Exploring the causal mechanisms between democratization and economy growth

Question

I have been reading a lot recently on a classic polsci question on the relationship between democratization and economic outcomes(see Boix & Stokes, 2003; Coppedge, in press; Epstein, Bates, Goldstone, Kristensen, & O’Halloran, 2006; Przeworski, Alvarez, Cheibub, & Limongi, 2000; Rueschemeyer, and Stephens, & Stephens, 1992).

I further realize that there is an endogeneity problem with studying this question, so we may never be able to settle which outcome causes the other (i.e. democratization leads to economic growth OR economic affluence leads to democratization).

Based on my reading of the literature, there are two common causal mechanisms where this procedure may occur:

1. Democratic countries (or countries that become democratic) are different from the others in ways that make them more economically successful regardless of democratic institutions (e.g. a vibrant civil society both causes democratization and good business, it’s not that democratization causes good business).

2. Economic affluence causes democratization and not the reverse (e.g. people first want their basic needs taken care of then they can focus on freedom of speech and all the other cosmetics of democratic regimes), so rich countries become democratic, it’s not that democratic countries become rich.

However, I wonder if there is a third causal mechanism that has not been studied, where democratization may occur as follows:

3. Economic decline/stagnation leads to taxation as the government scrambles for alternative revenue sources, which may lead to 2)democratic demands (e.g. greater representation) and then a gradual 3)democratic transition?

I am thinking of Indonesia (i.e. in the late 90's transition to a democracy) and it's now happening in some Arabian Gulf states like Oman, which pre the oil crash of 2016 did not impose any taxes on their citizens, but since then they have imposed a 5% VAT and increased social security and property taxes, respectively. Interestingly, the taxation policies were not accompanied with any political representation or political rights in general. This has caused many Omani citizens in recent years on twitter to demand more political representation and greater government accountability. However, none of the online demands have materialized into any policy changes thus far.

Answer 1

A main causal connection between "democratisation" and economic growth today, is typically that the West stops sanctioning and attacking your economy, and might even relocate large amounts of capital to your shores if you have a pliant and relatively low-wage workforce.

Most of the modern advanced economies were already developed before the era of democratisation, if democracy means something like universal suffrage and one-man-one-vote. Before then, "democracy" was really for the bourgeoisie.

And the way the advanced economies originally developed, was usually by involvement in worldwide colonial extraction and exploitation.

More broadly (than colonial extraction, or the negative effect of Western attacks), experience shows that a state agenda for economic development is the main driving force.

The policies that ensue from that agenda tend to correspond with what we think of theoretically as "democratisation". Idle rentiers of all sorts are assaulted whilst workers enjoy improved wages, better living conditions, more economic security - fewer struggles and uncontrollable contingencies in everyday life, in other words - and more state-funded education and technical training.

These policies both reduce internal tensions and improve worker productivity (in the real sense of material economic output relative to worker effort, not the artificial sense of private profit returned on private capital), thereby promoting economic development.