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This paper investigates the relationship between income and democracy using common correlated effects (CCE) extended estimators which take into account the fact that democracy variables are highly correlated across countries and the possibility of heterogeneous effects of income on democracy in different countries. Using a wider database than ever, covering annual data from 1804 to 2010 for almost all countries, we show that overall, the effect of income on democracy is significantly negative when the time-series features of the data are taken into account, a result that comes from the low-income countries. This calls back into question the controversy about the empirical effect of income on democracy.

Democracy and income: taking parameter heterogeneity and cross-country dependency into account