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Reconsidering the modernization hypothesis: The role of diversified production and interest‐group competition |
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| Institution: | 1. Economics Department, University of Genoa, Italy;2. Bangor Business School, Bangor, United Kingdom;3. Political Science Department, University of Genoa, Italy;1. Etla Economic Research, Finland;2. Ministry of Economic Affairs and Employment, Finland;3. University of Helsinki, Finland;1. Department of Humanities and Social Sciences, Indian Institute of Technology Dharwad, Karnataka, 580011, India;2. Department of Economic Sciences, Indian Institute of Technology Kanpur, Uttar Pradesh, 208016, India;1. Kellogg School of Management, Northwestern University, Evanston, IL, 60208, USA;2. Department of Economics and Business Administration, Ariel University, Ariel, 40700, Israel |
| Abstract: | The modernization hypothesis attributes democracy to higher incomes. The hypothesis has been controversial with claims of no relationship or opposite causality. Using data on a large sample of countries over the period from 1995 to 2015, we show empirically that the hypothesis is valid by studying the role of diversified production and interest-group competition. Increases in income associated with production diversification foster the emergence of competing organized interest groups representing the different diversified sectors. The interest-group competition underlies democracy by restraining rent seeking for benefits that would otherwise be sought through single-decision-maker authoritarian government. |
| Keywords: | Modernization Production diversification Interest groups O47 D72 |
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