Globalization and Risk Protection in Developing Countries

Before 1980, democracy and egalitarian redistribution were closely linked. For recently democratizing countries, however, these patterns have become much less clear. Instead, many new democracies, which are mostly middle-income countries, have experienced little improvement, if not outright worsening, of inequality despite democratic transitions. Such trends challenge prominent theoretical models predicting that the extension of the franchise will allow the poor in more unequal societies to impose redistribution on the rich. This paper challenges that assumption, proposing instead a logic through which individuals faced with high and correlated risks, and who lack access to state-sponsored means to insure them, will forbear from using the opportunities afforded by political democracy to demand redistribution. The preliminary analysis provides support for this expectation, showing that insecure democracies – where political democracy is established without a basic social safety net to protect the most vulnerable citizens – tend, paradoxically, to entrench sharp economic inequalities. Instrumental variables analysis shows that economic integration has not contributed substantially to this outcome when controls for safety nets and human capital formation are introduced. Only where social safety nets are robust do we observe a positive contribution of democracy toward more egalitarian income redistribution in recent decades