfelder (2007) appropriately looks only at a sample of authoritarian regimes. Sample countries in the
present study are listed in Appendix D.
6
Scholars have also examined how economic crisis (Remmer 1990) and economic openness (Samuels & Hellwig
2007) affect political outcomes in developing country democracies. These studies focus on accountability and the
electoral consequences for incumbent politicians.

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elite defection may then cause division within the regime over how to respond. Further, economic
crisis may compel the regime to withdraw subsidies (e.g. public employment, consumer subsidies)
that has previously kept middle-class wage workers in the support coalition, which in turn may lead
to protest mobilization against the regime. Again, the defection and protest of the wage workers
may sow dissent within the regime itself.
These three causal mechanisms are certainly not exhaustive nor mutually exclusive. One
way to distinguish or categorize these (or other) causal paths is to think about them as the extent to
which they entail substitution available to (1) the dictator and (2) citizens. Business elite defection
from the authoritarian bargain, for example, is the result of a strategic decision that weighs support
for the regime against alternative options such as fleeing the country or joining the opposition.
Likewise, the extent to which a dictator cuts consumer subsidies or imposes inflationary taxes
during an economic crisis is related to the availability of “unearned” sources of income such as
oil rents or foreign aid. Finally, the likelihood of protest mobilization and its success is certainly a
function of alternatives open to potential protestors.
Previous research has explored the effect of both types of substitution on democracy. For
example, building on the literature that stresses democratization as a concession necessary to raise
tax revenue (North & Weingast 1989, Levi 1988, Tilly 2004), scholars have argued that the avail-
ability of substitutes for taxation, such as oil rents or foreign aid, can deter democratization7
(Djankov, Montalvo & Reynal-Querol 2005, Beblawi & Luciani 1987). This reasoning paral-
lels that of (McDonald 2007), who argues that governments that hold large quantities of public
property have greater fiscal autonomy. More fiscal autonomy then allows these governments to
pursue more aggressive foreign policy. These arguments focus on the availability of non-tax in-
come substitutes for a dictator. Rogowski (1998) argues that the ability of citizens to exit a regime
- the relatively low cost of migration - can lead to democratization,8 while Boix (2003) shows that
high asset mobility ensures that median voter in a democracy cannot set high tax rates, making
democracy safer for asset holding elites. These latter two arguments stress the viability of substi-
tution in both labor and capital markets for citizens in an autocracy. While this literature links the
availability of exit options directly to democracy, the contribution of the present study is to explore
how the availability of income alternatives and exit options influence the behavior of both dicta-
tors and citizens during economic crisis, thereby specifying the conditions under which economic
crisis should cause democratization.
By definition, an economic crisis decreases some citizens’ income. Further, when faced
with declining tax revenue as result of economic crisis, the dictator may be tempted to increase
the tax rate.9 Both income loss from the crisis and potential income loss from a tax rate increase
force citizens to weigh keeping their assets (labor and capital) in the domestic economy against
7
On testing the implications of the rentier thesis, see also (Smith 2004, Ross 2001)
8
See also Bates & Lien (1985)
9
Examples of a tax rate increase include: inflationary spending that reduces citizens’ real income (Bolivia); phys-
ically seizing citizens’ land and capital assets (Zimbabwe); and reducing consumer subsidies on fuel (Iran).

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moving their assets abroad. However, to understand how citizens respond to the crisis, we need to
consider the options available to citizens in their interaction with the dictator. Here citizens have
three options: voice, exit, or loyal.10 . Citizens can keep their assets in the country and not pressure
the regime for change (loyal); they can keep their assets in the country and pressure the regime
for change (voice); or they can move their assets out of the country (exit). If citizens can flee
with their assets (at a relatively low cost) during an economic crisis, this may very well exacerbate
the economic decline, but it will also reduce their incentive to pressure the dictator to liberalize
the polity. When assets are immobile, however, citizens have a strong incentive to pressure the
government to liberalize when economic crisis hits precisely because they cannot flee with their
assets. In Appendix A, I illustrate the logic of this decision with a modified game of exit, voice,
and loyalty (Gelbach 1998, William Roberts Clark & Golder 2007). The basic contribution of the
game is to show that by adding the exit option to democratization games that focus on conflict
between domestic actors11 or by adding a voice/protest move to a decision over whether or not to
exit,12 we force the citizens to decide not just between exit and loyal (to stay or flee) or between
loyal and protest, but between exit and protest (to stay and oppose the regime or to flee). The
result is simply that as the payoff to exit increases, citizens are less likely to protest (voice) and
the democratization equilibrium outcome is therefore less likely.
Various scholars have discussed the three alternatives for different groups of citizens. Frieden
(1991, p. 33) argues that the politicization of capitalists depends on their economic exit options and
political alternatives.13 For example, in Latin American countries such as Argentina and Brazil, he
argues, import-substituting firms that were dependent on government protection policies and had
low asset mobility had few exit options during economic crises in the 1970s and 1980s. The defec-
tion of these firms from the authoritarian bargain helped pave the way for transition from military
rule to democracy (Haggard & Kaufman 1995). Wood (2000) outlines how political mobiliza-
tion of the poor helped inflict economic pain on the business elite in El Salvador and South Africa,
thereby increasing the costs of elite support for the authoritarian regime. Rich elite interests whose
incomes where dependent on the labor of the poor defected from the authoritarian bargain when
the costs of continued conflict outweighed the costs of democratization. These examples illustrate
the choice between voice and loyal for both the poor (through political mobilization leading to
conflict) and the rich (by defecting from the authoritarian bargain).
The massive migration of labor from Zimbabwe to neighboring South Africa during Zim-
babwe’s severe economic crisis dating from 1999 to the present (July 2007), illustrates the exit
10
See Hirschman (1970), Gelbach (2006), Clark & Golder (2007)
11
See for example, Colomer (2000), Colomer (1991), Boix and Stokes (2003, Appendix) and Wood (2004, Ap-
pendix). Boix’s (2003) model of democratization contains a capital mobility parameter, the size of which affects
various equilibrium outcomes. However, capital mobility here is viewed as a constraint that lowers the democratic tax
rate, and hence makes democracy more amenable to rich elites. Asset exit are not an explicit action of the citizens in
the game.
12
See for example Rogowski (1998).
13
See also Milner & Keohane (1996)

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option of wage-earners.14 Some observers estimate up to three million citizens (or 23% of the
population) have fled as the economic return to their labor plummets relative to the wages earned
in neighboring South Africa.15 The loss of discontented citizens no doubt saps the strength of the
opposition, decreasing the chances they will be able to directly inflict harm on elites and raise the
cost of support for Mugabe among party insiders.16 The relatively high mobility of labor during
Zimbabwe’s current crisis stands in stark contrast to the restricted labor mobility of many black
South Africans before the transition to democracy in 1994. Restrictive labor movement under the
apartheid system may have contributed to the successful political mobilization of African labor -
to a point where insurgents were capable of imposing sufficient economic costs on business elites
to cause their defection from the authoritarian bargain, forcing democratization. If this logic is
correct, then under apartheid, exit costs were high enough to making voice and protest the more
attractive option.
These examples suggest that economic openness should condition the relationship between
economic crisis and democratization, because it lowers the cost of exiting for capital.17

Hypothesis 1: Economic crisis is more likely to result in democratization in countries that have
relatively closed economies.

To understand how the availability of alternatives to tax income affects a dictator’s behavior,
consider a model where a dictator derives income from taxing (τ ) the domestic product of the
economy (Y ) and from sources of “unearned” income (U ) not derived from domestic investment
and production (for example, income from natural resource rents or foreign aid). The dictator
then uses this revenue to pay off a support coalition (W p + g)18 necessary for survival (or repress
those not in his support coalition), keeping the rest for his personal consumption. The dictator
can also cede some of his power (ID ) to members of the support coalition by institutionalizing a
binding legislature. Citizens hold assets (labor and capital) which they can invest in the domestic
economy or outside the domestic economy, depending upon the mobility of those assets. Output
in the domestic economy depends on the size of the citizens’ investment in the domestic economy.
14
See also Hirschman (1993)
15
“Rumblings within.” Economist. June 21, 2007. The World Bank estimates the total population of Zimbabwe in
2005 at 13 million. The World Food Programme estimates that over 4 million Zimbabweans will need food assistance
in late 2007 or will face starvation. Presumably, the return on labor for these 4 million is close to zero.
16
The Movement for Democratic Change, the the main opposition party, has called for the ruling Zanu-PF to allow
the refugees to vote in the next round of elections, suggesting that these refugees support the opposition.
17
The Zimbabwean example suggests a further hypothesis which focuses on the costs and benefits of exit for wage-
earners (not just capital owners), similar to the reasoning in Rogowski (1998): Economic crisis is more likely to lead
to democratization in countries where the wage differential between the country in crisis and neighboring countries is
relatively low. I do not test this hypothesis in the present study.
18
W is the size of the support coalition, p are the private payoffs, and g are public goods expenditures. See Buena
de Mesquita & Smith (2003).

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Finally, citizens’ utility is derived from post-tax income, plus, for those in the dictator’s coalition
(W ), transfers from the dictator (p) and possible access to power (IC (W )), and for those not in the
dictator’s coalition (W − 1), repression (X). With this model, we can write the dictator’s budget
constraint as the following.

τ Y + U + ID > (W p + g) + IC (W ) + X(1 − W ) (1)

The dictator’s two sources of revenue (τ Y, U ) and institutionalized power (ID ) are the resources
at his disposal to payoff the support coalition ((W p + g) + IC (W )) and repress those not in the
support coalition (X(1 − W )).19
From the dictator’s perspective in the short-term, an economic crisis depresses total domes-
tic income, thereby decreasing his tax take. Less tax revenue should make it more difficult for him
to pay off his support coalition. However, the existence of “unearned” income should enable the
dictator to continue to pay off some members of his support coalition. The larger the amount of
“unearned” income relative to his tax take from the productive economy, the less likely economic
crisis (a sudden decrease in the size of the domestic economy) is to diminish the overall income
available to the dictator to pay off his support coalition. The availability of a substitute (in the
form of “unearned” income) for taxes on productive economy makes the dictator less dependent
on production in the domestic economy for his survival. Thus, the higher the ratio of “unearned”
to “earned” income, the less vulnerable the dictator is to economic crises.20

Hypothesis 2: As the ratio of “unearned” income to tax revenue increases, dictators should be-
come less vulnerable to economic crises.

Combining the first and second hypotheses suggests a corollary hypothesis.

Hypothesis 2a: Economic openness should only condition the relationship between economic
crisis and democratization when the ratio of “unearned” income to tax revenue is relatively low.

As a second alternative to tax revenue, allowing access to institutionalized power can also help
retain the support of his coalition. When economic crisis hits and the tax revenue available for au-
thoritarian payoffs is a relatively small part of the package used to retain support, then economic
crisis may not have a large effect on democratization. Some authoritarian regimes create strong
19
One way to think about (1) is as probability the dictator will stay in power in the current period, which could
easily be the equation for P in the model in the Appendix.
20
Sources of “unearned” income such as resource rents and foreign aid can be viewed as separate from value-
added production in the domestic economy because resource rents often come from a geographically isolated enclave
economy that is divorced from the rest of the economy (Dunning 2007) and foreign aid is derived from relationships
with foreign donors. Neither necessarily have linkages with other productive processes in the economy (Hirschman
1958).

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party structures that institutionalize leadership turnover, provide the dictator with valuable infor-
mation about regime supporters and opponents, and coopt potential opposition by giving them a
credible stake in power both in the present and in the future (Magaloni 2006). Members of the
support coalition in these regimes have access to actual power, which is often institutionalized
in a binding legislature (?). In these regimes, economic crisis may be less likely to inhibit the
regime from supplying a satisfactory package of inducements to the support coalition because this
package is more heavily weighted with actual power than inducements of a purely monetary na-
ture. When the dictator relies solely on material benefits, as is often the case in more personalist
regimes, economic crisis is more likely to damage the dictator’s ability to retain support. How-
ever, when the dictator offers supporters credible power, an economic crisis has much less scope
for reducing the regime’s ability to retain the support coalition.
Scholars have often noted that dominant single-party regimes are more resilient than other
regime types (Geddes 1999, Brownlee 2005, Smith 2005), even during periods of economic crisis
(Haggard & Kaufman 1995, Chapter 9; McIntyre 2003). No doubt one reason these regimes are
less prone to the destabilizing effect of economic crisis is the institutionalization of power in a
legislature that credibly constrains the regime from overtaxing economic product by sharing real
power with members of the support coalition. In earlier research, I argue that military regimes
also create and maintain legislatures that credibly constrain the regime’s power because military
regimes, like single party regimes, have less access to sources of “unearned” income such as oil
rents and foreign aid than personalist regimes and monarchies (?). If binding institutions shield
regimes from the destabilizing effects of economic crisis, then this should be true of dominant
single-party regimes, as earlier research has noted, but also of military regimes. That is, military
regimes should be most vulnerable to economic crisis when they do not stand up a legislature.
Legislatures in personalistic regimes, however, should not have any effect on the relationship be-
tween economic crisis and democratization because they do not credibly constrain the dictator’s
power. Rather, legislatures in these regimes are used to monitor material payoffs to the support
coalition. Because access to credible and institutionalized power is not something that person-
alist dictators can offer their support coalition, material benefits are the dominant currency for
payoffs to retain the support coalition in these regimes. Thus, the potential for economic crisis to
constrain the dictator’s ability to retain his support coalition is much greater in personalist regimes.

Hypothesis 3: Binding legislatures (in both single-party and military regimes) should insulate
the dictator from the liberalizing impact of economic crisis. Non-binding legislatures have no im-
pact on the relationship between economic crisis and democratization.

Combining the first and third hypotheses suggests a corollary hypothesis.

Hypothesis 3a: Economic openness should only condition the relationship between economic

8
crisis and democratization when the regime does not have a binding legislature (either no legisla-
ture or a non-binding legislature).

Data and research design


To test the preceding hypotheses, I use a sample of all authoritarian regimes from 1960-2002 for
which the relevant data is available.21 The data cover 122 authoritarian regimes in 101 countries.
This sample excludes democracies (e.g. Costa Rica) and thus differs substantially from samples
used in previous published studies examining the effect of trade and natural resources on democ-
ratization.22
I use the ratio of imports plus exports to GDP as the principle measure of economic open-
ness. The theory discussed above does not relate directly to trade policy, but rather to the extent to
which the citizens have linkages to the international economy through trade. Some countries may
have open policies but trade very little due to geographic (land-locked or distant from large mar-
kets) or demographic constraints (large population). Similarly, countries with relatively restrictive
trade policies may nonetheless trade more for similar geographic or demographic reasons. Using
overall trade level is appropriate here because it more directly captures linkages to the international
economy than trade policy.23 To test the robustness of the results, I also use measures of foreign
direct investment (net FDI inflows as a share of GDP) and capital flows (private capital flows as a
share of GDP).24 Because assets are by definition more mobile in an open economy, the dictator
may not be able to tax domestic capital as easily (c.f. Boix 2003). If dictators in economies with
high trade volumes are therefore less dependent on tax revenue for retaining their support coalition
because their economies are more open, then measuring openness as a trade volume may conflate
two distinct causal mechanisms: alternatives for the dictator and for citizens. Therefore, to further
test Hypothesis 1, I also use agriculture as a share of GDP to isolate asset mobility (again see Boix
2003 in this regard). If the availability of exit options for citizens cushions the dictator from the
destabilizing impact of an economic crisis, then we should find that both economic openness and
asset mobility condition the empirical relationship between economic crisis and democratization.
21
This data set of authoritarian regimes is from ?, which updates Geddes’ (1999) data on authoritarian regimes.
The updates include (1) adding monarchies, such as Saudi Arabia, Morocco, and Kuwait, Iran under the Shah, Nepal,
Swaziland, and Ethiopia under Haile Salasse. (2) updating all regimes to 2002 (3) adding regimes (and regime-years)
that lasted less than three years, (4) adding new regimes from the old Soviet bloc, such as the Central Asian republics,
and Belarus.
22
See fn. 5
23
Studies that directly relate to trade policy typically utilize other measures of trade openness such as weighted
average tariffs or a standardized measure of non-tariff barriers (e.g. the share of imports covered by non-tariff barriers
such as quotas).
24
All three of these measures of openness are from the WDI 2006.

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The other key explanatory variable is economic crisis. To provide the widest possible
coverage of this variable for authoritarian regimes, I use Maddison’s (2004) data on GDP per
capita growth. To ensure causation runs in the right direction and that we are not simply capturing
regression to the mean dynamics, Growth is measured as a two-year lagged moving average.25 To
ensure the robustness of the results, I also substitute the WDI measure of per capita GDP growth,
again as a lagged two-year moving average.26 Other researchers have pointed out that inflationary
crises, while often correlated with sharp declines in productivity and output, may capture aspects
of economic crisis that growth does not (Gasiorowski 1995), so I also test models that interact
Inflation with measures of economic openness.27
The control variables that I include in the base models are: log(GDP per capita), region
dummies, year fixed effects, and time splines. I control for level of development because many
scholars discuss the possibility that richer countries may be more likely to democratize than poorer
ones (Lipset 1959, Przeworski 2000, Boix & Stokes 2003), and richer countries also trade more.
Modeling time (year fixed effects) is important because international pressure to democratize shifts
throughout the time period under consideration - particularly during and after the Cold War - and
world trade volume increases nearly monotonically from 1960-2002. Region dummies control
for geographic variation in trade volumes (for example, East Asian dictatorships, many with long
coastlines, have much larger trade volumes than most land-locked sub-Saharan African dictator-
ships) that might coincide with geographic clustering of democratization episodes. I also use time
splines to control for duration dependence - how long the regime has existed up to time t.28
I report models that include additional controls for authoritarian regime type.29 Geddes
(1999) argues that military regimes are much more likely to democratize than other regime types,
particularly single party regimes, and some regime types are more likely to have open economies
than others, making this an important control.30
25
The lagged two-year moving average measure is similar to the one used by (Gasiorowski 1995).
26
These two measures of growth are correlated at 0.91.
27
As with Growth, I use the a two-year lagged moving average. To reduce the potential for inflation outliers, I log
this variable as well. The source is the WDI.
28
Regressions testing the effect of trade frequently include population as control variable, as size of the domestic
market is a strong determinant of trade volume. I tested models that include log(population) as a control variable
and this did not change any of the reported results. Further, log(population) was never a statistically significant
regressor, suggesting that it does not belong in an equation for democratization. Because it is a good predictor of trade
volume, but appears to exogenous to democratization, it is a good candidate as an instrument for trade volume. More
importantly, there is no strong theoretical reason why population should be causally connected to democratization.
Below, I use log(population) as an instrument for trade volume, and report the standard diagnostics for instrumental
variables regressions.
29
In unreported models, I include economic controls: inflation, debt and investment. Including these variables, both
separately and together, did not alter the results, but did significantly reduce the sample, and are therefore omitted from
the reported results to save space. I also control for lagged conflict, which does not change the results. Internal conflict
may precede democratization (and/or transition to a subsequent autocratic regime) and may also reduce trade volume.
Conflict is an ordinal variable from Gleditsch & Strand (2002) that delineates three levels of conflict intensity: minor
conflict (< 25 deaths/year), intermediate conflict (< 1000 deaths/year), and war (> 1000 deaths/year).
30
The updated data on authoritarian regimes (?) includes updated coding on authoritarian regime type (military,
single party, monarch, and personal- the omitted category).

10
Finally, I measure the dependent variable, democratization, in two ways. First, I use the
20-point Polity scale of democracy-autocracy as a continuous measure of democracy.31 This mea-
sure of democracy is more institutional than procedural, and has been used in numerous studies
of democracy (Ross 2001, Li & Reuveny 2003). Second, I use a dichotomous measure of de-
mocratization, which captures discrete transitions from dictatorship to democracy, similar to the
measure used in the empirical transitions literature (Przeworski 2000, Boix & Stokes 2003, Epstein
& O’Halloran 2006). The data on authoritarian regimes (?) includes a measure of authoritarian
regime failure that is coded -1 if an authoritarian regime falls to a subsequent dictatorship in that
year, 1 if a regime transitions to democracy, and 0 if the regime remains in power.32 I then use a
multinomial logit with time splines to control for duration dependence to model the distinct non-
ordinal outcomes in the dependent variable.33 Because this study is focused on democratization, I
only report the results for the democratization outcome of the multinomial logit.
Each measure of the dependent variable requires a distinct modeling strategy. As discussed
above, I use multinomial logit models with time splines when the dependent variable is dichoto-
mous. For the models using the continuous Polity measure of democratization, I use OLS with
a lagged dependent variable and panel corrected standard errors that allow for AR(1) and panel
heteroskedasticity.34 I also test two-stage models where I instrument for trade openness to ensure
that the results are caused by endogeneity. As further robustness checks using the Polity data, I
report in the Appendix the results from (1) error correction models that capture both the long-term
and short-term effect on the equilibrium level of democracy,35 and (2) fixed effects models that
help control for potential omitted variable bias.
31
The original Polity scale runs from -10 to 10. Following common practice, I recode this variable from 0 to 20.
32
Previous work on democratization that models transitions between non-democracies and democracies
(Przeworski 2000, Gandhi & Przeworski 2001, Boix & Stokes 2003, Epstein & O’Halloran 2006) groups to-
gether transitions from one dictatorship to another and the survival of a particular authoritarian regime. Simi-
larly, previous research on the authoritarian regime survival that focuses only on the survival of a particular regime
(Geddes 1999, Brownlee 2005), groups together transition to a subsequent autocracy and transition to democracy. A
multinomial logit model estimates the likelihood of transitions to both a subsequent autocracy (coded -1) and a new
democracy (coded 1), with regime survival as the base category (coded 0) (Gleditsch & Chuong 2004).
33
Controlling for time dependence when using ordinary logit is important because the logit estimates may be bi-
ased if the baseline hazard rate is time dependent. To circumvent this problem, Beck and Katz (1998) recommend
introducing a series of temporal dummies, which are coded as one if the regime-year duration is time t and zero if not.
Omitting temporal dummies is akin to assuming that the baseline hazard rate is constant across time- that in every
year the regime is just as likely to fail as in any other year, all else equal. One drawback of using temporal dummies is
that including them in the model uses many degrees of freedom. A second problem with using temporal dummies in a
logit model is that they may perfectly predict an outcome, and thus those observations are dropped from the analysis.
For example, there may be no failures in the tenth year of any regime. If this is the case, then the 10-year time dummy
perfectly predicts the no-failure outcome, and is dropped from the analysis. One solution that Beck & Katz suggest is
to include cubic splines as controls for time dependence. These subintervals are joined by a predetermined number of
“knots” and are then fitted to the data. This allows the researcher to control for time dependence, while only using a
few degrees of freedom.
34
See Beck & Katz 1998.
35
While this model is typically not used in studies of democratization, it does allow us to model the temporal
dynamics of the process of democratization.

11
Does economic openness condition the effect of Growth?
Table 1 reports the results of tests of Hypothesis 1, using trade levels as a measure of openness
and Polity scores as a measure of democratization. In the first column, I exclude the interaction
between Growth and Trade. Growth has a negative coefficient, suggesting that poor growth makes
democratization more likely. However, the coefficient is relatively small and not statistically dif-
ferent from zero. The coefficient for Trade is negative and significant, suggesting that increased
trade levels are associated with less democracy - a result that corroborates Li & Reuveny’s (2003)
findings for trade. In the second column, I include the interaction between Growth and Trade; it is
positive and significant. The coefficient for Growth is now negative, large in absolute value, and
statistically significant at conventional levels. This suggests that trade levels condition the effect of
growth: when trade levels are low, growth has a strong negative relationship with democratization;
when trade levels are high, growth has little impact on democratization. In the next four columns,
I add duration splines, region dummies, controls for regime type, and substitute the WDI measure
of Growth for Maddison’s. In all these specifications, the interaction between Growth and Trade
remains relatively stable and statistically significant.
To understand the substantive implications of this finding, in Figure 1 I plot the simulated
marginal effect of a one standard deviation decrease in the lagged growth rate. At low levels of
trade (around 15%), a decrease in growth increases the level of democracy by about 0.3.36 At
high levels of trade, however, the marginal effect of decreasing growth is about zero, indicating
that economic crisis is unlikely to have an impact on democracy in open economies. The 90%
confidence interval indicates that the liberalizing effect of decreased growth is only apparent in
countries with trade levels below about 75% of GDP.37
In Table 2, I report the results of models that parallel those in Table 1, except that I use a
dichotomous dependent variable to measure democratization.38 These multinomial logit models
largely confirm the findings in Table 1. In the second and third columns, when I do not include
region dummies, the coefficient for the interaction between Growth and Trade is slightly smaller,
but still significant at the 0.10 level. Including the region dummies and controls for authoritarian
regime type increases the size of this coefficient. This suggests that economic openness con-
ditions the impact of economic crisis on democratization. To see the substantive effect of this
finding, in Figure 2, I plot the predicted probability of democratization across a range of growth
for high, medium, and low levels of trade. When trade is high, the probability of transitioning to
a democracy is very low and is unaffected by growth. At medium trade levels, the probability of
democratization increases substantially when growth is negative. When trade is low, the effect of
growth on democratization becomes even more stark. When growth falls from zero to -10% (about
36
This effect is slightly smaller than the impact of oil on democracy (0.49) that Ross (2001) finds.
37
The median trade level in the sample is about 61%; the mean about 66%.
38
It is essential to control for duration dependence in transition models, so the duration splines are included in all
models in Table 2.

12
Table 1: Growth, Trade, and Democracy

Growth measure Maddison Maddison Maddison Maddison Maddison WDI


(1) (2) (3) (4) (5) (6)

Growth -0.867 -4.260* -4.654* -5.279** -5.656** -5.562**


(0.74) (1.85) (1.86) (1.87) (1.85) (1.94)
Growth*Trade 0.046* 0.047* 0.053** 0.055** 0.053*
(0.02) (0.02) (0.02) (0.02) (0.02)
Trade -0.004* -0.004** -0.005** -0.002 -0.001 -0.003
(0.00) (0.00) (0.00) (0.00) (0.00) (0.00)
Log(GDPpc) 0.059 0.067 0.056 0.031 -0.005 0.035
(0.06) (0.06) (0.07) (0.10) (0.10) (0.10)
Military 0.720**
(0.19)
Single-party -0.086
(0.13)
Monarch -0.361
(0.19)
Polityt−1 0.902** 0.902** 0.904** 0.888** 0.891** 0.886**
(0.01) (0.01) (0.01) (0.01) (0.01) (0.01)
Constant 0.099 0.094 (dropped) 0.562 0.398 1.089
(0.56) (0.56) (0.85) (0.85) (0.85)

R2 0.745 0.748 0.748 0.752 0.759 0.749


Observations 2409 2409 2409 2409 2409 2323

Duration splines no no yes yes yes yes


Region dummies no no no yes yes yes
∗ ∗∗
p<0.05; p<0.01. Dependent variable is P olity score. OLS with panel corrected
standard errors that allow for AR(1) and panel heteroskedasticity. All models include year
fixed effects (not reported). Omitted regime is P ersonalist in column 4. Regions: Sub-
Saharan Africa, North Africa/Middle East, East Asia, Central Asia, Central/East Europe,
West Europe, (Latin America omitted).

13
0.5

Dashed = 90% CI
0.4
Marginal impact on democratization

0.3
0.2
0.1
0.0
−0.1
−0.2

0 20 40 60 80 100 120

Trade/GDP

Figure 1: Growth and democratization, by trade volume. Vertical axis measures the marginal
impact of a one standard deviation decrease (5.5%) in growth on the expected value of democracy.
At low trade levels (e.g. 15% of GDP), this one standard deviation decrease in growth increases
the democracy score by just over 0.3. At high trade levels (110% of GDP), this same decrease in
growth decreases democracy by an insignificant amount (0.02). Simulations based on model 5,
Table 1, except decade dummies replace year dummies. Region set to Sub-Saharan Africa; decade
set to 1990s; regime type set to personalist (omitted category); all other variables set to their mean
values.

14
Table 2: Multinomial Logit
Growth, Trade, and Democratic Transition

Growth measure Maddison Maddison Maddison Maddison Maddison WDI


(1) (2) (3) (4) (5) (6)

Growth -3.711 -10.658 -10.658 -15.057* -17.382* -17.080**


(2.85) (5.92) (5.92) (6.52) (6.77) (5.52)
Growth*Trade 0.101+ 0.101+ 0.131* 0.145* 0.144**
(0.06) (0.06) (0.06) (0.07) (0.06)
Trade -0.018** -0.018** -0.018** -0.012* -0.011 -0.012*
(0.01) (0.01) (0.01) (0.01) (0.01) (0.01)
Log(GDPpc) 0.541** 0.554** 0.554** 0.589 0.649* 0.612
(0.20) (0.21) (0.21) (0.35) (0.33) (0.35)
Military 0.643
(0.43)
Single-party -1.607**
(0.58)
Monarch -0.497
(0.78)
Constant -27.479 -27.615 -27.615 -28.051 -28.716 -28.327
(0.00) (0.00) (0.00) (0.00) (0.00) (0.00)

Log Likelihood -471.695 -470.458 -470.458 -438.794 -422.408 -426.049


Observations 2536 2536 2536 2536 2536 2444

Duration splines yes yes yes yes yes yes


Region dummies no no no yes yes yes
∗ ∗∗
p<0.05; p<0.01. Dependent variable is regime transition: DV=-1 (transition to subsequent
dictatorship); DV=0 (no transition); DV=1 (transition to democracy). Results only reported for
transition to democracy. Multinomial logit with time splines (5) to control for time dependence.
Year fixed effects included in all models (not reported). Omitted regime is P ersonalist in
column 4. Regions: Sub-Saharan Africa, North Africa/Middle East, East Asia, Central Asia,
Central/East Europe, West Europe, (Latin America omitted).

15
0.30
0.25
High Trade = 110%
Probability of Democratization
Mean Trade = 60%
Low Trade = 15%
0.20
0.15
0.10
0.05
0.00

−10 −5 0 5 10

Per capita GDP Growth (%)

Figure 2: Growth and democratization, by trade volume. Simulations based on model 5, Table
2, except decade dummies replace year dummies. Region set to Sub-Saharan Africa; decade set
to 1990s; regime type set to personalist (omitted category); all other variables set to their mean
values.

two standard deviations) in closed economies, the probability of democratization increases from
about 8% to over 30%.
In Table 3, I report the results of tests using split samples. In the first two columns, I
divide the sample into the Cold War and post-Cold War periods. While the standard errors on the
interaction term are higher than those reported in Table 1 due to smaller sample sizes, the size of
the coefficients for the interaction between Growth and Trade remains greater than 0.05 in both
sub-periods, again confirming earlier results. To alleviate concerns that the main result is due
to collinearity among Growth, Trade and their interaction, in the last two columns, I divide the
sample in half by trade volume. In the third column, I look only at those observations where the
trade level is below the median, and in the fourth column, I look only at observations above the
median trade level. The coefficient for Growth is only negative and significant in the sample of
observations with low trade levels.
In Table 4, I report the results of tests using alternative measures of economic openness
and crisis. The first two columns substitute private capital flows for trade levels and columns 3
and 4 substitute foreign direct investment as a measure of economic openness. The odd-numbered
columns use Maddison’s (2004) measure of growth, and the even-numbered columns use the WDI

16
Table 3: Split Samples
Growth, Trade, and Democracy

Closed Open
Sample 1960-1989 1990-2002 Economy Economy
(1) (2) (3) (4)

Growth -4.283+ -8.264* -4.113** -0.564


(2.39) (3.66) (1.46) (0.85)
Growth*Trade 0.056* 0.065+
(0.03) (0.04)
Trade -0.002 -0.001 -0.005 -0.005*
(0.00) (0.00) (0.01) (0.00)
Log(GDPpc) 0.157 -0.292 0.256 -0.025
(0.12) (0.25) (0.22) (0.09)
Polityt−1 0.901** 0.806** 0.796** 0.928**
(0.02) (0.04) (0.03) (0.02)

R2 0.766 0.639 0.613 0.835


Observations 1681 728 1205 1204

Duration splines yes yes yes yes


Region dummies yes yes yes yes

p<0.05; ∗∗ p<0.01. Dependent variable is P olity score. OLS with panel
corrected standard errors that allow for AR(1) and panel heteroskedastic-
ity. Region dummies, year fixed effects, and duration splines included in all
models. Regions: Sub-Saharan Africa, North Africa/Middle East, East Asia,
Central Asia, Central/East Europe, West Europe, (Latin America omitted).
Growth measure is from Maddison (2004).

17
Table 4: Alternative Measures of Openness and Economic Crisis

Growth Measure M WDI M WDI M M M M


(1) (2) (3) (4) (5) (6) (7) (8)

Growth -3.416* -3.544* -2.656** -2.992** -3.213** -3.171** -3.113** -3.934**


(1.49) (1.45) (0.93) (1.01) (1.11) (1.08) (1.15) (1.18)
Growth*Capital Flows 0.156* 0.122*
(0.07) (0.06)
Growth*FDI 0.312+ 0.335+
(0.19) (0.20)
Capital Flows -0.004* -0.002
(0.00) (0.00)
FDI 0.007 0.010
(0.01) (0.01)
Log(Inflation) 0.258* 0.253* 0.279** 0.278**
(0.10) (0.10) (0.11) (0.11)
Log(Inflation)*Trade -0.005** -0.004** -0.005** -0.005**
(0.00) (0.00) (0.00) (0.00)
Trade -0.004 -0.004 -0.004* -0.005* 0.005 0.006 0.004 0.004
(0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00)
Log(GDPpc) 0.092 0.083 0.099 0.117 0.161 0.015 0.188+ 0.184
(0.16) (0.16) (0.16) (0.16) (0.16) (0.17) (0.11) (0.12)
Military 0.926**
(0.25)
Single party -0.037
(0.18)
Monarch -0.324
(0.25)
Polityt−1 0.863** 0.865** 0.873** 0.872** 0.897** 0.898** 0.906** 0.891**
(0.02) (0.02) (0.02) (0.02) (0.02) (0.02) (0.02) (0.02)
Constant -0.113 -0.094 1.006 (dropped) (dropped) -0.039 (dropped) -0.512
(2.66) (2.66) (1.23) (1.32) (0.88)

R2 0.712 0.713 0.813 0.815 0.825 0.824 0.830 0.824


Observations 1470 1447 1924 1883 1743 1743 1743 1743

Duration splines yes yes yes yes yes yes yes yes
Region dummies yes yes yes yes yes yes no no
Year dummies yes yes yes yes yes yes yes no
Decade dummies no no no no no no no yes

p<.05; ∗∗ p<.01. Dependent variable is P olity score. OLS with panel corrected standard errors that allow for
AR(1) and panel heteroskedasticity. Regions: Sub-Saharan Africa, North Africa/Middle East, East Asia, Central
Asia, Central/East Europe, West Europe, (Latin America omitted). M=Maddison (2004); WDI= World Development
Indicators.

18
measure. In all four models, the coefficients for Growth are negative, large in size, and statistically
significant, while the coefficients for the interaction terms are all positive and significant.39 These
results confirm that the finding is not simply due to using trade as a measure of economic openness.
In the last four columns, I substitute logged Inflation for Growth as the measure of economic crisis,
interacting Inflation with Trade levels. The coefficients for Inflation are all positive and signifi-
cant, suggesting that higher inflation is associated with democratization when trade levels are low.
The coefficients for the interaction between Inflation and Trade are all negative and significant,
suggesting that as the trade level increases, the effect of inflation on democratization diminishes.40
In Table 5, I interact Agriculture as a share of GDP with economic growth. Agriculture is a proxy
for asset mobility (Boix 2003). In all four models, the interaction term is negative and significant,
suggesting that growth has a negative impact on democratization only when asset mobility is low
(agricultural share is high). When asset mobility is high (agricultural share is zero), the coefficient
for Growth suggests that growth has a little impact on democratization. In sum, when I use alter-
native measures of economic openness and crisis, the results are still consistent with Hypothesis
1.
Finally, in Table 6, I report the results from the second stage of two-stage least squares mod-
els. The first two columns report models using the continuous measure of democracy and a second
stage OLS regression with panel-corrected standard errors that allow for panel heteroskedasticity
and AR(1) correlation. I use population and trade lagged three and four years to instrument for
trade.41 In the third and fourth columns, I repeat these models except with standard OLS second
stage regressions (no panel-corrected standard errors). I do this primarily to test the identifica-
tion and exclusion restrictions for the excluded instruments. The high (> 0.10) p-value for the
Hansen’s J-statistic indicates that the instruments are suitably exogenous to the second stage pro-
cess, and the partial R2 values are extremely high, indicating that the excluded instruments are
“strong”, insomuch as they are highly correlated with the endogenous regressor.42 In the final two
reported models, I test multinomial logit equations with a dichotomous dependent variable and
control for time dependence with duration splines. In these two models, I use the same first stage
equation as in models 1 and 2. To check that the errors from the first stage are not correlated with
those in the second stage (the exclusion restriction), I include the residuals from the first stage in
the second and report the p-value of the estimated coefficient. If the p-value is greater than 0.10,
we cannot reject the null that the residuals from the first stage should be excluded from the sec-
39
If I exclude Trade from the regressions, the results are a bit stronger. Trade and capital are correlated at 0.26 in
the sample (column 1), while trade and FDI are correlated at 0.27 in the sample (column 3).
40
When I exclude Growth from these regressions, the results become stronger.
41
While population might be considered as an important control variable in the second stage equation because
trade is so highly correlated with population, F-tests suggests that population is not correlated with democratization
(measured as either a continuous or binary variable).
42
Craigg-Donald and Anderson canonical correlation tests both reject the null that the equation is weakly identified
and that the matrix of reduced form coefficients is underidentified.

19
Table 5: Size of Agricultural Sector,
Growth, and Democratization

Growth measure Maddison Maddison WDI WDI


(1) (2) (3) (4)

Growth 0.737 0.645 0.583 0.386


(1.01) (0.99) (1.15) (1.09)
Growth*Agriculture -0.075* -0.074* -0.001* -0.001*
(0.03) (0.03) (0.00) (0.00)
Agriculture -0.003 -0.001 -0.003 -0.001
(0.00) (0.00) (0.00) (0.00)
Trade -0.002 -0.002
(0.00) (0.00)
Log(GDPpc) 0.010 -0.019 -0.029 -0.058
(0.10) (0.09) (0.10) (0.09)
Polityt−1 0.905** 0.905** 0.898** 0.898**
(0.01) (0.01) (0.02) (0.02)
Military 0.709** 0.732** 0.713** 0.721**
(0.18) (0.18) (0.18) (0.18)
Single party 0.289* 0.302* 0.292* 0.296*
(0.13) (0.13) (0.13) (0.13)
Constant 1.158 1.212 (dropped) (dropped)
(0.89) (0.84)

R2 0.781 0.782 0.766 0.769


Observations 2107 2142 2036 2056

Duration splines yes yes yes yes


Region dummies yes yes yes yes

p<.05; ∗∗ p<.01. Dependent variable is P olity score. OLS with panel
corrected standard errors that allow for AR(1) and panel heteroskedas-
ticity. Region and time splines included in all models. Regions: Sub-
Saharan Africa, North Africa/Middle East, East Asia, Central Asia, Cen-
tral/East Europe, West Europe, (Latin America omitted).

20
Table 6: 2SLS

Second stage OLS w/PCSE OLS w/PCSE OLS OLS Mlogit Mlogit
Growth measure M WDI M WDI M WDI
(1) (2) (3) (4) (5) (6)

Growth -7.928** -7.472** -27.968** -22.647** -25.712** -28.513**


(2.14) (2.21) (8.00) (6.91) (9.18) (7.79)
Growth*Trade 0.081** 0.070** 0.352** 0.273** 0.209* 0.224*
(0.02) (0.02) (0.11) (0.09) (0.10) (0.09)
Trade -0.005* -0.005* -0.010** -0.009** -0.012 -0.012
(0.00) (0.00) (0.00) (0.00) (0.01) (0.01)
Log(GDPpc) 0.100 0.101 0.135+ 0.127 0.787* 0.872*
(0.11) (0.12) (0.08) (0.08) (0.38) (0.40)
Polityt−1 0.894** 0.894** 0.927** 0.929**
(0.02) (0.02) (0.01) (0.01)

R2 0.747 0.746 0.815 0.821


Log(Likelihood) -4338.807 -4249.956 -354.783 -343.728
Observations 2102 2072 2102 2072 2151 2120

p-value (Hansen’s J) 0.48 0.12


Shea’s partial R2 0.81 0.81 0.86 0.86 0.81 0.81
(Trade)
p-value (pµ ) 0.79 0.80

Duration splines yes yes yes yes yes yes


Region dummies yes yes yes yes yes yes
Year fixed effects yes yes yes yes yes yes
Regime type no no no no yes yes
∗ ∗∗
p<0.05; p<0.01. Dependent variable in columns 1-4 is P olity score; in columns 5 and 6, dichoto-
mous democratization. Excluded instruments for T radet−1,t−2 in all models are Log(P opulation) and
T radet−3,t−4 . To identify the models in columns 3 and 4, dummies for trade outliers, Botswana and Swazi-
land, are also added as excluded instruments for T rade and T rade ∗ Growth. OLS with panel corrected
standard errors that allow for AR(1) and panel heteroskedasticity in columns 1 and 2. Region dummies:
Sub-Saharan Africa, North Africa/Middle East, East Asia, Central Asia, Central/East Europe, West Europe,
(Latin America omitted). M=Maddison. WDI=World Development Indicators.

21
ond.43 In both columns 5 and 6, these p-values are considerably larger than 0.10, indicating that
the excluded instruments are exogenous.
In all six models, using both measures of growth, the coefficients for Growth are negative,
large in size, and significant, while the coefficients for the interaction between Growth and Trade
are negative and significant. This pattern confirms the previous results. It is important to note
that the coefficients for the interaction terms in columns 1-2 and 5-6 are much larger than those
reported earlier in the naive equations in Tables 1 and 2. This suggests that when we instrument
for Trade, economic openness has a much larger conditional effect on the relationship between
growth and democratization. At a minimum, these results indicate that earlier findings are not due
to the endogeneity of trade, and more likely that the naive models underestimate the substantive
effect of Trade.

Do binding legislatures and oil dependence condition the effect


of Growth?
In this section, I test whether a dictator’s access to tax revenue alternatives condition the relation-
ship between economic crisis and democratization. I test the second hypothesis by constructing
a measure of oil dependence by dividing Humphrey’s (2005) measure of oil rents (oil production
times the world price index) by Maddison’s measure of GDP (both lagged one year), yielding Oil
as a share of GDP. This measure captures the relevance of oil rents for the economy as a whole. A
more precise measure of the relevancy of oil rents for our purposes would be to take the ratio of
oil rents to tax revenue. The World Bank collects a measure of tax revenue as a share of GDP, but
for dictatorships in the years from 1960-2002, this measure only covers 374 observations out of
a possible 2,842 observations (13%). Another possible measure of “unearned” revenue would be
to use foreign aid receipts. Elsewhere, I have shown that foreign aid, measured both as a share of
GDP and per capita, does not condition the relationship between economic crisis and democrati-
zation (?).44 Although Oil as a share of GDP is an imperfect measure of non-tax revenue sources,
it captures how relevant oil rents are to the overall economy.45
To test the third hypothesis, I split the sample in two, by the existence of a binding leg-
islature. A dictator establishes a binding legislature to constrain his own confiscatory power and
ensure citizens that their productive activities will not be overtaxed. In previous research, I have
43
This is the same as the Wald-test of exogeneity that STATA reports for the < ivprobit > command with a
two-step estimator.
44
Far from preventing democratization during economic crisis, some evidence suggests that foreign aid is actually
positively associated with democratization during periods of poor economic growth. This suggests not only that
foreign aid and natural resource revenue are not the same, but also that foreign aid conditionality may be a reason why
dictators democratize during periods of economic crisis.
45
The best measure of non-tax revenue sources would be U/τ Y , where U = O + N + A (O=oil rents; N=other
natural resource rents, and A=foreign aid). Here, though, I use O/Y .

22
shown that legislatures in single party and military regimes are more likely to occur when the
regime is wealthier and has a long time horizon, suggesting that these regimes establish legisla-
ture when they expect to remain in power (?). Conversely, legislatures in personalist regimes and
monarchies are more likely when the regime is poor and has a short time horizon. Legislatures in
single-party and military regimes are also associated with higher growth rates and more domes-
tic investment, while non-binding legislatures in personalist regimes are correlated with slower
growth. This all suggests that legislatures in single-party and military regimes constrain the be-
havior of the dictator, while legislatures in personalist regimes are simply used to facilitate the
exchange of private goods for political support.
Since single-party and military regimes typically have binding legislatures, the sample of
observations with Binding Legislatures includes all regime-years where a single party or mili-
tary regime has a legislature.46 The sample of observations with No Binding Legislature includes
all single-party and military regime-years where no legislature exists plus all observations from
personalist regimes and monarchies, regardless of whether a legislature exists.47 ? updated the
legislature variable from Przeworski (2000).

Oil dependence results


In the first two columns of Table 7, I directly test whether Oil rents condition the relationship be-
tween economic crisis and democratization by including an interaction between Oil and Growth.
While the coefficients for the interaction term are in the correct direction (+), they are not sta-
tistically different from zero at conventional levels. This suggests that presence of Oil rents, at
least measured as a share of GDP, does not make democratization less likely during periods of
economic crisis. In unreported results, I confirmed this null finding by re-estimating these models
using a binary measure of democratization (and multinomial logit regression). Thus, there is little
robust evidence that concurs with Hypothesis 2.
In the next four columns of Table 7, I test whether the conditioning effect of oil might
only be visible in regimes without a binding legislature. In the subsequent section, I show that
economic openness only conditions the relationship between economic crisis and democratization
in regimes with no binding legislature. I want to see whether the absence of a binding legislature
produces a result for the conditioning effect of oil rents. Therefore, in columns 3 and 5 I look at the
sample of observations where there is no binding legislature. The coefficients for the interaction
between Growth and Oil are now positive and significant at conventional levels, and the coefficient
for Growth is also negative and significant. The models in these two columns suggest that this
may be true. However, when I check the robustness of this result using a binary measure of
46
90% of single-party regimes have legislatures and 34% of military regimes have legislatures.
47
The sample of observations with No Binding Legislature is composed as follows: 20% are monarchies, 18% are
military regimes, and 9% are single-party regimes.

23
democratization (not reported), I cannot confirm this result. Second, in columns 4 and 6 when I
restrict the sample to observations with a binding legislature, the coefficients for the interaction
between Growth and Oil are positive but have very large standard errors. While there is some
evidence of oil’s conditioning effect in the sample of observations with no binding legislature,
the overall evidence does not suggest that oil rents have much effect on the relationship between
growth and democratization.
Finally, in the last six columns of Table 7, I test whether the conditioning effect of economic
openness (trade volume) on democratization is only present in regimes with low oil dependence
(Hypothesis 2a). In columns 7 and 10, I include oil dependence in models similar to those in
Table 1, where I test the conditioning impact of trade. The coefficients for the interaction between
Trade and Growth are positive and significant, while the coefficients for Growth are negative and
significant. This shows that the results in Table 1 are robust to the inclusion of oil dependence.
In columns 8 and 11, I restrict the sample to those observations with zero oil dependency48 , and
the coefficients for the interaction between Growth and Trade remain significant and are roughly
the same size as those in the full sample. In columns 9 and 12, I restrict the sample to those ob-
servations where oil dependency is greater than zero, and again the coefficients for the interaction
between Growth and Trade remain roughly the same size as in the previous two regressions. This
indicates that trade’s conditioning effect on the relationship between growth and democratization
is roughly the same in samples of oil dependent countries and countries that are not oil dependent.
This suggests that oil dependence does not condition the relationship between economic crisis and
democratization, even in open economies.
In sum, there is little robust evidence in Table 7 that is consistent with the Hypothesis 2
or 2a, suggesting that if oil dependence is a good measure of the extent to which a dictator is
dependent on “unearned” income to retain his support coalition, then it appears that dependence
on “unearned” income does not shield dictators from the liberalizing effect of economic crisis.

Binding legislatures results


In Table 8, I divide the sample by whether there a binding legislature exists. Recall that a binding
legislature is one in a single party or military regime. Thus, the sample with no binding legislatures
includes all personalist regimes and monarchies plus those military and single party regimes that
have no legislature. If Hypothesis 3 is true, then we should only find a negative correlation between
growth and democratization in the sample with No Binding Legislatures. The models in Table 8
parallel those in Table 1. In columns 1 and 2, I use Maddison’s (2004) measure of growth; and
in columns 3 and 4, I use the WDI measure. In the first and third columns, where the sample is
restricted to those observations with a binding legislature, the coefficient for Growth is negative,
but small and not statistically different from zero. In the second and fourth columns, where the
48
This technically includes country-years with negative oil dependency.

24
Table 7: Oil Rents, Growth, and Democratization

Growth measure M WDI M M WDI WDI M M M WDI WDI WDI


Sample All All No BL BL No BL BL All Oil No Oil All Oil No Oil
(1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12)

Growth -1.042 -2.469* -2.102+ 0.097 -3.951** -1.195 -5.862** -5.667+ -5.622* -6.065** -6.646* -5.061+
(0.87) (0.99) (1.10) (1.72) (1.38) (1.68) (1.92) (3.05) (2.49) (2.01) (3.11) (2.63)
Growth*Oil 73.133 96.633 132.744+ 8.759 168.677* 162.924
(60.33) (63.83) (72.48) (351.06) (81.40) (357.17)
Oil (%GDP) -7.096 -2.400 -4.226 -17.721 0.406 -14.862 -0.809 -11.207 -1.59e+04 0.642 -10.936 -1.28e+04
(8.58) (10.25) (12.26) (26.53) (16.04) (27.61) (11.15) (12.98) (86410.06) (11.26) (12.97) (87631.29)
Trade -0.001 0.001 -0.001 -0.001 0.001 -0.001
(0.00) (0.00) (0.00) (0.00) (0.00) (0.00)
Trade*Growth 0.058** 0.055+ 0.061 0.056* 0.061* 0.056

25
(0.02) (0.03) (0.04) (0.02) (0.03) (0.04)
Log(GDPpc) 0.029 -0.001 -0.126 -0.001 -0.175 -0.037 -0.008 0.086 -0.103 -0.013 0.083 -0.131
(0.08) (0.09) (0.15) (0.09) (0.19) (0.10) (0.12) (0.15) (0.18) (0.12) (0.15) (0.19)
Polityt−1 0.881** 0.879** 0.787** 0.933** 0.780** 0.943** 0.883** 0.895** 0.876** 0.879** 0.890** 0.871**
(0.01) (0.02) (0.03) (0.02) (0.03) (0.02) (0.02) (0.03) (0.02) (0.02) (0.03) (0.02)

R2 0.744 0.735 0.640 0.832 0.636 0.841 0.746 0.756 0.772 0.742 0.753 0.768
Observations 2842 2276 1658 1184 1264 1012 2214 942 1272 2147 930 1217

Correct + sign & statistically significant at least at p<0.10 in multinomial logit estimate with binary democratization?
Growth*Oil No No No No No No
Growth*Trade Yes No No Yes No No

p<.05; ∗∗ p<.01. Dependent variable is P olity score. OLS with panel corrected standard errors that allow for AR(1) and panel heteroskedasticity. Region, year,
and regime type dummies and time splines included in all models. Regions: Sub-Saharan Africa, North Africa/Middle East, East Asia, Central Asia, Central/East
Europe, West Europe, (Latin America omitted).
Table 8: Binding Legislatures, Openness, Growth, and Democratization

Growth measure M M WDI WDI M M WDI WDI


Sample Binding No Binding Binding No Binding Binding No Binding Binding No Binding
Legislature Legislature Legislature Legislature Legislature Legislature Legislature Legislature
(1) (2) (3) (4) (5) (6) (7) (8)

Growth -0.292 -2.631** -0.712 -2.774** 0.182 -7.080** -1.362 -6.418*


(1.37) (0.96) (1.35) (1.05) (3.07) (2.46) (3.17) (2.68)
Trade 0.004+ -0.006* 0.004+ -0.007* 0.004+ -0.006* 0.004 -0.007*
(0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00)
Growth*Trade -0.006 0.061* 0.009 0.050+
(0.03) (0.03) (0.03) (0.03)
Log(GDPpc) -0.199+ 0.044 -0.195+ 0.015 -0.200+ 0.045 -0.196+ 0.022
(0.11) (0.17) (0.11) (0.18) (0.11) (0.17) (0.11) (0.18)
Military 2.110* 0.524* (dropped) 0.549* (dropped) 0.516* (dropped) 0.539*
(0.93) (0.25) (0.26) (0.25) (0.26)

26
Single party 1.279 -0.392* -0.847** -0.444* -0.827** -0.396* -0.852** -0.444*
(0.90) (0.18) (0.30) (0.20) (0.29) (0.18) (0.30) (0.19)
Monarch (dropped) -0.359 (dropped) -0.626* (dropped) -0.374 (dropped) -0.644*
(0.25) (0.27) (0.25) (0.27)
Polityt−1 0.948** 0.808** 0.946** 0.796** 0.948** 0.812** 0.945** 0.799**
(0.02) (0.03) (0.02) (0.03) (0.01) (0.03) (0.01) (0.03)
Constant (dropped) (dropped) 2.873** (dropped) (dropped) 0.881 2.899** (dropped)
(0.94) (1.50) (0.95)

R2 0.860 0.666 0.858 0.659 0.860 0.671 0.858 0.662


Observations 1029 1380 1013 1310 1029 1380 1013 1310

Duration splines yes yes yes yes yes yes yes yes
Region dummies yes yes yes yes yes yes yes yes
Year dummies yes yes yes yes yes yes yes yes

p<.05; ∗∗ p<.01. Dependent variable is P olity score. OLS with panel corrected standard errors that allow for AR(1) and panel
heteroskedasticity. Region and time splines included in all models. Regions: Sub-Saharan Africa, North Africa/Middle East, East
Asia, Central Asia, Central/East Europe, West Europe, (Latin America omitted).
sample is restricted to observations with no binding legislatures, the coefficients for Growth are
negative, large in size and significant at conventional levels, suggesting that economic crisis only
leads to democratization in countries with no binding legislatures.49 I repeated this analysis (not
reported) using the binary measure of democratization similar to the models in Table 2, and the
results were generally consistent.50
In the next four columns of Table 8, I test whether Trade only conditions the effect of
Growth on democratization in the absence of a binding legislature. In the samples with no binding
legislatures (columns 6 and 8), the earlier pattern is repeated: the coefficient on the interaction be-
tween Growth and Trade is positive and significant while the coefficients for Growth are negative,
large in size and significant. In the samples with a binding legislature, this pattern is absent. Again,
I repeated this analysis (not reported) using the binary measure of democratization, which yielded
similar results. These findings are consistent with the hypothesis that economic crisis is more
likely to lead to democratization in the absence of binding legislatures. These results suggest that
binding legislatures not only help insulate dictators from the liberalizing effect of economic cri-
sis, but they also mediate the pattern of economic openness, growth, and democratization that we
observed in the previous section. Putting these two pieces together, the evidence is strong enough
to suggest that two conditions influence whether economic crisis will lead to democratization: a
closed economy and the absence of a binding legislature.
To summarize briefly, the results in this section are inconsistent with the hypothesis that de-
pendence on “unearned” income shields dictators from the liberalizing effect of economic crisis.
This may be due to the measurement of only one type of “unearned” income, and not a composite
index that groups together rents from various natural resources and unrestricted foreign aid. Fur-
ther, I use a measure of the economy’s dependence on oil production rather than the actual ratio of
oil rents to tax revenue. Or it may be that economic crisis and rents from “unearned” income are
determined simultaneously, meaning that a decline in rents precipitates an economic crisis or vice
versa. If this is true, then models estimated here are inadequate to uncover a pattern of “unearned”
income deterring democratization during periods of crisis.
In contrast, the evidence in this section is broadly consistent with the hypothesis that the
existence of binding legislature cushions the liberalizing impact of economic crisis. There is robust
evidence that (1) growth only leads to democratization when there is no binding legislature, and
(2) economic openness only conditions the relationship between crisis and democratization in the
absence of a binding legislature. These results suggest that credible power-sharing institutions (in
the form of a binding legislature) are a viable alternative to tax revenue as a resource dictators can
use to retain their support coalition.
49
I find this same pattern when I restrict the sample to military regimes only.
50
However, when using the Maddison (2004) measure of growth, the coefficient for Growth in the sample with no
binding legislature was only significant at the 0.19 level.

27
Discussion
I find strong empirical evidence consistent with the hypotheses that economic openness and the ex-
istence of credible power-sharing institutions insulate dictators from the liberalizing effect of eco-
nomic crisis. That is, economic crisis is more likely to lead to democratization in closed economies
where there is no binding legislature the dictator can use to retain the support of his coalition. The
theoretical model proposed in this paper offers insight to two burgeoning literatures: (1) theories
of democratic transition based on conflict between the rich and the poor (Dahl 1971, Wood 2000,
Acemoglu & Robinson 2001, Boix 2003, Acemoglu & Robinson 2006, Robinson 2006) and (2)
the debate over the political consequences of globalization (Rodrik 1998, Garrett 2001, Rudra
2002, Rudra & Haggard 2005, Rudra 2005, Brunce & Garrett 2005, Samuels & Hellwig 2007).
To highlight how the present study addresses theories of democratization, first consider
Wood’s (2000) and Boix’ (2003) contributions. Boix’ model suggests that democratization should
be more likely in countries with low inequality and/or high asset mobility because these structural
characteristics offer a guarantee that the median voter in a democracy will not tax the rich too
much, thus making democracy more amenable to the rich. However, Wood’s study of democra-
tization in South Africa and El Salvador presents an empirical challenge to Boix’ theory because
both of these countries democratized despite having both high inequality and low asset mobility.51
If Boix’ theory is correct, neither of these countries should have been likely to democratize be-
cause there was no guarantee (in the form of high relative income of the median voter or the threat
of capital leaving if overtaxed) that the poor median voter in a democracy would refrain from
soaking the rich.
The alternative mechanism that Wood presents is popular mobilization against the regime,
which eventually hurt the interests of the business elite and sapped their support for authoritarian
rule. According to this model, the poor mobilize to induce economic crisis, which hurts the inter-
ests of the rich, causing them to defect from the authoritarian bargain. In Wood’s formal model
(in the Appendix), the elite have only two actions in their strategy profile: to fight or compromise.
By raising the costs of continued fight, mobilizing the poor can induce the rich to compromise.
This game, though, does not consider exit as a viable action for either player. The contribution
of the present study suggests that this causal process should only work when the rich cannot exit
from the conflict, by moving their assets abroad at a relatively low cost. I have shown empirically
that economic crisis is only correlated with democratization in relatively closed economies, and I
have demonstrated in a theoretical model that citizens will only mobilize against authoritarian rule
when the payoff to exit is relatively low. This evidence not only helps us specify when economic
crisis is likely to lead to democratization, but it also provides insight into why countries with low
asset mobility and high inequality democratize. While low asset mobility might mean the poor
cannot credibly commit to not soaking the rich in the event of democracy (Boix 2003), low asset
51
Boix (2003)

28
mobility and closed economies also mean that when economic crisis hits, citizens (perhaps both
rich and poor) have few options but to protest or fight against the regime.
Students of globalization have long thought about how increased economic openness af-
fects political outcomes in democracies. Some scholars focus on how the distributional effects
of increased trade or financial flows, for example, are translated into political support for social
policies of “compensation” (Rodrik 1998, Garrett 2001, Rudra 2002, Rudra & Haggard 2005,
Rudra 2005, Brunce & Garrett 2005). Others examine how globalization and economic perfor-
mance affect electoral outcomes in democracies (Samuels & Hellwig 2007). All of these studies
of democracies examine electoral accountability and the political institutions that translate prefer-
ences into power because these are the mechanisms which mediate power.
Thinking about how globalization and economic performance affect political outcomes in
dictatorships also requires us to look at the mechanisms that mediate power in these regimes,
though these mechanisms are probably not elections and fine distinctions among political institu-
tions that translate votes into power. The study of which types of institutions mediate power in
dictatorships is still in its infancy.52 Although I have shown that the blunt distinction between bind-
ing legislatures and either no legislature or a non-binding legislature conditions the relationship
between economic crisis and democratization, there is still much work to be done. The present
paper does not address how globalization redistributes income in dictatorships and how this redis-
tribution affects political survival. Further, I have not distinguished between types of trade or the
types of countries with which dictatorships tend to trade. If the logic of exit alternatives for citizens
is correct, trade with some countries, perhaps those that are geographically or linguistically closer,
should provide a more attractive exit option than trade with distant countries. Or perhaps trade
with democracies provides a more attractive exit alternative than trade with dictatorships. Finally,
trade in certain types of goods, such as manufactured items, may provide greater international
linkages and therefore lower exit costs than trade in other products such as agricultural goods. To
understand whether economic crisis would lead to democratization in a particular country (e.g.
China), we probably need a more nuanced explanation than the one provided in this paper. How-
ever, by proposing a model that focuses on the alternatives available to both citizens and dictators,
this paper hopefully provides a framework for thinking about these questions.

52
See Geddes (1999), Gandhi (2001), Brownlee (2005, Smith (2005), Gandhi & Przeworski (2006), Magaloni
(2006) for important contributions.

29
Appendix A
Consider a game where the dictator, perhaps because of a exogenous negative shock to the econ-
omy, faces a decision over whether to take from the citizens (Clarke, Golder & Golder 2007). This
“take” could be a tax increase through inflationary spending, confiscation of assets, or a reduction
in consumer subsidies. The citizen can respond in one of three ways: stay and fight/protest, stay
and acquiesce, or exit. If the dictator takes and the citizens protest, the dictator chooses between
conflict, which is costly (C) to both players, and peaceful democratization. When Mutual Conflict
occurs, the dictator wins with a probability P and the citizen wins with a probability (1 − P ).
Democracy is possible under this scenario if the citizen wins the fight. We can think of this out-
come as democracy through revolution, which occurs with a low probability. If the dictator takes,
the citizen fights, and the dictator chooses to peacefully democratize (Democratization through a
negotiated settlement), the citizen receives a payoff of d, while the dictator receives the authoritar-
ian payoff (1+ L) with a probability Q, where Q is the probability that dictator wins a competitive,
multiparty election and retains power. If the dictator takes and the citizen stays and acquiesces,
the dictator retains both the payoff from taking (1) and the loyalty of the citizen (L). We can think
of loyalty as the benefit to the dictator of the citizen’s assets remaining in the domestic economy.
If the dictator takes and the citizen exits, the dictator gets the payoff for taking (1) and the citizen
receives the exit payoff (E).53 Finally, if the dictator does not take, the citizen can either stay, in
which case the dictator receives the payoff for loyalty (L) and the citizen retains her asset (1), or
exit, in which case the dictator receives zero payoff for loyalty (0) and the citizen receives the exit
payoff (E). To ensure that the citizen does not exit when there is no taking, we assume 1 > E.
The game sequences and payoffs are depicted below, and Table 9 specifies the equilibria
outcomes under various constraints. One way to understand the behavior of the players under a
closed economy versus their behavior in an open economy is to illustrate the equilibrium condi-
tions when E < 0 and when 1 > E > 0, reflecting the relative attractiveness of the exit action
(i.e. the relative costs of costs of exit and alternatives to exit).
In a closed economy, the Democratization (through negotiated settlement) outcome only
occurs in equilibrium when two conditions are met: (1) Q(1 + L) > P (1 + L) − c, and (2) Q(1 +
L) > L. The first condition says that a dictator is better off choosing Democratization than Mutual
Fight when faced with a protesting citizen. This constraint illustrates how increasing the costs of
Mutual Fight for the dictator, even when those increasing costs are borne by the citizen as well,
can increase the likelihood of democratization. One might interpret this scenario as similar to the
one Wood (2000) outlines in El Salvador and South Africa where poor citizens, through conflict,
are able to alter the rich elite’s decision over whether to support continued dictatorship by raising
the costs of continued conflict for the rich elite. The second Democratization constraint in a closed
53
We could add a penalty (p < 1) here to the citizens payoff to exit after a taking to account for the initial taking
that occurs before the citizen can exit, but this would not change the basic intuition.

30
Democratization with Citizen Exit

D
Take Not Take

C C
Fight Exit
Not Fight Not Fight Exit

D b b b b

(1+L, 0) (1, E) (L, 1) (0, E)


Fight Democratize

b b
Mutual Conflict Negotiated Democracy
(P(1+L)-c, (1-P)d-c) (Q(1+L), d)

D ≡ Dictator
C ≡ Citizen

31
economy is that the dictator must find it more advantageous to take from the citizen and possibly
democratize than to not take and retain the citizen’s loyalty. As the value of the citizen’s loyalty
(L) increases relative to the value of the taking (1), the likelihood of democratization decreases.
This constraint suggests that if the value of taking increases because of an economic crisis, but the
citizen in question is not a necessary member of the support coalition (L is low), then this constraint
is more likely to be met, increasing the chances of Democratization. Finally, note that in a closed
economy, altering the value of democracy (d) for the citizen does not change the likelihood of
peaceful democratization.54

Table 9: Equilibria Conditions in Democratization Game with Citizen Exit

Outcome
Closed Economy: E<0
if Q(1+L)> P(1+L)- c:
Q(1+L)>L: Democratize
Q(1+L)<L: Not Take

if Q(1+L)< P(1+L)- c:
d>c/(1-P)
Q(1+L)>L: Mutual Fight
Q(1+L)<L: Not Take
d<c/(1-P): Acquiesce

Open Economy: E>0, E<1


if Q(1+L)> P(1+L)- c:
d>E:
Q(1+L)>L: Democratize
Q(1+L)<L: Not Take
d<E:
L>1: Not Take
L<1: Exit

if Q(1+L)< P(1+L)- c:
d>(E+c)/(1-P):
P(1+L)- c>L: Mutual Fight
P(1+L)- c<L: Not Take
d<(E+c)/(1-P):
L>1: Not Take
L<1: Exit

In an open economy, where we allow the value of the exit option to increase above zero,
the same constraints for Democratization hold, but there is now an additional constraint: d >
E. This constraint says that as the value of democratization relative to the exit payoff increases,
54
The value of (d) in a closed economy does not alter the chances democratization through revolution (winning
mutual conflict) will occur.

32
Democratization becomes more likely. Holding the value of d constant and increasing the value
of the exit payoff, then, decreases the likelihood of democratization. This illustrates how, if an
open economy increases the attractiveness for a citizen of fleeing with her assets, democratization
through a negotiated settlement becomes less likely.

33
Appendix B
Two additional robustness tests are provided here. First, using a binary measure of democratization
and a multinomial logit model with duration time splines to control for time dependence (similar
to Table 2), I test models that include country fixed effects and year fixed effects. Including the
country fixed effects controls for all cross-section variation, so I do not include controls for region.
Including country fixed effects should lower the estimated effect of all variables that move slowly
over time, including trade volumes. Thus these models give us a sense of what happens to the
relationship between growth and democratization as economic openness varies within countries,
but not across countries. In Table 10, the coefficients for the interaction between Growth and
Trade is positive and significant, while the coefficients for Growth are negative and significant,
paralleling earlier results.

Table 10: Fixed Effects

Growth measure WDI M


(1) (2)

Growth -30.742** -28.976**


(10.37) (9.75)
Growth*Trade 0.327** 0.316**
(0.12) (0.09)
Trade 0.004 0.005
(0.02) (0.01)
Log(GDPpc) 0.661 0.715
(3.97) (3.17)
Constant 2.989 3.707
(908.19) (3007.22)

Observations 2444 2536



p<.05; ∗∗ p<.01. Dependent variable is a binary
measure of democratization. Multinomial logit mod-
els with duration splines for time dependence (DV=1
reported; DV=-1 not reported). Country and year fixed
effects and regime type dummies included in both
models. M=Maddison. WDI=World Development In-
dicators.

In Table 11, I report the results from error correction models (ECM) that estimate the
potential dynamic structure of the data. Typically ECM’s are used to model equilibrium processes
where there may be both a short-term and long-term effect of the explanatory variables on the
equilibrium level of the dependent variable. To interpret the following models, note that the lagged
explanatory variables capture the long-term effect while the differenced variables capture the short-
term (one time) effect of the explanatory variables. In the first column, I test a model that does not
include the interaction between Growth and Trade. The coefficients for the lagged Trade variable
are negative and significant, while the coefficient for the lagged Growth variable is negative, but not

34
significant. Once I introduce the interaction term, the coefficient for lagged Growth turns highly
negative and significant, while the coefficient for the interaction between Growth and Trade is
positive and significant, confirming earlier results. This finding is robust to the inclusion of region
dummies, year and country fixed effects, regime type dummies, and both measures of Growth.

35
Table 11: Error Correction Model
Growth, Trade, and Democracy

Growth measure M M M M M WDI WDI WDI


(1) (2) (3) (4) (5) (6) (7) (8)

Growtht−1 -0.678 -4.522* -5.455* -6.517** -5.427* -5.266* -5.719* -4.821*


(0.86) (2.22) (2.25) (2.31) (2.39) (2.30) (2.26) (2.33)
Growth*Tradet−1 0.051* 0.061* 0.071** 0.047 0.060* 0.063** 0.048*
(0.02) (0.02) (0.03) (0.03) (0.02) (0.02) (0.02)
Tradet−1 -0.005** -0.005** -0.003 -0.001 -0.003 -0.005* -0.003 -0.003
(0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00)
Log(GDPpc)t−1 0.054 0.065 0.046 -0.010 -0.120 0.124 0.014 -0.574*
(0.07) (0.07) (0.10) (0.11) (0.12) (0.13) (0.13) (0.23)
4Growth -1.353 -4.947* -5.226* -5.278* -4.560* -5.983** -6.011** -4.686*
(0.92) (2.15) (2.15) (2.16) (2.16) (2.06) (2.05) (2.08)
4Growth ∗ T rade 0.051* 0.053* 0.050* 0.035 0.050* 0.049* 0.033
(0.02) (0.02) (0.02) (0.02) (0.02) (0.02) (0.02)
4T rade 0.004 0.005 0.006 0.007 0.007 0.005 0.005 0.004
(0.01) (0.01) (0.01) (0.01) (0.01) (0.01) (0.01) (0.01)
4Log(GDP pc) -0.438 -0.532 -0.596 -0.871 -1.080 -1.112* -1.290* -1.823**
(0.57) (0.57) (0.58) (0.57) (0.58) (0.53) (0.53) (0.53)
Military 0.789** 0.781**
(0.21) (0.20)
Single party -0.065 0.029
(0.14) (0.13)
Monarch -0.369 -0.248
(0.21) (0.20)
Polityt−1 -0.097** -0.097** -0.113** -0.129** -0.216** -0.115** -0.118** -0.190**
(0.01) (0.01) (0.01) (0.02) (0.02) (0.02) (0.02) (0.02)
Constant 0.320 (dropped) (dropped) 1.249 (dropped) (dropped) 0.659 3.572*
(0.57) (0.88) (1.01) (1.50)

R2 0.075 0.077 0.090 0.085 0.125 0.125 0.139 0.129


Observations 2336 2336 2336 2336 2336 2249 2249 2249

Duration splines yes yes yes yes yes yes yes yes
Region dummies no no yes yes no yes yes no
Year fixed effects yes yes yes yes no yes yes no
Country fixed effects no no no no yes no no yes

p<.05; ∗∗ p<.01. Dependent variable is 4 P olity score. OLS with panel corrected standard errors that allow
for AR(1) and panel heteroskedasticity. Omitted regime is P ersonalist in columns 4 and 7. Regions: Sub-Saharan
Africa, North Africa/Middle East, East Asia, Central Asia, Central/East Europe, West Europe, (Latin America omit-
ted). M=Maddison. WDI=World Development Indicators.

36
Appendix C
One drawback to empirical model presented above is that it assumes economic openness is exoge-
nous to economic crisis. Some scholars argue that this is not necessarily true (Verdier 1998, Wood
2000, Boix 2003). For example, Verdier argues that economic crisis in authoritarian regimes
causes a decrease in trade openness because dictators use rents from trade restrictions to retain
their support coalition. When economic crisis saps support for the regime, the dictator can re-
spond by buying allegiance with newly created rents from increased trade restrictions. In the
empirical section of the present study, I can account for endogeneity of trade and democratization
by instrumenting for trade. However, I have not empirically traced the causal process directly
from economic crisis to economic openness to democratization. Rather, I have assumed that eco-
nomic crisis and the overall level of economic openness are exogenous in the short term and
argued that openness conditions the effect of crisis on democratization. That economic crisis in-
duces changes in trade policy and possibly the level of openness does not necessarily mean that
openness does not condition the crisis-democratization relationship. One possible way to model
trade levels so they are exogenous to crisis would be to lag them even more than in the present
study. For example, I measure openness as a moving average lagged over previous years 3-5 (e.g.
(tradet−3 + tradet−4 + tradet−5 )/3). It is unlikely that economic crisis, measured as the two-
year lagged moving average (growtht−1 + growtht−2 ), causes the trade level in the previous three
years. Instead of contemporaneous trade conditioning contemporaneous growth’s impact on sub-
sequent democratization, this approach models past trade’s conditioning effect on contemporane-
ous growth’s relationship to subsequent democratization. This approach perhaps more accurately
captures the idea of exogenous openness, but it still does not address how economic crisis changes
the trade policy in dictatorships. Using trade lagged over previous years 3-5 does not change the
main results in Tables 1 and 2 (unreported).
To address the possibility that economic crisis increases trade protection and thus lowers
trade levels, I simply test empirically whether growth affects the equilibrium level of trade in
dictatorships. To do this, I test an error-correction model similar that used in Iverson & Cusack
(2000), Remmer (2004), Kono (2007). I add country and year fixed effects. Adding country fixed
effects is a particularly useful way to control for geographic and market related variables such
as the size of the economy (GDP), the size of the market (population), and the location of the
country relative to other markets. With country fixed effects, the model pools observations within
countries but captures and controls for cross-country variation. The year fixed effects control for
period specific changes in the international economy, such as the opening of markets as a result
of 1980s neo-liberal reforms or after trade agreements. The coefficients for both the long-term
and short-term effect of growth are both negative, suggesting that economic crisis reduces trade
openness (as argued by Verdier), but neither of these coefficients is significantly different from
zero. These results are not consistent with the conjecture that economic crisis in dictatorships

37
systematically leads to changes in the trade level (contrary to Verdier’s argument). Note that I
have only tested trade levels and not trade policy (a more accurate test of Verdier’s argument). It
is possible that economic crisis systematically changes trade policy in dictatorships but does not
systematically change trade levels.
Another way to address the causal relationship between trade and growth is to “strip out”
the variation in one caused by the other - a method that Bueno de Mesquita & Smith (2003) and
McDonald (2007) use to purge the indirect causation between democracy and either coalition size
(BDM) or public property (McDonald). Using this purging method, I regress trade (two-year
lagged moving average) on growth (two-year lagged moving average) and log(population). I then
use the residual (the observed value of trade minus the predicted value) from this equation as the
measure of trade and interact it with growth in a the model in column 4 of Table 1. The results
are even stronger: βGrowth = −8.85∗∗∗ (3.02); βGrowth∗T rade = 0.111∗∗ (0.045). I then reversed this
process by regressing growth on trade and log(population), calculated the residuals and subtracted
these from observed growth. Using this measure of growth (with trade stripped out) and it’s
interaction with trade in a model similar to column 4 Table 1, I again get very similar results:
βGrowth = −5.68∗∗∗ (1.86); βGrowth∗T rade = 0.057∗∗∗ (0.021).

38
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