Examining the Lagged Effect of Economic Development on Political Democracy: A Panel-VAR Model

Abstract

Quantitative researches on the relationship between economic development and political democracy have failed to deal adequately with the lag of the effect of economic development. By using the panel-vector autoregression model, this article relaxes the assumptions on lag selection as well as those on causal direction. The Granger causality test, impulse response function, variance decomposition and other procedures of panel Vector-Autoregression (VAR) are used to display the lagged pattern of the relationship between economic development and the level of democracy and to deliver the information for causal inference about the two variables. The analytic result confirms the contribution of economic progress to political advancement, but that contribution consistently proves to be a delayed one.