Democracy and Economic Growth: A Causal Analysis

Author(s): Uk Heo and Alexander C. Tan

Source: Comparative Politics, Vol. 33, No. 4 (Jul., 2001), pp. 463-473
Published by: Ph.D. Program in Political Science of the City University of New York
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 ResearchNote

Democracy and Economic Growth: A Causal Analysis

Uk Heo andAlexander C. Tan

Since SeymourMartinLipset's seminal work on the socioeconomic prerequisitesof

democracy,a substantialnumber of social scientists has theorized and empirically
tested theories about the relationship between democracy and economic develop-
ment.1 Democratization's"third wave" has renewed interest in this relationship.2
This interestis evident in the increasingnumberof studies that explore the relation-
ship of democracy to economic development.3Nevertheless, a clear consensus has
yet to emerge on the causal relationshipbetween democracy and economic perfor-
mance. Some scholarsarguethat economic growthdrives social mobilization,which
in turn leads to political mobilization and eventuallyregime change to democracy.4
Logically, new ideas obtained as a result of economic growth and/or industrializa-
tion generate new social classes and strata which drive a social transformation.
Other scholars, in contrast, suggest that, as a nation democratizes, the economy
develops faster.5Individualswant to be confident thatpropertythey accumulatewill
be respected, and only democratic societies provide such confidence. Still other
scholars find no systematicrelationshipbetween economic developmentand democ-
racy, for two reasons. First, economic development does not necessarily lead to
higher levels of democracybecause democratizationis affected by multiple factors.
Second, by the same token economic development is affected by many factors; a
democraticgovernmentby itself can have only limited impact on economic develop-
ment.6
Thus, previous studies have not provided a dominant theoretical frameworkto
explain the democracy-developmentrelationship.In particular,the question of cau-
sation remainsto be answered.The issue of causal directionbetween democracyand
economic developmentis particularlyimportantin developing theory since clarifi-
cation of the theoreticalrelationshipbetween the two variableseases model specifi-
cation and empiricaltesting of the theory.
To answer this question we employ a Grangercausal approach.This approach
offers severalbenefits over the methodsused in previousstudies.First,manyprevious
studies were based on cross-sectional,multinationalevidence. Accordingto Jung and
Marshall,however,a cross-sectionalapproachassumeshigh levels of similarityamong
differentcountries,which may not be true.7Moreover,a longitudinaldesign is neces-
sary to see the dynamic processes of economic developmentand democratization.
Second, most previous studies implicitly assumed that either economic development

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ComparativePolitics July 2001

comes before democratizationor democratizationcomes before economic develop-

ment, but both directions are theoreticallypossible. The approachemployed in this
study does not assume eitherdirection.Third,previousstudies show thattheremay be
a delayed relationship between democratization and economic development.
Democratizationmay occur a few yearsaftera countryachievesa certainlevel of eco-
nomic prosperity,or economic prosperitymay occur a few yearsafterdemocratization.
However,few studies have systematicallyinvestigatedthis relationship.The Granger
approachemployedin this study considersboth variablesendogenousand can capture
both the immediateand delayedeffects betweenthe two variablesovertime. Therefore,
our main contributionis to model the properrelationshipbetweendemocracyand eco-
nomic developmentbased on the argumentsprovidedby previousstudies.

Theories of Democracy and Economic Development

Lipset in Political Man theorizedthat democracyis related to the level of economic

development of a particular country. He hypothesized that, the more advanced a
nation is economically,the greaterwill be its chance of sustainingdemocracy.In an
empiricalanalysis of Europeanand LatinAmerican countrieshe found that the col-
lective impact of industrialization,wealth, urbanization,and educationplayed a posi-
tive role in ensuring support for a democratic system. He concluded that "perhaps
the most widespreadgeneralizationlinking political systems to other aspects of soci-
ety has been that democracyis relatedto the state of economic development."8
Following Lipset, many scholars have argued along similar lines. Bilson, for
example, argued that economic development allows the dynamic elements in the
society to achieve status and income independentlyof the government,thus promot-
ing political freedom.9

Static societies tend to be rent-seekingsocieties in which there are strong pressuresplaced upon
governmentto redistributeincome towards politically powerful groups. To the extent that rapid
growth allows the dynamic elements in the society to achieve status and income independentlyof
the government,one could argue that economic growth and political freedom will be positively
correlated.10

Similarly, Pennar et al. suggest that growth leads to democracy because of the
impact of relative deprivationand the eventual impact of education on a populace
that demandspolitical and civil rights.11

As a small slice of the populationis enriched,the rest of the citizens agitate for their fair shot at
doing better,and such privilege is grantedonly in democracies.Then, too, rising incomes at first
go towardneeded goods and investment,then latertowardhighereducation.A more educatedpop-
ulation tends to demandpolitical and civil rights, and so democratizationbegins.12

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 Uk Heo and AlexanderC. Tan

Recent studies by Burkhartand Lewis-Beck, Londreganand Poole, and Feng pro-

vide furtherempirical support for the thesis that economic development promotes
democracy.13In the view of Burkhartand Lewis-Beck, the argumentthat economic
developmentintensifies demandsfor the political benefits of democracyhas become
accepted almost beyond challenge.l4 One can logically infer not only that economic
developmenthas a positive impact on democracy,but, more important,that econom-
ic developmentleads to democracy.
In contrast,MancurOlson in Rise and Decline of Nations suggests that the insti-
tutional fabric of the political system has an ultimate effect on economic develop-
ment.15Democracy is more conducive to economic growth than even benevolent
autocracies.16

Though experience shows that relatively poor countries can grow extraordinarilyrapidly when
they have a strong dictatorwho happens to have unusually good economic policies, such growth
lasts only for the ruling span of one or two dictators.It is no accident that the countriesthat have
reached the highest level of economic development and have enjoyed good performanceacross
generationsare all stable democracies.17

Olson attributesthe superioreconomic performanceof democraciesto their commit-

ment to the protectionof propertyrights.

An economy will be able to reap all potential gains from investmentand from long-termtransac-
tions only if it has a governmentthat is believed to be both strong enough to last and inhibited
from violating individualrights to propertyand rights to contractenforcement....Interestingly,the
conditions that are needed to have the individualrights needed for maximum economic develop-
ment are exactly the same conditionsthat are needed to have a lasting democracy.18

Moreover,in their review of the relationshipbetween regime types and economic

growth, Sirowy and Inkeles arguethat democraticprocesses and the exercise of civil
liberties and political rights lead to social conditions that are most friendly to eco-
nomic development. And, as Feng points out, political and economic freedom
improve propertyrights and market competition, which in turn enhance economic
growth.19
In addition, Leblang contends that democracy indirectlyhelps economic growth
by allowing higher levels of individualpropertyrights.20Privatepropertyrights pro-
vide individualswith the incentive requiredfor productionand exchange of econom-
ic goods. It is empiricallyclear that nations that protectpropertyrights tend to grow
faster than those that do not and that democratic societies tend to protect property
rights more than other types of government.Using cross-nationaltime-series (panel)
data from 1960 to 1990, Leblang found that propertyrights have a positive and sta-
tistically significant impacton economic growth.
It is clear, then, that democracy encourages growth. Not only does it allow the
economy to order itself and function along the principles of competition and volun-

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ComparativePolitics July 2001

tary exchange, but, more important,it encourages and conditions economic actors
(individualfirms and consumers)to behave as if economic freedomswill last. While
democraticgovernmentscan be overthrown,it is certainlyconceivablethat democra-
cy tends to reinforce commitmentto economic freedoms, which in turn contributes
to economic growth and development.21Recent empirical studies by Leblang and
Feng give credenceto this argument.22
Thus, one can find enough theoreticaljustification to supporteither of the posited
relationships between democracy and economic growth. We therefore propose an
empiricaltest using Grangercausal analysis.

Data and Methods

Data Many data sets measurethe level of democracyof various countries.Among

the more highly utilized data sets are Gastil's Freedom House democracy scores,
Gurr'sPolity II, Bollen's data, and Arat'sscore of "democraticness."These data sets
cover differenttime periods and use differentscales for the level of democracy.More
important,at least for our purpose, some data sets are not sensitive enough to cap-
ture the dynamic fluctuationwith respect to the level of democracy.Only Arat'sdata
set captures enough variance to reflect political and economic fluctuation with
respect to the level of democracyand covers a long time series. Because we want to
investigatethe causal dynamic relationshipbetween the level of democracyand eco-
nomic growth, we opted for an updatedand modified version of Arat's longitudinal
data.23The time period in this study covers 1950-1982 for thirty-two developing
countries.24
Arat's measurementof democracy comprises the concept of popular sovereignty
or public control of the governmentcomposed of four factors: participation,inclu-
siveness, competitiveness,and civil liberties. Scores in these four factors were then
transformedinto a score of "democraticness."25 The higher the score is, the more
democratica countryis.
We operationalizethe economic growth rate by using the constantvalue of gross
domestic product (GDP) measured in the local currency. Sen suggests the use of
constantvalue measuredin the local currencyinstead of constantU.S. dollar values
because fluctuatingexchange rates may inflate or deflate these lattervalues.26Data
for constant value GDP are from the InternationalFinancial StatisticsYearbookby
the InternationalMonetary Fund (IMF). For countries without constant values, we
use the consumer price index provided in the same source to convert the current
value to constantvalues.27

Methods Since we are interestedin determiningthe causal directionbetween eco-

nomic growth and the level of democracy,we employ the direct Grangercausality

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 Uk Heo andAlexander C. Tan

method. The idea of the direct Granger causality method is straightforward.The

method assumes that, in order for a variableX to cause a variableY, changes in X
must precede changes in y.28 Additionally,if incorporatingthe history of X can pre-
dict Y better than the past ofY alone, then it can be said that a variableX "Granger
causes" anothervariableY.29
To test empiricallythe notion whetherX "Grangercauses"Y we regressY against
lagged values ofY and lagged values of X and then regress Y only against lagged
values ofY.30 Similarly,to test whetherY "Grangercauses"X, the same procedureis
implementedbut in the reverseorder.These procedurescan be expressedas follows.

Yt a.Y^t E PA joel,
i=1 i-=

x,=-
i=l
r/t-,i+Ci=l 6iYt-g+e2,

where X is economic growthrate andY is the level of democracy.Errorterms eit and

e2,tare assumedto be independentand identicallydistributed.Since both variableshave
distributedlags on the right-handside of the equation,multicollinearitymay be a prob-
lem. It shouldnot affect our causal inferences,however,because they are based on F-
tests of joint hypothesesof blocks of coefficientsattachedto laggedvariables.3'
Before we estimate the above equations,we have to determinea finite lag order,
p. Since theoreticalguidanceis not availableand a prioriinformationaboutthe prop-
er lag length is lacking, we rely on a standardinformation criterion suggested by
Schwartzand recommendedby Geweke and Meese, as follows.32

SC(q) 7Wn(2)+(ln7T)

where T is the sample size and 62 is the maximumlikelihood estimateof the residual
variance of the Granger equation with various lag order. The lag structure that
numerically minimizes the above equation is chosen as the optimal lag length.
Before continuing towardestimation,we set the minimum lag as one and the maxi-
mum lag of five due to the degrees of freedom. E-Views version 2.0 was used for
estimation.

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ComparativePolitics July 2001

Findings

A summary of the results of the Granger causality test is shown in Table 1.

Economic growth "Grangercauses" democracy in eleven (34 percent) of the thirty-
two developing countries included in our sample. In contrast,democracy "Granger
causes" economic growth in ten countries (31 percent). In addition, three countries
(9 percent)reveal a feedbackrelationshipbetween democracyand economic growth,
while eight countries (25 percent) show no significant causal relationshipbetween
the two variables.
Our findings to some extent enhance earlierworks by other scholars. Our finding
that economic growth precedes democratizationin only one-thirdof our cases sup-
ports Arat'sfinding that economic growth and developmentdo not always help sus-
tain democraticsystems.33Interestingly,despite using a differentmethodology from
the one employedin this study,Gonick and Rosh also reportedsimilar findings.34
The findings of our study,however,differ from Burkhartand Lewis-Beck's find-
ing.35Using a panel data set, Burkhartand Lewis-Beck also conductedthe Granger
causality test, as well as a pooled time series analysis, and found that economic
development "Grangercauses" democracy but that democracy does not "Granger
cause" economic development.In contrast,we find that a particularcausal relation-

Table 1 Summaryof the Results

Causal Numberof Percentile Nameof Countries

Direction Countries

Growth-->Democracy 11 34 % CostaRica,Egypt,Guatemala,India,
Israel,SouthKorea,Mexico,
Nicaragua,Thailand,Uruguay,
Venezuela

Democracy-->Growth 10 31 % Bolivia,Burma,Colombia,Ecuador,
El Salvador,Indonesia,Iran,
Paraguay,ThePhillippines,South
Afirica,

FeedbackRelationship 3 9% Chile,DominicanRepublic,Turkey

No Relationship 8 25 % Argentina,Brazil,Haiti,Honduras,
Pakistan,Panama,Peru,SriLanka

N-32

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 Uk Heo andAlexander C. Tan

ship between economic development and democracy can not be generalized to all
developing countries. The contrasting findings between the two studies may have
resultedfrom the differencesin researchdesign (individuallongitudinalanalysis ver-
sus pooled time series), data set (Arat'sdata set versus Polity II), or variableopera-
tionalization(economic growthrate versus energy consumption).
In sum, based on our analysis of the democracy-growthrelationshipin thirty-two
developing countries, we are unable to provide a definitive statement about the
causal relationship between economic growth and the level of democracy. The
results of the Grangercausal analysis for each countryare reportedin Table2.

Discussion and Conclusion

In this study,we set out to clarify the issue of the causal directionbetween democra-
cy and economic growth, since there does not seem to be a strong consensus regard-
ing the causal orderingof these two variables.Using a simple operationalizationof
democracy and economic growth rates in thirty-twodeveloping countries, we used
the direct Granger causality test to tease out the causal directions. Our empirical
results show that it is as likely that economic growth causes democracy as that
democracycauses economic growth. In short,we are back to squareone.
What are the implicationsof our findings for futureresearch?First and foremost,
fiuturestudies attemptingto tease out the casual relationshipbetween democracyand
economic growth should go beyond the simple operationalization of democracy.
Since we want to examine the causal relationshipbetween democracyand economic
growth at the most direct level, it is beyond our objective to pursuethe complexities
and nuances breaking down the operationalizationof democracy further.However,
futureworks in this area will need to provide a more complex operationalizationof
democracy.
Second, our mixed findings about the relationshipbetween democracy and eco-
nomic growth, based on a straightforwardoperationalizationof democracyand eco-
nomic growth, also point to the importanceof other contingentfactors in teasing out
the proper causal ordering of democracy and economic growth. These contingent
factors may include the timing of development, geophysical factors such as the
region, economic developmentstrategies(for example, exportpromotionand import
substitution), international political factors such as cold war alliances, domestic
institutionalfactors such as separateor unified powers systems and governmentsta-
bility, and world-systemposition.
It is plausiblethat these factors, either singly or in combination,have some effect
on the relationshipbetween democracy and economic growth. For example, coun-
tries have adopted different development strategies with varying results. In South
Korea and Taiwanthe wise adoption of an export-promotionstrategyhas been cred-

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ComparativePolitics July 2001

Table 2 Results of the GrangerCausalAnalysis

Country Causal Direction F-statistic Country F-statistic

Argentina Growth->Democracv 0.6944 Iran 0.6944
Democracy->Growth 0.7699 0.7699

Bolivia Growth-->Democracy 1.2425 Israel 6.3032*'*

Democracy->Growth 3.5908** 0.4525

Brazil Growth->Demnocracy 0.3918 Korea 5.1762**

Democracy->Growth 0.0673 1.7231

Burma Growth-->Democracy 0.2971 Mexico 6.8891***

Democracy->Growth 4.4800** 0.6015

Chile Growth-->Democracy 3.9123** Nicaragua 7.7609***

Democracy-->Growth 3.0768** 1.7233

Colombia Growth-->Democracy 0.5095 Pakistan 1.0793

Democracy->Growth 7.5470** 0.5978

CostaRica Growth->Denmocracy 5.3942** Panama 1.0625

Demnocracv->Growth 1 1759 0. 1274

Dominican Growth-->Democracy 4.7019** Paraguay 1)0.3954

Republic Democracy->Growth 5.3874** 2.5634*

Ecuador Growth-->Democracy Q.3134 Peru 0.0702

Democracy->Growth 3.5876** 0.6756

Egypt Growth->Democracy 7.3686*** Philippines 0.9450

Democracy-->Growth 0.11743 1 .7288***

E1Salvador Growth-->Democracy 0.4555 South 0.7710

Democracy->Growth 4.7762** Africa 2.4253*

Guatemala Growth->Deiocracy 2.7773* Sri Lanka 0.6356

Democracy-->Growth 0.3579 0.3490

Haiti Growth-->Democracy 2.1897 Thailand 5.8348***

Democrac-->Growth 0.3487 0.4242

Honduras Growth->Democracy 0.2852 Turkey 4.3587**

Democracy->Growth 0.0882 3.4528**

India Growth-->Democrac 5.8829*** Uruguay 4.5561**

Democracy->Growth 0.0970 0.7783

Indonesia Growth->Democracy 0.0929 Venezuela 2.7365*

Democracv->Growth 4.9593** 0.8593

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 Uk Heo andAlexander C. Tan

ited with the phenomenalgrowth rates of these two countries. It is logical, then, to
argue that adoption of different development strategies may have influenced their
respective economic growth prospects and also their experience with democracy.
Similarly,one can logically arguethat a countrythat was both firmly within the U.S.
cold war alliance and had great geostrategicvalue to the U.S. faced a differentmar-
ket access challenge than nonaligned countries. Countries in the U.S. camp often
benefited from special market access arrangementsto export products to the U.S.
Being partof the U.S. sphereof influence, however,could also conceivablyaffect the
level of democracyin these countries.Since the primaryfocus of our study was con-
fined to an explorationof the relationshipbetween democracyand economic growth,
we simply suggest these factors for futureresearch.

NOTES

An earlier version of this paper was presented to the annual meetings of Southern Political Science
Association, Norfolk, Virginia, November 5-8, 1997. The authorswould like to thankYi Feng and Tim
Powersfor helpful comments.
1. See Philips Cutright, "National Political Development: Measurement and Analysis," American
Sociological Review, 28 (1963), 253-64; Deane E. Neubauer, "Some Conditions of Democracy,"
AmericanPolitical Science Review, 61 (1967), 1002-9.
2. Samuel Huntington,The ThirdWave(Norman:University of OklahomaPress, 1991).
3. Kenneth A. Bollen, "Political Democracy and the Timing of Development," American
Sociological Review, 44 (1979), 572-87; John F. 0. Bilson, "Civil Liberty: An Econometric
Investigation," Kyklos, 35 (1982), 94-114; Kenneth A. Bollen and Robert A. Jackman, "Political
Democracy and the Size Distribution of Income,"American Sociological Reviewu48 (1985), 468-79;
Kenneth A. Bollen, "Liberal Democracy: Validity and Method Factors in Cross-National Measures,"
AmericanJournal of Political Science, 37 (1993), 1207-30; LarrySirowy and Alex Inkeles, "The Effects
of Democracy on Economic Growth and Inequality:A Review,"Studies in ComparativeInternational
Development, 25 (1990), 126-57; John F. Helliwell, "Empirical Linkages between Democracy and
Economic Growth," British Journal of Political Science, 24 (1994), 225-48; Adam Przeworski and
Fernando Limongi, "Political Regimes and Economic Growth,"Journal of Economic Perspectives, 7
(1993), 51-69; Mancur Olson, "Dictatorship, Democracy, and Development," American Political
Science Review, 87 (1993), 567-76; Ross E. Burkhart and Michael S. Lewis-Beck, "Comparative
Democracy: The Economic Development Thesis," American Political Science Review, 88 (1994),
903-10; John B. Londregan and Keith T. Poole, "Does High Income Promote Democracy?," World
Politics, 49 (1994), 1-30; David Leblang, "Property Rights, Democracy and Economic Growth,"
Political Research Quarterly, 49 (1996), 5-26; David Leblang, "Political Democracy and Economic
Growth: Pooled Cross-Sectional and Time-Series Evidence," British Journal of Political Science, 27
(1997), 453-72; Yi Feng, "Democracy, Political Stability and Economic Growth,"British Journal of
Political Science, 27 (1997), 391-418.
4. Seymour M. Lipset, "Some Social Requisites of Democracy,"AmericanPolitical Science Review,
53 (1959), 69-105; MartinNeedler, "Political Development and Socioeconomic Development:The Case
of LatinAmerica,"AmericanPolitical Science Review, 62 (1967), 889-97.
5. Olson, "Dictatorship";MancurOlson, Rise and Decline of Nations (New Haven:Yale University
Press, 1982); Przeworskiand Limongi; Leblang,"PropertyRights";Lebang, "PoliticalDemocracy."

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ComparativePolitics July 2001

6. Zehra Arat, "Democracy and Economic Development: Modernization Theory Revisited,"

ComparativePolitics, 21 (October 1988), 21-36; Tatu Vanhanen, The Process of Democratization:A
ComparativeStudy of 147 States, 1980-88 (New York:Crane Russak, 1990); Olson, "Dictatorship,"p.
572.
7. W. S. Jung and Peter J. Marshall, "Exports, Growth and Causality in Developing Countries,"
Journal of DevelopmentEconomics, 18 (1985), 1-12.
8. Lipset, "Some Social Requisites of Democracy."
9. Bilson.
10. Bilson, p. 106.
11. KarenPennar,Geri Smith, Rose Brady,Dave Lindorff,and John Rossant, "Is Democracy Bad for
Growth?,"Business Week, June 7, 1993.
12. Ibid., p. 84.
13. Burkhartand Lewis-Beck; Feng; Londreganand Pool.
14. Burkhartand Lewis-Beck.
15. Olson, Rise and Decline of Nations.
16. Olson, "Dictatorship."
17. Ibid., p. 573.
18. Ibid., p. 572.
19. Sirowy and Inkeles; Feng; Leblang,"PrivateRights."
20. Leblang,"PropertyRights."
21. In a review of empirical studies investigating the relationshipbetween democracy and economic
growth, Przeworskiand Limongi found inconclusive evidence to support the hypothesis that democra-
cies grow faster than nondemocracies.
22. Leblang, "PropertyRights."
23. ZehraArat, Democracy and HumanRights (Boulder: Lynne Rienner, 1991). One concern that has
been raised is whetherthese various democracy data sets are tapping the same concept. Bollen, "Liberal
Democracy,"pointed out that some data sets are laden with measurementerrorthat may have an impact
on overall findings and conclusions. Burkhartand Lewis-Beck employed Gastil's data set because,
according to them, it has been found to have the fewest measurementerrors.To check whether we are
tapping into the same phenomenonand to see how Arat'snew data set is correlatedwith others, we ran a
simple Pearsoncorrelationon Gastil's scores and Arat's scores on 146 countries for 1980. We found that
the two data sets are highly correlated(-0.80, significant at the 0.001 level). The negative correlation is
expected because Gastil's scores range from 1 for democracy to 7 for nondemocracies,while Arat'shigh
scores reflect a higher level of "democraticness."Arat, Democracy and Human Rights, p. 28, also pro-
vided correlationscores for her democracy scores and existing democracy indices. For example, the cor-
relation between Bollen's 1960 and 1965 scores with Arat's scores is 0.90 (n=106) and 0.90 (n=104),
respectively.
24. The countries that cover a different time period due to the lack of data availability are Argentina
(1949-82), Brazil (1958-80), Burma (1953-82), Chile (1955-82), Egypt (1955-82), El Salvador
(1951-82), India (1955-82), Indonesia (1960-82), Iran (1959-82), Israel (1953-82), Korea (1953-82),
Pakistan (1955-82), Panama (1959-82), The Philippines (1951-82), Thailand (1952-82), Uruguay
(1955-82).
25. The level of democracy is calculated according to the following equation: Score of democratic-
ness = [(Participationx (1 + Inclusiveness)+ Competitiveness]- Coerciveness.
26. Somnath Sen, "Military Expenditure Data for Developing Countries: Methods and
Measurement,"in Geoffrey Lamb, ed., Military Expenditureand Economic Development(Washington,
D.C.: WorldBank Discussion Papers, 1995).
27. Consumer price index was used to convert current values to constant values for Brazil, Egypt,
India, Peru,and Thailand.

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28. Robert Pindyck and Daniel Rubinfeld,EconometricModels and Economic Forecasts (New York:
McGraw-Hill, 1991), p. 216.
29. John R. Freeman, "GrangerCausality and the Time Series Analysis of Political Relationship,"
American Journal of Political Science, 27 (1983), 337-58; C. W. J. Granger, "Investigating Causal
Relations by Econometric Models and Cross-Spectral Methods," Econometrica, 37 (1969), 424-38;
Peter Kennedy,A Guide to Econometrics(Cambridge,Mass.: MIT Press, 1991), p. 68.
30. The concept of causality used by the Grangercausality test is empirical ratherthan theoretical. It
requirestwo conditions for X to cause Y: changes in X must precede changes in Y, and X must help pre-
dict Y. Since this concept is slightly different from what we usually mean by causality, we use the term
"Grangercause." Fordetailed information,see Freeman.
31. Ibid., p. 346.
32. Gideon Schwartz,"Estimatingthe Dimension of a Model,"Annals of Statistics, 6 (1978), 461-4;
John Geweke and Richard Meese, "Estimating Regression Models of Finite but Unknown Order,"'
InternationalEconomic Review,22 (1981), 55-70.
33. Arat, Democracyand HumanRights.
34. Lev S. Gonick and Robert M. Rosh, "The StructuralDeterminants of the World Economy on
National Political Development,"ComparativePolitical Studies, 21 (1988), 171-99.
35. Burkhartand Lewis-Beck

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