A Theoretical Foundation of the Modernization Hypothesis
In this paper we develop a theoretical framework where citizens derive utility from both material goods, and political liberties, with the two arguments of the utility function potentially exhibiting complementarities to the extent that wealth can never perfectly substitute the lack of political liber- ties and representation. Goods are produced endogenously, with the opportunity cost of production being the marginal improvement of political freedom that would obtain from political activism. The ruling elites aim at minimizing the degree of political freedom so as to increase their likelihood of retaining power. We demonstrate that economic development as captured by positive productiv- ity shocks, incentivizes citizens to substitute production time for political activism in developed economies, thus bringing support to the modernization hypothesis. In economically backwards poli- ties, we demonstrate that negative economic shocks will increase political activism, in support of theories discrediting the modernization hypothesis. We thence propose a testable theoretical mechanism of the modernization hypothesis that could help reconcile seemingly contradictory empirical findings.
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