Martin Paldam

The paper considers the transformation of the political system as countries pass through the
Grand Transition from a poor developing country to a wealthy developed country. In the
process most countries change from an authoritarian to a democratic political system. This is
shown by using the Gastil democracy index from Freedom House. First, the basic pattern of
correlations reveals that a good deal of the short- to medium-run causality appears to be
from democracy to income. Then a set of extreme biogeographic instruments is used to
demonstrate that the long-run causality is from income to democracy. The long-run result
survives various robustness tests. We show how the Grand Transition view resolves the
seeming contradiction between the long-run and the short- to medium-run effects.