Seminar 3 (Oct 12)

I. Democratization

Consider Acemoglu and Robinson's (2001) paper on the extension of the franchise

1. Explain verbally the main building blocks of A&R's theory of democratization
2. What does it mean that the "revolution constraint is binding"
3. Explain the meaning of and compute the value functions of the poor, i. e. V^p(R), V^p(D), V^p(¦Ì^?,E), and V^p(¦Ì^h,E;¦Ó). Why does it help us knowing these?
   You can assume that the elites choose the highest possible tax rate when the labor movement is strong.
4. Discuss briefly what would happen if
   1. Revolutions become less destructive with a strong labor movement (higher ?^h)
   2. Home production becomes more productive
   3. Inequality increases
5. Consider an extension of the model where in democratic regimes, the elites can at certain times (when they are strong) commit a coup and revert to elite controlled government. How would this affect
   1. The workers' valuation of temporary redistribution versus transition to democracy
   2. The elites capability to avoid democratization
6. So far, China has followed a strategy not involving extension of the franchise. However, it may be argued that the Communist party's strong emphasis on infrastructure and industrial investments is a way to redistribute towards the poor. Discuss whether it could be that commitment problems are less severe when redistribution is through investments than pure transfers, and whether this can explain the lack of democratization in China. (You may consult Wall?e (2012) for further discussions of these issues)
7. Which empirical predictions does Acemoglu and Robinson's theory have? Explain why it is nontrivial to test these and how Aidt and Franck (2015) overcome them.

II. The dynamics of democratization

Consider Acemoglu et al.'s (2016) paper on the empirical effect of democracy on economic performance

1. Explain the fallacies of simply regressing GDP growth on political regime. Pay particular attention to the effects of identification and dynamics.
2. How to Acemoglu et al. attempt to solve the problem of democracy having a sluggish effect on economic performance?
3. Consider Column (1) of Table 2. Compute the effect of a transition to democracy the first year and the second year. Why is the effect larger in the second year?
4. Using Excel, Stata, or any other platform you prefer, compute the effect of democratization for every year after  the event happens, and show them in a graph. Show that your results approach the long run effect reported in the paper.
5. Answer questions 3. and 4. above using the results in Column (2). Discuss the differences between the estimates.