The economic origins of democratic civil liberties: A cross-country analysis

Abstract

Abstract Studies have observed a correlation of wealth with democracy, yet it remains unclear how wealth can cause or stabilize democracy. Recent research has shown how the causal mechanism may lie in the economic norm of contracting, as democracy becomes valued as the best means for sustaining a nonpredatory government that enforces contracts with impartiality. We extend this research to investigate if norms of economic contracting in societies give rise to, and strengthen, the democratic civil liberties of free speech and association. Drawing on the World Bank’s Financial Structure Database and data on civil liberties from the Varieties of Democracy dataset, analyses of most countries from 1961 to 2019 show that the economic norms of contracting have significant positive effects on the civil liberties of free speech and association and press freedom. With instrumental variable regression, we statistically isolate the causation from contracting to these civil liberties. This study pinpoints that contracting economic activities may strengthen the foundation of civil liberties in countries.