Globalization and Democracy in the Presence of Threshold Effects

Abstract: The theoretical literature presents conflicting expectations about the effect of globalization on national governance. One view expects globalization to enhance democracy, a second argues that globalization obstructs democracy; a third argues that it does not necessarily affect democracy. We consider the threshold effect approach to reconcile these different results and problems related to specification and testing procedure. We study the role of demography in the determination of the relationship between globalization and democracy. Based on a panel of 100 countries for the period 1993-2013, our model identifies two demographic regimes and shows that the relationship between globalization and democracy is regime specific. We identify two demographic regimes, conditional on the population’s median age. In the Mature population regime (median age>16.95), countries overlooked Malthusian constraints and with early and fast demographic transitions, they invested in human capital and enhanced the efficiency of resource allocation. In the Youth population regime (median age<16.95), countries with late demographic transitions or suffering yet of Malthusian constraints (famines and chronic under-nutrition) are unable to invest in children quality and human capital and then have inefficient resource allocation. Then, trade openness, as a measure of globalization, will influence differently the speed of development, it fasters growth in the former countries and retards growth in later ones which may have lost because of their low competitiveness and then impacts countries modernization process.