The Economic Origins of Democracy Reconsidered

Abstract

The effects of inequality and financial globalization on democratization are central issues in political science. The relationships among economic inequality, capital mobility, and democracy differ in the late twentieth century for financially integrated autocracies vs. closed autocracies. Financial integration enables native elites to create diversified international asset portfolios. Asset diversification decreases both elite stakes in and collective action capacity for opposing democracy. Financial integration also changes the character of capital assets—including land—by altering the uses of capital assets and the nationality of owners. It follows that financially integrated autocracies, especially those with high levels of inequality, are more likely to democratize than unequal financially closed autocracies. We test our argument for a panel of countries in the post–World War II period. We find a quadratic hump relationship between inequality and democracy for financially closed autocracies, but an upward sloping relationship between inequality and democratization for financially integrated autocracies.