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Income and democracy: a bivariate copula approach
1Department of Economics, Faculty of Economics and Politics, Aristotle University of Thessaloniki, Thessaloniki, Greece.
Abstract:
We propose a new approach for exploring the relationship between income and democracy by modeling the two most popular discrete democracy indexes, Polity IV and Freedom House, as a joint random variable by means of a copula function. Joint modeling is crucial for eliciting complementarity and/or substitutability amongst these indexes claiming to measure similar things, i.e. a country's degree of democratization. We find strong evidence supporting both the existence of the relationship and the positive dependence between the two democracy indexes, suggesting that they are complements to each other. Our findings are robust to different samples and model specifications.
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