Description:
Two main theories explain the relations between the three variables. The A-theory starts from the strong correlation between income and democracy, seeing income as the causal variable. It is the democratic transition, which is the political part of the theory of the grand transition. The B-theory starts from the much weaker correlation between democracy and economic growth, seeing democracy as the causal variable. This is a part of the primacy-of-institutions theory, where the political system is an important institution. Given a link-relation between growth and income, both theories may theoretically explain the other. The analysis looks at all six possible univariate relations between the three variables using kernel regressions on a large, unified data set. This method gives a clear picture. The strong A-relation can indeed explain the weak B-relation as a spurious effect, but the weak B-relation predicts that the A-relation is very weak. Thus, the A-theory encompasses the B-theory, but not vice versa