Industrialization and Democracy: IV Evidence from Cross-Country Differences in Coal Resources

Abstract

Research on the economic roots of democracy tends to focus on income, inequality, education, and/or urbanization. I argue that industrialization — defined as a large share of employment in manufacturing — is a distinct, and arguably more important, determinant of democracy. Using novel data for 145 countries over 170 years (1845--2015) I find that: (1) all currently highly developed countries in the West and East Asia democratized when they had just become highly industrialized, but when they were still relatively poor, unequal, uneducated, and rural; (2) industrialization is more strongly correlated with democracy in two-way fixed effects models; and (3) industrialization remains strongly correlated in settings where other economic determinants are not — e.g., the effect occurs on both transitions and consolidations and is equally large after WWII. Crucially, many potential outliers (e.g., China, USSR) have in fact never reached the level of industrialization that existed in the West before democratization.