Should Market Liberalization Precede Democracy? Causal Relations between Political Preferences and Development

Abstract

This paper is dedicated to the relationship between market development and democracy. We distinguish between contexts and preferences and ask whether it is true that the demand for democracy only emerges after a certain degree of market development is reached, and whether, conversely, democratisation is likely to be an obstacle to the acceptance of market liberalisation. Our study hinges on a new survey rich in attitudinal variables: the Life in Transition Survey (LITS) conducted in 2006 by the European Bank for Reconstruction and Development (EBRD) and the World Bank, in 28 transition countries. Our identification strategy consists of relying on the specific situation of frontier zones. We find that democracy enhances the support for market development whereas the reverse is not true. Hence, the relativist argument according to which the preference for democracy is an endogenous by-product of market development is not supported by our data.

Full text

IZA DP No. 2889
Should Market Liberalization precede Democracy?
Causal Relations between Political Preferences
and Development
Pauline Grosjean
Claudia Senik
DISCUSSION PAPER SERIES
Forschungsinstitut
zur Zukunft der Arbeit
Institute for the Study
of Labor
June 2007

Should Market Liberalization Precede
Democracy? Causal Relations between
Political Preferences and Development
Pauline Grosjean
European Bank for Reconstruction and Development
Claudia Senik
Paris School of Economics, University Paris-IV Sorbonne,
IUF and IZA
Discussion Paper No. 2889
June 2007
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IZA Discussion Paper No. 2889
June 2007
ABSTRACT
Should Market Liberalization Precede Democracy?
Causal Relations between Political Preferences and Development *
This paper is dedicated to the relation between market development and democracy. We
distinguish contexts and preferences and ask whether it is true that the demand for
democracy only emerges after a certain degree of market development is reached, and
whether, conversely, democratization is likely to be an obstacle to the acceptation of market
liberalization. Our study hinges on a new survey rich in attitudinal variables: the Life in
Transition Survey (LITS) conducted in 2006 by the European Bank for Reconstruction and
Development and the World Bank, in 28 post-Transition countries. Our identification strategy
consists in relying on the specific situation of frontier-zones. We find that democracy
enhances the support for market development whereas the reverse is not true. Hence, the
relativist argument according to which the preference for democracy is an endogenous by-
product of market development is not supported by our data.
JEL Classification: H1, H5, P2, P3, P5, O1, O12, O57
Keywords: market and democracy, sequencing of development, transition economies,
attitudinal variables, cross-country survey
Corresponding author:
Claudia Senik
PSE, ENS
48, bd Jourdan
75014 Paris
France
E-mail: senik@pse.ens.fr
* We thank participants in the PSE Public Policy and Labour Market seminar, in the Toulouse
Development seminar and at the EBRD lunch seminar. We are grateful to Esther Duflo for her helpful
suggestions. All errors are ours. This research has benefited from the support of the CEPREMAP.

2
1. Introduction
One of the unexpected side-effects of China’s spectacular emergence is the diffusion of a new
conventional wisdom concerning the sequencing of political and economic reforms in
developing countries. Essentially, the idea is that early democratization can be harmful. The
continued hold of the Chinese Communist Party over political power is taken to be a positive
ingredient in the construction of a viable market economy, as opposed to the erratic reform
path experienced by Central and European countries of the former socialist block, which
predominantly chose rapid economic and political liberalization in the 1990’s (Dewatripont
and Roland, 1992; Godoy and Stiglitz, 2006; Roland and Verdier, 2003). Another example is
Latin America, where pervasive economic crises seem to illustrate the danger that democracy
can be an obstacle to the development of the market when leaders have to impose unpopular
reforms while being responsible in front of their constituencies. It follows that the optimal
route is to develop market institutions in a first stage of development, and consider
democratization at a latter stage.
Pushing the argument one step further, some authors have argued that the desire for political
freedom and democratic institutions does not arise until countries reach a certain degree of
material comfort and market liberalization (Lipset, 1959; Miller et al. 1996). Hence, the
argument goes, not only is it preferable to postpone democracy to advanced stages of a
country’s economic development, but this sequence also meets citizens’ preferences.
Some observers may find it difficult to reconcile this relativist statement with the recent vivid
public demonstrations in favor of democratization in countries of the Commonwealth of
Independent States (CIS), e.g. Belarus, Georgia, Ukraine, and in China. In terms of scientific
evidence, the empirical literature devoted to the relationship between market and democracy

3
remains rather inconclusive. Most studies are unable to draw a clear direction of causality
because of the interdependent dynamics followed by the two variables along the history of
any given country. Hence, in spite of the strong dynamism of this research field, the scientific
consensus on these issues is still in the making.
This paper tries to contribute to the understanding of the relationship between political
preferences and development. We exploit a new set of micro evidence from an original
survey of 28 Transition economies, the Life in Transition Survey, which was implemented in
summer 20063.
We first try to isolate the causal relation running from actual democratization to the demand
for market liberalization. Our empirical identification strategy relies on the specificities of
frontier-zones. Our main assumption is that people who live in an integrated frontier-zone
share the same experience of the market and, often, the same historically inherited “cultural
attitudes” towards the market and democracy, on both sides of the frontier. This is
particularly plausible for the (often artificial) frontiers of the former USSR and in some
formerly integrated regions such as the Ottoman Empire or the Austro-Hungarian Empire.
This assumption is tantamount to keeping constant the usually omitted variables that bias any
estimation of the relation between market development and the support to democracy.
Reciprocally, we try to assess the relation that runs from actual market development to
popular demand for democracy. Here, we exploit within-country regional variations. We rely
on the fact that the degree of market development is notoriously different across regions of
the survey; whereas people who live in the same country share a common experience of
democracy. Hence, we regress the preference for democracy on an index of regional market
development, reflecting the share of the modern sector of the economy, which is composed of
private and smaller size firms. We also compare the support to democracy of the various
frontier-zones inside a given country, on the grounds that market development at borders are
partly exogenous, as it is influenced by the neighbouring region’s market development.
The main result of this paper is that democracy appears to generate some popular support for
the market, while economic liberalization does not clearly raise the support for democracy.
3 See EBRD, Life in Transition, a Survey of People’s Experiences and Attitudes, May 2007.

4
To be sure, this finding only suggests that democracy increases the subjective support to the
market; it does not mean that democracy does not complicate the task of reformers, with the
risk of impeding market liberalization. Our results also cast doubt on the idea that democracy
would naturally emerge as a by-product of capitalism. Even if the demand for democracy
increases with individual income, market liberalization as such does not seem to be sufficient
to trigger the demand for democracy. A minima, the take-home message of the paper is that
one cannot advocate the preferences of citizens to postpone the construction of democratic
institutions.
Section 2 discusses the background literature in the reciprocal linkages between economic
and political liberalization. Section 3 presents the identification strategies. Section 4 presents
the data and Section 5 discusses the results. Section 6 concludes.
2. Background
The conventional wisdom concerning the linkages between political and economic systems
has changed over time. While the early XIXth century was predominantly skeptical about the
compatibility between democracy and capitalism (see J.S. Mill or K. Marx4), today, the
consensus is that development leads to both a market economy and to political democracy5
with anteriority of the market. The idea that “modern democracy is a by-product of the
capitalist process”6 dates back to Toqueville (1839), who stressed that market development is
conducive to democracy because it provides the “social space within which individuals,
groups and entire institutional complexes can develop independent of state control”7. Lipset
(1959) claims that: “industrialization, urbanization, high educational standards and a steady
increase in the overall wealth of society [are] a basic condition sustaining democracy”.
Historically, market economies have existed both in the context of democracy and autocratic
regimes, but there is no example of a socialist economy within a democratic regime. This
4 Mill, John Stuart. Considerations on Representative Government. In Utilitarianism, Liberty, and
Representative Government, ed. H. B. Acton. London: Dent, 1860. Karl Marx (1867) Capital, Vol. 1 A Critique
of Political Economy, ed. Penguin Classique London, 1990.
5 Hence the concept of the “End of History” (Fukuyama 1992 ).
6 J.A. Schumpeter, Capitalism, Socialism and Democracy (New York, Harper and Bros., 1942).
7 A. de Toqueville (1839), Democracy in America, vol. 2 (New York : Vintage :1945).

5
observation lies at the foundation of a certain “instrumental” view of political regimes. In the
context of the political economy of Transition (Aslund et al., 2001; Dewatripont and Roland,
1992; Roland, 2001; Roland and Verdier, 2003), researchers have focused on the question of
how to overcome the political opposition to reforms, and in particular the opposition to
economic liberalization. This literature discusses the relative pros and cons of democracy
versus authoritarianism from the point of view of facilitating economic reforms and growth.
Here, the causality runs from the political regime to the development of the market.
Beyond these theoretical models, what can we learn from empirical studies? To date, the
existing empirical literature does not offer many reliable clear-cut results. Many studies focus
on the aggregate relationship between democracy or economic liberalization and economic
growth. Concerning the relation running from political liberalization to growth, Barro (1990)
suggests that the relationship between GDP and democracy is curvilinear and Minier (2001)
finds that the probability that a democratic movement emerges in an authoritarian regime is
increasing in income per capita up to a level of approximately US$5000. However, these
results are contradicted by Przeworski (2004), who finds that transition from authoritarian
regime to democracy is not influenced by income levels, once initial conditions are controlled
for8. Przeworski and Limongi (1993) review 18 studies and 21 findings concerning the
impact of political systems on growth, among which eight are in favor of democracy, eight in
favor of authoritarianism and five conclude to no difference. As underlined by Persson and
Tabellini (2007b), “the findings are essentially all over the place” with regards to whether
democracy shapes economic development (see also, among many, Barro, 1990; Burkhart and
Lewis-Beck, 1994; Helliwel, 1994; Leblang, 1997; Przeworski, 2004).
The study of the reverse causality is similarly unconvincing and Przeworski and Limongi
(1993) argue that most of these empirical studies suffer from a simultaneity bias. Evidence
based on cross-section aggregate data suggests that education and income are the strongest
channels towards democracy (La Porta et al., 1999). However, in two related papers,
Acemoglu, Johnson, Robinson and Yared (2004a, 2004b) invalidate this finding by showing
that the impact of education and income becomes insignificant once within-country variation
8 Przeworski argues that the observed relationship between national income and democratic regimes is an
artefact; it is due almost exclusively to the higher durability of any political regime under a higher national
income. Hence what is observed in richer countries is not more frequent transitions to democracy but more
durable democratic regimes.

6
and endogeneity of income are taken into account. The authors conclude that cross-section
correlations between democracy and education or income are due to an omitted variable bias.
This omitted variable, they suggest, consists of the initial institutions that have presided over
the country’s development (Acemoglu, Johnson and Robinson, 2001). This problem of
omitted variable is pervasive in this entire literature.
Some authors have tried to overcome this obstacle using matching, propensity scores and
differences in differences methods, exploiting both the cross-country and time series
variations in aggregate datasets. Persson and Tabelini (2007a) show that democratic regimes
have an important impact on growth but that this relation is conditional on the heterogeneous
characteristics of the countries under study. Persson and Tabellini (2007b) show that longer
time spans of democracy are a factor of economic development. Persson and Tabellini (2006)
suggest that some forms of democracy (presidential) are more development friendly than
others (parliamentary)². Rodrick and Wacziarg (2005) find that democratic transitions exert a
positive impact on growth in the short run, especially in the poorest countries; it also reduces
economic volatility. Other papers, e.g. Sachs and Werner (1995) or Wacziarg and Welch
(2003) have tried to elucidate the relation from economic liberalization to growth.
A few papers address directly the question of the interplay between democratization and
economic liberalization using aggregate data. Among those, Giavazzi and Tabellini (2005)
find that both kinds of reforms have mutual feedbacks on one another, although causality is
more likely to run from democratization to economic liberalization. However, they conclude
to the superiority of a sequencing based on market liberalization first, from the point of view
of growth: “Countries that first liberalize and then become democracies do much better than
countries that pursue the opposite sequence”.
Another set of studies has focused on the support for democracy and market economy based
on individual data. Surveys try to confirm the predictions that individuals who support a free
market economy are more likely to embrace democratic principles (Mc Intosh et al., 1994).
This can be because it is in the best self-interest of the wealthiest individuals to support
democracy: as they benefit from market development, they seek political representation to
protect their newfound economic opportunities. Alternatively, attitudes towards the market
can be determined by the political socialization of individuals (Citrin et al, 1990; Easton,
1965). With the exception of Finifter and Mickiewicz (1992), most studies related to Central

7
and Eastern Europe find evidence that the support for democratic institutions is highest
among the better educated urban residents (Brym, 1996; Mason, 1995; Mc Intosh et al. 1992;
Miller et al. 1994 and 1996;) and those most satisfied with the performance of the economy
(Mishler and Rose, 1994). However, most studies based on individual data suffer from an
identification problem. This is contained in the very idea of the modernization theory that the
same development dynamics favor both democracy and market development. Assessing the
direction of causality between the advancement of economic freedom and the degree of
political freedom appears to be an almost impossible exercise in the absence of a valid
exogenous instrument, which needs to be traced back as far as legal or colonial origins
(Acemoglu et al.., 2001).
In this paper, we try to overcome this simultaneity bias. We do not pretend to explain the long
run causality between democracy and market development; instead we restrict our interest to
the short run causality running from the state of market development to the demand for
democracy, and, conversely, from political democracy to the support to the market. We ask
whether it is true that the demand for democracy only emerges after a certain degree of
market development is reached, and whether, conversely, democratization is more likely to be
an obstacle or an ingredient to citizens’ support to market liberalization.
3. Identification strategy
In order to discern the direction of causality between market and democracy, one would
ideally need to rely on a situation in which one variable is exogenously “frozen” while the
other randomly takes different values across countries. Of course, in the real world there are
many reasons why this ideal setting could never exist. On the contrary it is obvious that
market liberalization and democracy are processes that follow highly intertwined dynamic
evolutions and depend on countries’ historical background.
Even in the case of Transition countries, where democracy and the market have been both
abolished by the communist experience, the development and the popular support to these
institutions have evolved in parallel since 1989, probably under the influence of common
factors. As an illustration, Figure 1 shows the strong general cross-country relation between
the average support to the market and the average support to democracy in the 28 countries

8
covered by the Life in Transition Survey. Regional differences are also visible. In particular,
countries of Central and Eastern Europe and the Baltics, which are both the closest to a free
market and a full-blown democracy, are the most supportive of the two processes. Identical
factors, such as the perspective of accessing the European Union, are likely to have driven the
two attitudes simultaneously.
Figure 1. Support for the Market and for Democracy 9
Czech rep
Estonia
Hungary
Latvia Lithuania
Poland
Slovakrep
Slovenia Albania
Bosnia
Bulgaria
Croatia
Fyrom
Montenegro
Romania
Serbia
Armenia Azerbaijan
Belarus
Georgia
Kazakhstan
Kyrgyzstan
Moldova
Russia
Tajikistan
Ukraine
Uzbekistan Mongolia
40 50 60 70 80
Support for Democracy
30 40 50 60 70
Support for the Market
Central and eastern Europe and the Baltics South eastern Europe
Commonwealth of independent States
Obviously, using the pooled cross-section data of the LITS survey and running a naive
regression of the support to democracy on an index of market development, or of the support
to the market on a democratic index, would run into serious identification problems. The
9 Percentage of respondents who chose the market (respectively democracy) as the best system of organisation
of the economic (respectively political) system, see section 4.

9
relation put in evidence would not readily be interpretable in terms of causality as it would be
subject to the influence of omitted variables affecting both market development and
democracy. We propose two different identification strategies in order to isolate the direction
of causality from market development to the support to democracy and vice-versa.
3.1. Democracy and the demand for the market
Is a higher degree of democracy an obstacle to reform, or does it increase the support to
market development? In order to address this question, we need to overcome the problem that
people’s support to the market may be due both to the degree of democracy and to the degree
of market development itself, both variables being likely to develop at a parallel pace. More
generally, it can be suspected that common “cultural factors” influence the national attitudes
towards both the market and democracy.
In other words, one would like to estimate the naive equation (1):
Support for market ij = a0 + a1 degree of development of democracy j + a2 Xij + a3Cj + ui (1)
but suspects that the true relation is (1’):
Support for market ij = a0 + a1 degree of development of democracy j + a2 degree of
development of market j + a3 cultural factors j + a4 Xij + a5 Cj + ui (1’)
where Xij stands for socio-demographic characteristics of the respondent i in country j, Cj is a
vector of country dummies and ui the error term.
Our strategy consists in trying to find a way of keeping the second and third terms of equation
(1’) constant. As our analysis is based on individual data, we need to find people who, in an
exogenous way, are exposed to different levels of democracy but to the same degree of
market development and who share the same “culture” regarding the politico-economic
system.
The idea is to match observations in frontier-zones. We make use of the spatial integration of
regions which stand on both sides of a given frontier, at the immediate proximity of the
border. We assume that people who live in open frontier-zones share the same culture and the

10
same perception of market development even though they live on both sides of the frontier.
This relies on three types of arguments. The first one is the well-documented high level of
interregional trade in frontier zones. Secondly, it is well known that in such regions, when it
is possible, people do not hesitate to cross the frontier to go working, to buy their daily
shopping, or to buy cheaper appliances and cars, hence regional integration is a fact of their
everyday life, which certainly influences their perception of the market. Third, in the specific
case of the 21 former Soviet Republics, regional integration was a hard fact until the early
1990’s: under the socialist system, the economy of the Soviet Republics was submitted to the
centralized organization of material resources by the Soviet plan based in Moscow. Many
countries, in particular in Central Asia and the Caucasus, have inherited from the Soviet
Union an integrated network of infrastructures, which is a positive factor of trade and
regional integration (Broadman, 2005). We thus assume that inhabitants of certain frontier-
zones share the same experience of the market even when they live in different countries with
different political institutions.
Clearly, the validity of our assumption relies on the level of market integration across the
borders of the surveyed countries. We thus distinguish open frontiers from those that are
closed or restricted because of political conflicts or geographical obstacles. We also check
that the degree of market development is more similar in adjacent frontier-zones than it is in
pairs of adjacent countries.
Market integration at frontier-zones is useful to eliminate the risk that the support to the
market that is measured reflects the actual development of the market. What about the
“cultural” omitted variable? A first element is that the citizens of the former Socialist block,
and in particular of the Soviet Union, have been living for 45 to 70 years in a common
political system marked by strong official ideological values concerning the market. Hence,
we can assume that they share a common heritage in terms of attitudes towards the market
(Alesina and Fuchs-Schundeln, 2005). Beyond this remark, we rely on the fact that current
frontiers of many transition countries, especially countries of the CIS, are more or less
artificial divisions of formerly integrated jurisdictions, whose citizens have developed
common attitudes concerning both market development and political freedom (e.g. the
Austro-Hungarian empire, the Ottoman Empire, etc.). The very idea of “culture” and more
specifically “national culture” is that countries’ past experience continues to exert some

11
effects in the long run10. We thus rely on the idea that citizens of countries which have
belonged to formerly highly integrated zones share a common culture, i.e. common inherited
general attitudes towards the market and democracy.
There are some subsets of Transition countries in which this assumption is particularly
appealing. Countries that have belonged to the Ottoman Empire (Albania, Armenia, Bosnia,
Bulgaria, Macedonia, Montenegro, Romania and Serbia) have developed under the same rule
for several centuries (1299-1922). The same can be said about countries of the Austro-
Hungarian Empire (Croatia, Czech Republic, Hungary, Slovak Republic and Slovenia, 1867-
1918), countries of the former Polish Empire (which included Poland, Ukraine, Lithuania,
Belarus and parts of Russia, 1569-1795), countries of the USSR (1922-1991), or countries of
the Former Yugoslavia (Bosnia, Croatia, Macedonia, Montenegro, Serbia and Slovenia) who
shared the same rule for several decades (1918-1991). We thus retain these cultural grouping
in order to deal with the potential impact of cultural factors on the demand for democracy.
In the dataset, we identify frontiers-zones with quasi-adjacent Primary Sample Units (PSU) of
the survey located on both sides of the frontier (less than 30 km from each other). For each
couple of countries corresponding to a given frontier, we use the democracy score established
by Freedom House Nations in Transit 2006 (Freedom House, 2006a). In another
specification, we use a dummy variable that indicates which of the two countries is “more
democratic”, according to this ranking.
Our test thus consists, for all pairs of observations at frontier zones, in regressing individual
support to the market on this index of democratic development, controlling for frontier zone
dummies and other socio-demographic controls. The assumptions of (i) market integration
and (ii) common culture at the frontier between two formerly integrated countries mean that
the third and fourth terms of equation (1’) are constant and hence need not be included in the
regression. We thus run the following regression on the sub-samples of frontier zones:
Support for market ijk = a0 + a1 Democracy Level j + a4 Xi + a5 Zk + ui (1’’)
10 In Bisin and Verdier (2000) or Fernandez and Fogli (2005), culture can be defined as long term inertia in
preferences.

12
where Democracy Level j corresponds to the democracy score of country j, Xi stands for
socio-demographic characteristics of respondent i, Zk is a vector of frontier zone dummies
and ui the error term. In an alternative specification, we run the same regression on a dummy
variable indicating whether the country of residence of an individual is more democratic (or
not) than the adjacent country.
3.2. Demand for democracy
In order to identify the determinants of the demand for democracy, we need to overcome the
symmetrical problem, i.e. to isolate the causation running from market liberalization to the
support for democracy, avoiding the contamination of the actual degree of democracy already
reached and the influence of “cultural factors”, i.e. keeping the second and third terms of
equation (2) constant.
Support for democracy ij = b0 + b1 degree of development of market j + b2 degree of
development of democracy j + b3 cultural factors j + b4 Xij + b5 Cj + ui (2)
Where Cj is a vector of country dummies.
Here, we hinge both on frontier-zones and on regional and national variations. We rely on the
fact that political institutions (and “culture”) are by definition the same in a given country,
whereas market development is highly uneven across the various regions of a given country
(Zhuravskaia, 2006; EBRD, 2006). We thus build indices of market liberalization at the
regional level, and match individuals from the same country who live in regions that
experience unequal degrees of market development. As explained in section 4.3, the
constructed “industrial liberalization score” reflects the regional development of private,
small and medium enterprises and the formal sector, which are characteristics of market
development.
We thus estimate the following equation:
Support for democracy ijr = b0 + b1 degree of development of regional marketjr + b4 Xij + b5 Cj
+ ui (2’)
Where index r refers to the administrative regions of country j.
This strategy relies on the admittedly strong assumption that the uneven development of

13
the market across regions of a country is not due to some regional variable that would also
influence the attitudes of the inhabitants of the region towards democracy. In order to lift this
assumption, we use two strategies. First of all, we control for the type of residence of
respondents (metropolitan, urban or rural areas). Second, we again rely on borders’
specificities. We assume that in the context of high regional economic integration at borders,
the level of market development is strongly influenced by that of the adjacent country. Hence
even inside a given country, we assume that market development at the borders vary in a way
that is partly exogenous to citizens’ preferences for politico-economic values. We thus match
individuals of the same country, who live in different frontier-zones, and we regress
individual support for democracy on the level of market development in the different frontier-
zones. To go one step further, in an alternative specification, we use as a proxy for market
development in the frontier zone zj of country j the industrial liberalization score of the
adjacent frontier-zone zk across the border, in country k. We thus estimate the following
regressions:
Support for democracy ijk = b0 + b1 degree of development of regional marketzl + b4 Xij + b5 Cj
+ ui (3’)
With l=j,k, and where z refers to the frontier-zone of, alternatively, country j and k.
Of course, even using these identifications strategies, we do not pretend to escape the
influence of long term determinants of economic and political development. Neutralizing
these long term trends would imply finding an instrument that could approximate the
exogenous ultimate origin of these differences. This limits the validity of our conclusions to
short term relevance.
4. Data
Our study hinges on the Life in Transition Survey (LITS), a survey conducted by the
European Bank for Reconstruction and Development and the World Bank in 2006, in 28 post-
Transition countries and Turkey11. Respondents to the survey were drawn randomly, using a
two stage sampling method, with census enumeration areas as primary sampling units, and
11 Turkmenistan was not included in the survey. We exclude Turkey from our sample, because of its very
specific political situation.

14
households as secondary sampling units. The survey includes 1000 observations per country,
for a total of 29000 observations. The sample of respondents is equally balanced in terms of
gender, but is biased in favor of elder people: the age of the respondents varies from 17 to 97
years old, with a means of 46 years old. All descriptive statistics are presented in the Annex.
4.1. The support to the market and to democracy
The support for the market is analyzed using the following question:
Q3.10. with which one of the following statements do you agree most:
- A market economy is preferable to any other form of economic system.
- Under some circumstances, a planned economy may be preferable to a market
economy.
- For people like me, it does not matter whether the economic system is organized as a
market economy or as a planned economy.
We analyze the probability to choose any of the three modalities of questions q3.10.
Concerning the support for democracy, we analyze the probability to choose either modalities
of question Q.3.11: with which one of the following statements do you agree most:
- Democracy is preferable to any other form of political system.
- Under some circumstances, an authoritarian government may be preferable to a
democratic one.
- For people like me, it does not matter whether a government is democratic or
authoritarian.
We also study the determinants of the demand for more specific aspects of democracy, such
as law and order, independence of the press or of the courts system (Q.3.12). Finally, we
verify that the support to democracy comes with trust in democratic institutions, using
question q3.03 (see section 5.3).
4.2. Frontier-zones
The LITS survey is based on Primary Sample Units12, each containing 20 observations
(surveyed persons). We use the geographical map of the survey in order to identify groups of
12 Primary Sampling Units were selected randomly, with probability proportional to size.

15
PSUs which are located on both sides and in the immediate vicinity of a political frontier. We
identify 37 frontier-zones that contains from 40 to 460 observations, concentrated in 2
(Slovakia-Ukraine) to 24 (Croatia-Slovenia) PSUs.
The validity of our identification assumption relies on the intensity of market integration on
either side of borders. This makes little doubt for the new ten EU members, among which
goods and persons are free to circulate. This is also true of many neighboring countries in
most part of Central, Eastern Europe and South Eastern Europe (for example the Slovak and
the Czech Republics; Albania, Macedonia and Montenegro13; Bulgaria and Macedonia or
Moldova and Romania). Many countries of the sample are integrated in Euro-Regions, the
purpose of which is to promote trans-frontier cooperation14. Even the relationships between
countries of the former Yugoslavia have eased to a large extent in the last few years, with, for
example, the relaxation of visa procedures between Serbia and Croatia in 2003. Two CIS
countries: Belarus and Ukraine are also integrated in Euro-Regions15. This implies deeper
cross border integration between these neighbor countries, despite the relative closeness of
Ukraine and Belarus. These countries are also largely integrated with Russia, historically and
formally, in the Neman Euro-Region that also includes Lithuania and Poland.
In the particular case of Central Asia and the Caucasus, patterns of trade have changed less
rapidly than in Eastern Europe (Babetskii et al, 2003; Broadman, 2005). While the costs of
intra-regional trade have likely increased with the creation of independent countries (Djankov
and Freund, 2000) and by the recent nationalist stance of some countries, such as Uzbekistan,
these countries appear to be “overtrading” among themselves16.
We leave out of our sample frontiers that are impaired by geographical obstacles or either
13 As well as Kosovo, but Kosovo was excluded from our sample.
14 For example, Albania, Bosnia- Herzegovina, Croatia, Montenegro and Slovenia are part of the Adriatic
Euroregion; Latvia, Lithuania, Poland and Russia are part of the Baltic Euroregion (alongside with Sweden and
Denmark); the Czech Republic, Poland, Slovakia constitute the Beskydy Mountains Euroregion; and trade
among Hungary, Romania, and Serbia is facilitated in the Danube - Kris - Mures - Tisza Euroregion.
15 Białowieża Forest Euroregion between Poland and Belarus, the BUG Euro-Region between Belarus, Poland,
Ukraine, or the Carpathian Euro-Region between Hungary, Poland, Romania, Slovakia.
16 Using relative prices of a bundle of goods to complement official trade data, Grafe et al. (2005) show that the
impact of borders on trade between Kazakhstan, Kyrgyzstan, Uzbekistan and Tajikistan is much smaller than
what the view of cumbersome crossing border procedures and licensing systems would imply. The authors
attribute this result to the large development of shuttle trade in this region.

16
restricted or closed because of political tensions and disputed territories. We thus exclude the
frontiers between Georgia and Russia, Armenia and Azerbaijan, Moldova and Ukraine, as
well as all Uzbek borders.
De facto, we verify that the degree of market development is more similar between two
adjacent frontier-zones than it is in average between two adjacent countries. We calculate, for
each frontier-zone between two countries i and j of the survey, the index of market
development (defined infra in section 4.3) of frontier-zone i and frontier-zone j, and of
country i and country j in average. Table 1 shows that on average, the correlation between
indices of industrial market development is twice as high concerning adjacent frontier-zones
of the sample as it is between adjacent countries of the sample. If one restricts the analysis to
subsets of formerly more integrated countries, the proximity between adjacent frontier-zones
appears even higher. For instance, in central Asia, the correlation between two adjacent
frontier-zones is 0.78 against 0.34 in two adjacent countries (row 5 of Table 1).
Table 1. Industrial Market Development Indices at Frontier-Zones
Correlation between industrial market development
indices : Adjacent frontiers Adjacent countries
Whole sample 0.68 0.46
CIS 0.25 -0.02
Baltic countries 0.87 0.49
European Union 0.78 0.34
Central Asia 0.78 0.11
Former Yougoslavia 0.08 -0.28
Former Ottoman Empire 0.11 -0.31
Number of observations (frontier-zones): whole sample: 65; CIS (Armenia, Azerbaijan, Belarus, Georgia,
Kazakhstan, Kyrgyzstan, Moldova, the Russian Federation, Ukraine and Tajikistan): 28; Baltic states: 8; EU: 28;
Central Asia (Kazakhstan, Kyrgyzstan, Tajikistan): 5; Former Yugoslavia (Bosnia, Croatia, Macedonia,
Montenegro, Serbia and Slovenia): 12; Former Ottoman Empire (Albania, Armenia, Bosnia, Bulgaria,
Macedonia, Montenegro and Serbia): 14.
For each pair of frontier-zones between two countries i and j, the average industrial indices of market
liberalization (cf infra) are calculated at the level of frontier zone i and frontier zone j and of country i and
country j.

17
4.3. Indices of market liberalization
We build a regional industrial score of market liberalization, using questions about the
respondents’ first, second and third jobs17. The score is the regional proportion of respondents
who declare that they either: work in a small enterprise, work in a medium enterprise, work in
a private firm, work in a newly created enterprise (since 1989), are self-employed with more
than 5 employees or have a formal labor contract.
During the socialist era, Soviet economies were distinguished by their exceptionally low
proportion of Small and Medium Enterprises (SMEs). The necessities of central planning
favored the organization of production and distribution in large units. We thus interpret the
presence of SMEs as an indicator of market development. The presence of private firms and
newly created firms are also a sign of progress in the Transition, an essential aspect of which
is the process of privatization of the formerly dominant state-owned sector and the
elimination of former monopolies under the pressure of new competitive firms (Berkowitz
and Jackson, 2005). Self-employed persons with at least 5 employees are also part of this new
economic pattern that is typical of a market economy and was absent from the landscape of
planned economies. We do not count self-employed persons without employees on the
grounds that those are likely not to be small firms but rather forms of quasi unofficial
economy or what is sometimes called “disguised unemployment” (Earle and Sakova, 2000).
Finally, we interpret the existence of a labor contract as a sign that the person is working in
the official sector rather than in the informal sector, a sign of development of the market. This
industrial regional score varies from 0 to 5 with an average of 2.37.
The quality of these indices of market liberalization is limited by the lack of
representativeness of the data at the regional level. However, there is no alternative regional
index of private sector development or market liberalization available for the whole set of
countries.
17 Multiple jobs are frequent in Transition countries.

18
5. Results
Although simple correlations show that supporting the market and supporting democracy are
highly correlated attitudes (the correlation coefficient between the first modality of question
q3.10 and question q3.11 is 0,45), our identification strategies leads to a different picture. We
find that democracy does increase the support to market liberalization, but that the reverse
relation is not as clear-cut. This pattern is apparent even in descriptive statistics. Table A2
shows that at frontier zones, the support for a market economy tends to be higher on the
border of the country that enjoys a higher level of democracy (according to the Freedom
House Nations in Transit ranking). Table A3 however shows that preferences for democracy
within a given country do not seem to be consistently higher in the frontier zones where the
market is most advanced.
5.1. Democracy raises the support to the market
Table 1 presents the general regressions of support to the market (equation 1’’) on,
alternatively, the Freedom House Nations in Transit 2006 (Freedom House, 2006a)
democracy index (Columns 1 to 3), and on a dummy variable representing the relative
advancement of democracy, for each group of PSUs located at the frontier-zones of the
survey (Columns 4 to 7). The Freedom House Nations in Transit 2006 (Freedom House,
2006a) democracy index takes values from 1 to 7, with 1 representing the highest level of
democratic progress and 7 the lowest; we have recoded it in order to present the score of
democracy in an ascending order. The constructed dummy variable attributes a score of 1 to
the PSUs located in the most democratic country of each pair, and 0 to PSUs located in the
country which fares worse in terms of the political scale, according to the Freedom House
(Freedom House, 2006a and b), Polity IV (CIDCM, 2006) or other indices (see Table A4 in
the Annex). For a given border we only retain the PSUs that are located at the frontier-zone
(30 km around the border). All regressions are thus performed on the sub-sample of people
living in frontier-zones. We control for frontier zone dummies and we adjust standard errors
for clustering on frontier zones. Finally, in Table A7 (Annex), the regressions are performed

19
within each border-zone.
Columns 1 and 4 in Table 2 analyze the determinants of the probability to declare that “a
market economy is preferable to any other form of economic system”. Both the coefficients
on the democratic index and the more democratic dummy variable are significant. Column 1
displays the marginal effect of a change in the Freedom House Nations in Transit democratic
score, while the coefficient on the variable “more democracy” represents the effect of a
discrete change of this dummy variable from 0 to 1 (on the probability to support the market).
Hence, column 4 in Table 2 shows that conditionally on living in a frontier-zone, living on
the “more democratic” side of the frontier increases the probability of supporting the market
by about 8.4%.
Columns 2 and 5 analyze the determinants of the probability to declare that “under some
circumstances, a planned economy may be preferable to a market economy”. Column 2
shows that an incremental change in the democracy score does not significantly affect
preferences for the market. However, the coefficient on the “more democracy” dummy
variable is significant at 5%, as it captures more significant changes in democratic advances.
Column 5 thus indicates that conditionally on living in a frontier zone, experiencing a more
democratic regime reduces the probability of favoring a planned economy by roughly 6,7%.
Finally, columns 3 and 6 analyze the probability of declaring that “for people like me, it does
not matter whether the economic system is organized as a market economy or a planned
economy”. It shows that democratic variation across frontier zones has no impact on such an
attitude.
Other rows of Table 2 display the other correlates of attitudes to the market. We distinguish
three income categories (the richest, middle and poorest quantile inside each country), 6
educational levels, occupational categories, and employment status (self-employed versus
employees). Self-employed workers tend to be more supportive of the market, while elder
people and the poorest 30% of the population are less so.

20
Table 2. Democracy Increases the Support to Market Development
dprobit Regressions of Support to the Market
-1 -2 -3 -4 -5 -6
Market is
preferable Plan is
preferable Does not
matter Market is
preferable Plan is
preferable Does not
matter
Democracy index 0.040*** -0.026 -0.012
[0.015] [0.019] [0.017]
More democracy 0.084** -0.066** -0.015
[0.034] [0.028] [0.026]
Adult (35-19) -0.068*** 0.052*** 0.018 -0.069*** 0.053*** 0.016
[0.015] [0.016] [0.018] [0.015] [0.016] [0.018]
Mid-age (50-65) -0.094*** 0.056*** 0.042* -0.094*** 0.056*** 0.041*
[0.021] [0.020] [0.024] [0.020] [0.020] [0.023]
Old (>65) -0.153*** 0.060** 0.089*** -0.158*** 0.063** 0.089***
[0.024] [0.030] [0.025] [0.024] [0.030] [0.024]
Poor -0.066*** -0.01 0.071*** -0.063*** -0.011 0.071***
[0.018] [0.016] [0.016] [0.018] [0.015] [0.016]
Rich 0.015 -0.004 -0.012 0.011 -0.001 -0.01
[0.021] [0.015] [0.014] [0.020] [0.014] [0.013]
Male -0.018 0.096*** -0.053 -0.014 0.100*** -0.060**
[0.032] [0.033] [0.032] [0.031] [0.031] [0.030]
Compulsory education 0.04 0.132*** -0.129*** 0.047 0.131*** -0.135***
[0.035] [0.034] [0.035] [0.034] [0.032] [0.033]
Secondary education 0.056* 0.126*** -0.141*** 0.062** 0.125*** -0.144***
[0.032] [0.028] [0.030] [0.031] [0.028] [0.027]
Professional education 0.109*** 0.191*** -0.229*** 0.115*** 0.188*** -0.231***
[0.034] [0.034] [0.026] [0.033] [0.033] [0.024]
University education 0.027 0.199*** -0.147*** 0.042 0.190** -0.151***
[0.076] [0.076] [0.045] [0.078] [0.077] [0.042]
Postgraduate education 0.051*** -0.002 -0.048*** 0.053*** -0.003 -0.049***
[0.010] [0.011] [0.011] [0.010] [0.011] [0.011]
Unemployed 0.003 -0.01 0.008 0.008 -0.014 0.009
[0.027] [0.028] [0.025] [0.027] [0.027] [0.024]
Self employed 0.101*** -0.089*** -0.009 0.116*** -0.098*** -0.013
[0.027] [0.018] [0.025] [0.027] [0.018] [0.023]
White collar worker 0.052 0.005 -0.069** 0.058 -0.004 -0.063**
[0.036] [0.027] [0.032] [0.036] [0.027] [0.031]
Blue collar worker 0.003 0.027 -0.029 0.001 0.024 -0.021
[0.033] [0.028] [0.029] [0.032] [0.027] [0.028]
Service worker 0.035 -0.009 -0.028 0.045 -0.017 -0.026
[0.033] [0.025] [0.033] [0.033] [0.024] [0.032]
Farmer, farm worker 0.04 0.012 -0.044 0.059 -0.003 -0.05
[0.051] [0.032] [0.047] [0.050] [0.031] [0.045]
Pensioner -0.012 0.005 0.001 -0.002 -0.003 0.003
[0.036] [0.021] [0.028] [0.036] [0.022] [0.028]
Student 0.025 0.008 -0.033 0.031 0.001 -0.029
[0.059] [0.045] [0.043] [0.057] [0.043] [0.042]
Housewife 0.05 -0.024 -0.024 0.062 -0.036 -0.024
[0.048] [0.028] [0.043] [0.048] [0.028] [0.042]
Observations 6750 6750 6750 6970 6970 6970
log likelihood -4254.41 -3691.65 -3982.12 -4391.74 -3796.55 -4041.41
Pseudo R2 0.0696 0.0328 0.0754 0.0746 0.0331 0.0829

21
Controls: frontier zone dummies.
Omitted categories: young (17-34) average income, lowest education, employee, occupation in army.
Robust standard errors adjusted for clustering on frontier zones.
If one accepts the assumption that people living in a common frontier-zone share the same
practical experience of market development (and the same background culture), the lesson of
Table 2 is that living in a country with a higher degree of democracy exerts a positive
influence on the declared support to the market.
As a robustness check, we have run the same regression as column 4 of Table 2 within each
frontier-zone. The positive effect of democratic institutions on the support for the market
proves particularly strong and significant at borders that are well integrated both culturally
and economically (see Table A6 in the Annex for the quality of market integration at frontier-
zones). This is notably the case for the Moldova-Romania frontier or the Estonia-Latvia
frontier. The effect is also strong for the Belarus-Lithuania, Belarus-Poland and Ukraine-
Russia frontier-zones, all formerly part of the Polish Empire and currently highly integrated.
The effect is globally well respected except for most Hungarian frontiers and the Bulgaria-
Romania, Croatia-Serbia and Poland-Ukraine frontier-zones. The unexpected results for
Hungary are certainly explained by the difficult situation of the country, which, at the time of
the LITS survey, was going through a sharp confidence crisis after the diffusion by the media
of a broadcast of the Prime Minister trying to bribe a deputy. Concerning the Bulgaria-
Romania frontier, the fact that the development of democracy in the two countries is very
close, as shown by the identical ranking of these countries by other democracy indices, like
Polity IV (CIDCM, 2006) might explain why the sign of the coefficient of “More
Democratic” is reversed. The same reason may explain why many coefficients are
insignificant at the borders of countries that experience similar level of democracy, such as
the Czech Republic and Poland (which obtain the same ratings by both Freedom in the World
(Freedom House, 2006b) and Polity IV (CIDCM, 2006)), Bulgaria and Macedonia or Bosnia
and Croatia. Other results are impaired by the fact that economic integration may be only
partial at some borders, such as the frontier between Croatia and Serbia, where heavy
restrictions were lifted only in 2003.
We verified that our results do not hold when the frontiers that were excluded from our

22
sample for being closed or severely restricted are considered. For instance, the coefficient
inside the Armenia-Azerbaijan border zone is -0.070 (0.128); it is of -0.3283 (0.207) in the
Kazak-Uzbek frontier-zone; of -0.097* (0.051) in the Kyrgyz-Uzbek and of 0.004 (0.696) in
the Moldova-Ukraine zone. Considering all the closed border-zones together (and controlling
for border-zones dummies), the coefficient on the freedom house democracy index is 0.039
(0.053) in the regression of the support to the market. Hence the relation is not significant in
closed frontier-zones, which is consistent with our interpretation of regional integration.
In order to go one step further in the attempt to control for “cultural” omitted factors, we now
estimate equation (1’’) within various sub-samples of frontier-zones belonging to historically
integrated regions. Table 3 presents the regressions by “cultural zones” as defined in section
3.2. Market development still exerts a positive and significant effect on the demand for
democracy among countries of the former Ottoman Empire, countries of the former
Yugoslavia, countries of the former Polish Empire and countries of the CIS, as well as among
the subset of Central Asia.
The effect is particularly strong in countries that have experienced a strong degree of
integration in the past18, such as the USSR, and a fortiori the CIS and Central Asia, where, in
addition, today’s frontiers are often arbitrary. The effect is also significant in the former
Yugoslavia and the Polish Empire. By contrast, it is not significant for the countries of the
former Austro-Hungarian Empire. A possible interpretation is that the relation between
democratic institutions and the support for the market is particularly strong for less developed
countries. Another possible interpretation is that the countries of the former Austro-
Hungarian Empire are too close in terms of democratic development for the effect to be
sizeable.
18 As these countries have shared a common experience of a planned economy; it would be farfetched to suspect
some reverse causality running from people’s current attitudes towards the market to the current degree of
democracy.

23
Table 3. Democracy and Support to the Market within Cultural Areas
dprobit Estimates of Support to the Market
-1 -2 -3 -6 -4 -5 -7
Austro
Hungarian Ottoman Yugoslavia Polish
Empire CIS Central
Asia USSR
Democracy index 0.031 0.137 0.068** 0.0295** 0.046*** 0.231*** 0.034***
[0.021] [0.129] [0.026] [0.012] [0.013] [0.043] [0.010]
Observations 1656 1920 2134 1734 2354 740 2994
Log likelihood -1022 -1277 -1373 -1064 -1458 -443 -2008
Pseudo R2 0.072 0.032 0.041 0.094 0.081 0.117 0.073
Controls: income categories, age categories, gender, occupation categories, self employed, education.
Robust standard errors adjusted for clustering on frontier zones.
The Austro Hungarian zone comprises Croatia, Czech Republic, Hungary, Slovak Republic and Slovenia. The
Ottoman zone comprises Albania, Armenia, Bosnia, Bulgaria, Macedonia, Montenegro and Serbia. Yugoslavian
zone comprises Bosnia, Croatia, Macedonia, Montenegro, Serbia and Slovenia. The Commonwealth of
Independent states (CIS) consists of Armenia, Azerbaijan, Belarus, Georgia, Kazakhstan, Kyrgyzstan, Moldova,
the Russian Federation, Tajikistan, Ukraine and Uzbekistan. The former USSR comprises all of the CIS, plus
Estonia, Latvia and Lithuania. Central Asia consists of Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan. The
Polish Empire zone comprises Belarus, Lithuania, Poland, Ukraine, the Russian Federation (western borders).
EU zone comprises Bulgaria, the Czech Republic, Estonia, Latvia, Lithuania, Hungary, Poland, Romania, the
Slovak Republic and Slovenia.
As a robustness check, we also test different indicators of democracy and different country
rankings (see the Annex). The result that the development of democracy positively and
significantly influences the demand for the market is preserved using the Freedom of the
World (Freedom House, 2006b) or BTI indicators (Bertelsmann Stiftung, 2005).
5.2. Market liberalization does not raise the support for democracy
We now address the symmetric question whether market liberalization comforts the support
for democracy. We need to make sure that the attitude toward democracy that is observed is
not caused by the degree of democratization already reached in the country of the respondent.
Hence, we need to find some groups of citizens who experience a common political
environment with different degrees of market liberalization. As explained in section 2, we
rely on the evidence that there are wide regional differences within the countries of the
former Soviet block and Eastern and Southern Europe (e.g. EBRD, 2006). We build an index

24
of market advance at the regional level, which is based on the regional market structure (size
and type of firms).
Table 4 shows the regressions of the support to democracy on indices of regional market
development. Because the impact of market development on attitudes towards democracy
could be driven by metropolitan regions in which market liberalization is well in advance of
other regions, and where people are also likely to have different political attitudes, we include
a control for the type of area (metropolitan/urban/rural) in all regressions. We checked that
the results are essentially unchanged when these controls are not performed and when
metropolitan regions are dropped from the sample.
Columns 1 to 3 present the regression of individual preferences for the political regime on our
index of market development across all regions of a given country. Columns 4 to 6 present an
alternative specification where we restrict the sample to open frontiers, and measure the
effect of market development in the various frontier zones of a country. Lastly, columns 7 to
9 display the result of a third specification where the degree of market development of a
frontier-zone j is proxied by the degree of market development of the adjacent region k across
the frontier (cf section 3.2). As explained in section 3.2, the two latter specifications are
useful in order to avoid the risk that the observed relationship between market development
and support to democracy is due to reverse causality.
Columns 1, 4 and 7 analyze the determinants of the probability to declare that “democracy is
preferable to any other form of political system”. Surprisingly, the index of market
development has no impact on this variable, in any of the specifications. Identically, the
probability of choosing the modality “for people like me, it does not matter whether a
government is democratic or authoritarian” (columns 3, 6 and 9) does not depend on the
index of market development.
Columns 2, 5 and 8 analyze the determinants of the probability to declare that “under some
circumstances, an authoritarian government may be preferable to a democratic one”. Here,
market development has a negative and significant effect when the sample is restricted to
frontier zones of a given country. Hence, conditionally on living in a frontier zone, living
close to a country where the market is more advanced and benefiting from this market
development thanks to cross border market integration reduces individual support for
authoritarian regime. However, this effect is not significant when all regions of the country

25
are considered (columns 2.5 and 8).
Market liberalization thus does not appear to reinforce democratic values. Other effects
indicate that the richer, better educated, younger, self-employed people and surprisingly,
farmers and farm-workers, are more supportive of democracy. On the contrary, the poor,
those who have not completed compulsory education and women are less supportive of
democracy and more likely to declare that the political system does not matter for them.

26
Table 4. Support to Democracy and Regional Indices of Market Liberalization
dprobit Estimates of Support to Democracy/Authoritarianism
-1 -2 -3 -4 -5 -6 -7 -8 -9
Whole sample Only frontier-zones Only frontier-zones
Democracy
preferable Authoritarian
government
preferable
Does not
matter Democracy
preferable Authoritarian
government
preferable
Does not
matter Democracy
preferable Authoritarian
government
preferable
Does not
matter
Industrial index of region -0.014 -0.001 0.012
[0.030] [0.019] [0.029]
Industrial index frontier- -0.032 -0.183*** 0.16
zone_j [0.106] [0.058] [0.110]
Industrial index frontier- 0.015 -0.115** 0.068
zone _k [0.108] [0.054] [0.102]
Adult (35-19) -0.024** 0.017** 0.006 -0.035** 0.022* 0.012 -0.034** 0.022 0.011
[0.011] [0.008] [0.007] [0.015] [0.013] [0.019] [0.016] [0.014] [0.021]
Mid-age (50-65) -0.028* 0.020** 0.007 -0.015 0.011 0.003 -0.017 0.008 0.009
[0.016] [0.010] [0.009] [0.025] [0.016] [0.024] [0.027] [0.016] [0.027]
Old (>65) -0.058*** 0.026* 0.025* -0.073** 0.008 0.053* -0.090** 0.006 0.075**
[0.022] [0.014] [0.013] [0.037] [0.021] [0.030] [0.041] [0.020] [0.031]
Poor -0.056*** 0 0.052*** -0.075*** 0.014 0.057*** -0.078*** 0.015 0.058***
[0.010] [0.006] [0.009] [0.017] [0.012] [0.015] [0.018] [0.012] [0.014]
Rich 0.028*** -0.004 -0.026*** 0.035* -0.005 -0.029* 0.033* -0.004 -0.029*
[0.009] [0.006] [0.007] [0.019] [0.013] [0.015] [0.020] [0.014] [0.016]
Male 0.037*** 0.003 -0.039*** 0.027* 0.006 -0.031** 0.023 0.008 -0.029*
[0.008] [0.005] [0.007] [0.015] [0.011] [0.015] [0.015] [0.012] [0.016]
Compulsory education 0.043** 0.032** -0.052*** 0.044 0.056** -0.069** 0.018 0.041 -0.04
[0.018] [0.016] [0.011] [0.032] [0.027] [0.033] [0.038] [0.026] [0.037]
Secondary education 0.104*** 0.043*** -0.112*** 0.101** 0.084*** -0.136*** 0.069 0.072*** -0.106***
[0.020] [0.015] [0.013] [0.042] [0.023] [0.037] [0.047] [0.022] [0.040]

27
Professional education 0.117*** 0.049*** -0.129*** 0.125*** 0.085*** -0.161*** 0.094** 0.074*** -0.130***
[0.017] [0.015] [0.014] [0.036] [0.024] [0.034] [0.041] [0.023] [0.034]
University education 0.186*** 0.056*** -0.191*** 0.193*** 0.109*** -0.222*** 0.161*** 0.109*** -0.207***
[0.018] [0.014] [0.011] [0.040] [0.030] [0.025] [0.044] [0.027] [0.028]
Post graduate education 0.252*** 0.015 -0.204*** 0.169*** 0.142** -0.200*** 0.140** 0.151** -0.200***
[0.025] [0.025] [0.012] [0.060] [0.066] [0.032] [0.062] [0.062] [0.039]
Unemployed 0.021 -0.015 -0.004 0.033 -0.034* 0.008 0.008 -0.016 0.011
[0.018] [0.013] [0.015] [0.032] [0.019] [0.023] [0.029] [0.019] [0.021]
Self employed 0.023 -0.014 -0.009 0.03 -0.025 -0.005 0.002 -0.02 0.016
[0.022] [0.014] [0.015] [0.027] [0.022] [0.025] [0.025] [0.022] [0.025]
White collar worker 0.089*** -0.014 -0.079*** 0.081*** -0.008 -0.073*** 0.066** 0.006 -0.074***
[0.013] [0.010] [0.012] [0.026] [0.020] [0.024] [0.026] [0.022] [0.026]
Blue collar worker 0.029* -0.012 -0.014 0.035 -0.008 -0.022 0.024 -0.002 -0.018
[0.016] [0.012] [0.015] [0.029] [0.022] [0.031] [0.032] [0.021] [0.035]
Service worker 0.053*** -0.008 -0.043*** 0.086*** -0.042** -0.038 0.069*** -0.031* -0.034
[0.014] [0.010] [0.013] [0.028] [0.019] [0.026] [0.026] [0.017] [0.028]
Farmer, farm worker 0.060*** -0.004 -0.051*** 0.069*** 0.016 -0.082*** 0.068** 0.029 -0.089***
[0.017] [0.013] [0.017] [0.026] [0.024] [0.023] [0.033] [0.028] [0.028]
Pensioner -0.002 -0.007 0.007 0.008 0.009 -0.014 -0.004 0.023 -0.015
[0.018] [0.010] [0.019] [0.034] [0.017] [0.030] [0.037] [0.016] [0.033]
Student 0.128*** -0.038*** -0.085*** 0.088 -0.054 -0.023 0.071 -0.039 -0.024
[0.028] [0.013] [0.021] [0.065] [0.039] [0.038] [0.067] [0.042] [0.042]
Housewife 0.039** -0.034** -0.005 0.022 -0.031 0.013 -0.004 -0.014 0.02
[0.018] [0.013] [0.019] [0.035] [0.025] [0.030] [0.035] [0.026] [0.032]
Observations 28909 28909 28955 7032 7032 7041 6274 6274 6281
log likelihood -18624.11 -12203.71 -15662.88 -4511.66 -3055.29 -3848.54 -4051.73 -2682.95 -3491.07
Pseudo R2 0.0557 0.0297 0.0711 0.0685 0.0496 0.0814 0.0625 0.0456 0.0746
Controls: urban/rural or metropole area for columns 1 to 3. Omitted categories: young (17 to 34 years old), average income group, occupation in army, employees, lowest
education. Robust standard errors adjusted for clustering at the country level.
The industrial index is constructed at the regional level. Industrial index j is the index of market development of the zone where the respondent lives. Industrial index k
measures the market development of the adjacent frontier-zone

28
As the estimates of Table 4 are based on regional variations, it may seem confusing to pool
the data of the various countries of the sample together. Hence, we run the same estimation of
the support to democracy within each country of the survey. Country-wise regressions
corroborate the finding that the support to democracy does not increase with the industrial
development indicator. Finally, we estimate the support to democracy within each zone of
deeper regional and cultural integration (Tables 5.a and 5.b). Table 5.a displays the
regressions on the entire sample; the industrial index measures the score of market
development at the regional level. Table 5.b shows the regression on the sub-sample of
frontier-zones. The industrial index measures the sore of market development of the adjacent
frontier-zone.
Essentially, regional market development again appears to exert no impact on the support to
democracy. The industrial index of market development is only significant for the regions of
the former Austro-Hungarian Empire; by contrast, the impact of the index is significantly
negative in regions of Central Asia. Hence, the link between market development and
preferences for democracy only appears in countries that are more affluent and face a higher
degree of actual democracy.
Lindblom (1995) provides a possible interpretation of these findings. He defines markets and
democracy as two distinct methods of popular controls over the elites. The former aims at
outcomes (resources allocation) but gives no control over the processes that generate
outcomes; symmetrically, the latter provides popular control over processes. In this
framework, an interpretation of our findings is that the need to control processes becomes
more pressing in situations where people have already secured the control over outcomes. It
may also be the case that the relation is non linear, i.e. for people to care about processes,
they need to have already reached a certain degree of empowerment. This would explain why
the demand for democracy is stronger in societies that are already more advanced in terms of
both market liberalization and democratization.

29
Table 5.a. Support to Democracy and Regional Indices of Market Liberalization
dprobit Estimates of Support to Democracy
Full sample
-1 -2 -3 -4 -5 -6 -7 -8
Austro
Hungarian Ottoman Yugoslavia CIS Central
Asia Polish
Empire USSR EU
Industrial index 0.109** -0.011 0.045 -0.077 -0.205 -0.002 -0.080** 0.032
[0.050] [0.042] [0.044] [0.048] [0.096] [0.045] [0.034] [0.045]
Observations 4973 7975 5971 10972 4000 4972 13952 9964
Log likelihood -3106 -5138 -3827 -7167 -2547 -3253 -9142 -6394
Pseudo R2 0.062 0.062 0.055 0.054 0.054 0.056 0.050 0.059
Controls: income, age categories, education categories, gender, occupation categories, country dummies.
Regions (in columns) are defined as in Table 3. Robust standard errors adjusted for clustering at country level.
The industrial index is constructed at the regional level.
Table 5b. Support to Democracy and Regional Indices of Market Liberalization
dprobit Estimates of Support to Democracy
Sub-sample of Frontier-Zones
-1 -2 -3 -4 -5 -6 -7 -8
Austro
Hungarian Ottoman Yugoslavia CIS Central
Asia Polish
Empire USSR EU
Industrial index 0.123* -0.036 0.125 0.019 -0.123 -0.018 -0.035 -0.009
frontier-zone_k [0.075] [0.085] [0.082] [0.133] [0.252] [0.087] [0.092] [0.073]
Observations 1656 1940 2134 3794 1859 1794 4414 2322
Log likelihood -1051 -1250 -1365 -2452 -1188 -1161 -2869 -1472
Pseudo R2 0.066 0.094 0.072 0.064 0.057 0.067 0.058 0.064
Controls: income, age categories, education categories, gender, occupation categories, country dummies.
The industrial index measures the level of market development of the adjacent frontier-zone k , when the respondent lives in
frontier-zone j.
Finally, as a robustness check, we use alternative indicators of both the explained variable
(support to democracy) and the explanatory variable (market development). First, we build an
index of adhesion to democratic principles based on questions of the LIT Survey. This index
is based on the following question:

30
Q3.12. To what extent do you agree that the following are important for your country:
Scale: Strongly disagree, Disagree, Neither agree nor disagree, Agree, Strongly Agree,
Difficult to say
- Free and fair elections.
- Law and order.
- Freedom of speech.
- Peace and stability
- A press that is independent from the government.
- A strong political opposition
- A courts system that defends individual rights against abuse by the state.
- A courts system that treats all citizens equally, rather than favoring some over others.
- Protection of minority rights (religious, ethnics, etc…)
- Freedom to travel abroad
The “value of democracy” index sums the number of times a person declares to “agree” or
“strongly agree” that the items listed in the above table are important. The index varies from
0 to 9, with an average of 4,5.
Table 6 shows the ordered probit regression of the “value of democracy” index. Column one
displays the regression on the entire sample; the industrial index measures the score of market
development at the regional level. Column 2 shows the regression on the sub-sample of
frontier-zones. The industrial index measures the sore of market development of the adjacent
frontier-zone.

31
Table 6. The Value of Democracy and Regional Indices of Market Development
Ordered Probit Regressions of the Score of Declared Importance of Democracy
-1 -2
Entire sample
(industrial index of zone j) Only frontier-zones
(industrial index of adjacent zone k)
Industrial index 0.038 -0.3
[0.090] [0.232]
Observations 27955 6281
Log likelihood -61759 -13689
Pseudo R2 0.019 0.027
Controls: type of area (rural, urban or metropolitan), income, age categories, education categories, gender,
occupation categories, country dummies. Robust standard errors adjusted for clustering at the country level
Column 1: whole sample. Industrial index of the region j of the respondent.
Column 2: only frontier-zones. Industrial index of the adjacent frontier zone k when respondent live in
region j.
Again regional market indices do not seem to influence the importance that citizens attach to
democracy. The impact even seems to be significantly negative in regions of the CIS and of
the former Polish Empire.
Of course, the indices of market development that we use may be misconstrued and it is
possible that better measures of market liberalization would be found to influence the support
to democracy. We regret that indices of industrial concentration are not available at the
regional level for the whole set of countries in the sample19. As an alternative to the index of
industrial development, we use an indicator of relative wealth. We calculate the average
aggregate regional income based on the real expenditures declared by the households of the
survey, relative to the national average20. This is based on the idea that aggregate income is
an outcome of market development. Again, as shown by Table 7, this indicator does not exert
19 In our view, indices of this type would be best suited, if they were available, than some often used indicators
based on governance, the protection of legal rights, the protection of minority shareholders or indices of price
liberalization. The latter have two important drawbacks: first they are only available at the national level and
second, they often reflect the progress of the rule of law, i.e. of democracy itself, rather than that of the freedom
of transactions on the market.
20 Household expenditures were adjusted for household size using the modified OECD equivalence scale.

32
any significant impact on the attitudes to democracy or authoritarian regimes21.
Table7. Support to democracy and relative regional income
dprobit Estimates of Support to Democracy
-1 -2 -3
Democracy
preferable Authoritarian
government
preferable
Does not matter
Regional level of expenditure 0.021 -0.002 -0.018
[0.043] [0.031] [0.028]
Observations 27960 27960 27995
Log likelihood -18089 -11981 -15212
Pseudo R2 0.055 0.027 0.073
Controls: income, age categories, education categories, gender, occupation categories, country dummies.
The industrial index is constructed as the average regional real level of expenditure.
Robust standard errors adjusted for clustering at the country level.
In summary, the degree of market development does not seem to have a sizable impact on the
political support to democracy, or on the rejection of authoritarian regimes. In contradiction
with current priors, developing market institutions is not a guarantee or a sufficient condition
of the subsequent emergence of democracy.
6. Conclusion
The main result of this paper is that in Transition countries, democracy appears to generate
some popular support for the market, while economic liberalization does not clearly raise the
support for democracy. These observations are consistent with the empirical observation that
market economies can live without democracy, whereas there is no historical evidence of a
democratic society without a market economy.
To be sure, these results only suggest that democracy raises the subjective support to the
21 Here we do not use frontier-zones integration as there is no point in supposing that inhabitants of a given
region experience the level of wealth of neighbour regions.

33
market. This does not mean that democracy is not likely to complicate the task of reformers,
with the risk of impeding market liberalization. The relation running from democracy to the
support to the market is particularly strong in countries of the CIS, Central Asia and South
Eastern Europe, as opposed to other countries of the European Union (e.g. Central Europe).
Hence, the link seems to be particularly relevant for “developing” countries, i.e. countries
which are still in an earlier stage of democratic development.
Concerning the reverse relation, our results cast doubt on the idea that democracy needs
naturally emerge as a by-product of capitalism, particularly in less developed countries. The
data do not support the idea that market liberalization as such is sufficient to trigger the
demand for democracy; identically, citizens of countries with less developed markets do not
appear to be less supportive of democracy. Hence, one cannot advocate the preferences of
citizens to postpone the construction of democratic institutions.
In summary, our data do not support a widespread view concerning the optimal sequencing of
reforms for developing countries: it seems that building democratic institutions can play as an
ingredient in favor of market liberalization, whereas early market development is no
guarantee of a later popular support to democracy.
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38
8. Annex
Table A1. Descriptive Statistics
Variable Mean Std. dev.
Market preferable
Planned economy is
preferable
1 if resp. prefers market economy to other form of economic system
1 if resp. prefers planned economy under certain circumstances 0.43
0.26 0.50
0.44
Does not matter_eco
Democracy preferable
Authoritarian reg.
preferable
Does not matter_pol
1 if resp. answers “for people like me it does not matter” whether the economy is
organized as a market economy or as a planned economy
1 if resp. prefers democracy to other form of political system
1 if resp. prefers authoritarian regime under certain circumstances
1 if resp. answers “for people like me it does not matter” whether a government is
democratic or authoritarian
0.31
0.57
0.16
0.27
0.46
0.49
0.37
0.37
old more than 65 years old 0.16 0.37
Mid-age between 50 and 65 years old 0.24 0.43
Adult between 35 and 50 years old 0.31 0.46
gender 1 if male 0.48 0.50
unemployed actively looking for a job. waiting for an answer or find no job available 0.09 0.29
White collar worker 0.17 0.38
Blue collar worker 0.18 0.38
Service worker 0.12 0.32
Farmer or farm worker 0.05 0.22
Pensioner 0.21 0.41
Student 0.03 0.16
Housewife 0.06 0.25
out of the labor force 0.05 0.22
self employed work as self employed at their main job (regardless occupation) 0.08 0.28
Support democracy 1 if respondent prefers democracy to other form of political system 0.57 0.49
Authoritarian 1 if respondent prefers authoritarian system 0.16 0.37
Does not matter 1 if respondent declares that political system doesn't matter 0.27 0.44
Industrial index regional index. share of SMEs. private. post-1989 created enterprises. Min: 1; Max:5 2.39 1.05
imp_freel importance of free and fair elections. Min: 1; Max 5 0.89 0.32
imp_laword imp. of law and order. Min: 1; Max 5 0.59 0.49
imp_freesp imp. of freedom of speech. Min: 1; Max 5 0.51 0.50
imp_peace imp. of peace and stability. Min: 1; Max 5 0.65 0.48
imp_indeprs imp. of press independence. Min: 1; Max 5 0.44 0.50
imp_polopp imp. of political opposition. Min: 1; Max 5 0.39 0.49
imp_courtin imp. of courts to defend ind. rights against abuse by state. Min: 1; Max 5 0.55 0.50
imp_courteq imp. of equal treatment of citizens in courts. Min: 1; Max 5 0.60 0.49
imp_minor imp. of minority rights protection. Min: 1; Max 5 0.42 0.49
imp_freeab imp. of freedom to travel abroad. Min: 1; Max 5 0.53 0.50
impdemo global index (sum) of importance of above democratic institutions. Min: 0(none is
important); Max: 10 (all are very important) 5.38 3.59

39
Table A2: Attitudes towards the Market and Democracy in frontier zones of adjacent
countries, ranked by democracy level
Country i Country j Country i Country j
Market
preferable Market
preferable Democracy
preferable Democracy
Preferable
Estonia> Russia 0.56 0.33 0.68 0.48
Estonia >Latvia 0.46 0.17 0.50 0.56
Russia > Belarus 0.32 0.48 0.38 0.57
Ukraine>Russia 0.50 0.22 0.61 0.31
Russia>Kazakhstan 0.28 0.35 0.42 0.52
Latvia> Lithuania 0.32 0.50 0.51 0.59
Lithuania > Belarus 0.55 0.33 0.58 0.61
Albania> Montenegro 0.71 0.51 0.74 0.74
Georgia>Armenia 0.45 0.25 0.62 0.60
turkey>Armenia 0.27 0.20 1.00 0.50
Georgia > Azerbaijan 0.35 0.39 0.50 0.44
Poland>Belarus 0.42 0.43 0.60 0.12
Ukraine>Belarus 0.55 0.41 0.58 0.49
Poland > Ukraine 0.13 0.46 0.47 0.51
Slovak>Poland 0.27 0.33 0.59 0.46
Romania>Ukraine 0.74 0.82 0.82 0.87
Slovak Rep.>Ukraine 0.48 0.50 0.52 0.51
Croatia>Bosnia 0.34 0.29 0.43 0.49
Slovenia>Croatia 0.55 0.40 0.70 0.58
Serbia >Macedonia 0.90 0.27 0.92 0.40
Hungary>Serbia 0.57 0.38 0.80 0.42
Bulgaria> Macedonia 0.25 0.54 0.43 0.56
Bulgaria>Romania 0.25 0.32 0.32 0.42
Romania > Moldova 0.59 0.41 0.68 0.62
Romania >Serbia 0.56 0.38 0.52 0.42
Hungary>Romania 0.69 0.69 0.75 0.75
Hungary >Croatia 0.24 0.37 0.41 0.49
Hungary > Romania 0.27 0.69 0.61 0.75
Slovak Rep.>Hungary 0.58 0.37 0.73 0.65
Slovak>Czech Rep. 0.49 0.41 0.64 0.40
Poland>Czech Rep 0.45 0.48 0.58 0.62
Kyrgyzstan>Kazakhstan 0.49 0.27 0.53 0.43
Kyrgyzstan>Tajikistan 0.70 0.35 0.75 0.48
Symbols > or < indicate the country ranking in terms of democracy according to Freedom House Nations in
Transit 2006. Average score inside each zone.

40
Table A3: Attitudes Towards the Market and Democracy
in Frontier-Zones of Selected Countries
Democ. BELARUS Fronteer
industrial
index
Market
preferable
Democ.
preferable
ROMANIA Fronteer
industrial
index
Market
preferable preferable
Belarus Poland 1.87 0.43 0.12 Romania Serbia 2.39 0.56 0.52
Belarus Ukraine 1.89 0.41 0.49 Romania Bulgaria 2.43 0.32 0.42
Belarus Russia 1.98 0.48 0.57 Romania Hungary 2.58 0.69 0.75
Belarus Lithuania 2.03 0.33 0.61 Romania
Moldova
2.64 0.59 0.68
CROATIA RUSSIA
Croatia Bosnia 2.35 0.34 0.43 Russia Mongolia 2.2 0.64 0.61
Croatia Slovenia 2.31 0.4 0.58 Russia
Kazakhstan
2.26 0.28 0.42
HUNGARY Russia Estonia 2.33 0.33 0.48
Hungary Slovak Rep. 2.33 0.37 0.65 Russia Poland 2.33 0.45 0.57
Hungary Croatia 2.38 0.12 0.34 Russia Belarus 2.33 0.32 0.38
Hungary Romania 2.48 0.27 0.61 Russia Ukraine 2.51 0.22 0.31
Hungary Serbia 2.53 0.57 0.8 SERBIA
LATVIA Serbia Macedonia 2.12 0.9 0.92
Latvia Lithuania 2.9 0.32 0.51 Serbia Romania 2.29 0.39 0.48
Latvia Russia 2.9 0.24 0.43 Serbia Hungary 2.4 0.38 0.42
Latvia Estonia 3.38 0.17 0.56 UKRAINE
LITHUANIA Ukraine Poland 2.25 0.46 0.51
Lithuania Belarus 2.5 0.55 0.58 Ukraine Belarus 2.32 0.55 0.58
Lithuania Latvia 2.9 0.5 0.59 Ukraine Russia 2.34 0.5 0.61
Lithuania Russia 3.17 0.26 0.6 Ukraine Romania 2.53 0.82 0.87
POLAND Ukraine Slovak
Rep.
2.67 0.5 0.51
Poland Belarus 1.94 0.42 0.6
Poland Ukraine 2.26 0.13 0.47
Poland Czech Rep. 2.43 0.45 0.58
Poland Slovak Rep. 2.77 0.33 0.46

41
Table A4. Descriptive Statistics by Country
Support
Democracy
(%)
Support
Authoritarian
(%)
Support
Market (%)
Support
Plan (%).
Industrial
Index
Importance
democracy
Albania 66.1 9.4 65.15 13.14 2.30 7.23
Armenia 47.01 13.6 33.22 22.19 2.32 NA
Azerbaijan 47.55 9.13 39.61 9.27 1.96 5.15
Belarus 52.04 17.06 48 19.08 1.94 4.33
Bosnia 61.42 19.14 34.37 38.65 2.33 6.43
Bulgaria 45.90 17.74 36.79 24.72 2.61 5.89
Croatia 55.28 14.12 36.32 26.78 2.37 7.41
Czech Rep. 58.53 17.59 47.03 27.25 2.60 5.36
Estonia 61.11 12.23 49.47 18.45 2.78 6.03
FYR Macedonia 46.63 18.04 33.88 28.96 2.33 5.09
Georgia 58.13 11.63 38 23.04 2.28 5.73
Hungary 61.68 13.45 37.31 26.29 2.53 6.17
Kazakhstan 48.81 22.23 31.92 39.52 2.50 5.86
Kyrgyzstan 58.92 19.11 49.75 27.68 2.25 4.35
Latvia 55.97 19.59 39.11 26.16 2.75 5.99
Lithuania 54.42 10.31 41.64 17.12 2.73 5.72
Moldova 49.59 19.25 39.19 32.75 2.32 4.32
Mongolia 69.92 19.82 71.42 16 2.22 1.79
Montenegro 73.27 8.26 47.17 26.02 2.19 6.82
Poland 54.19 17.49 40.24 14.6 2.36 6.27
Romania 50.19 26.68 45.87 26.77 2.55 5.81
Russia 36.05 32.77 27.67 41.03 2.37 4.88
Serbia 51.02 14 44.52 21.21 2.33 6.80
Slovak Rep. 67.43 13.21 47.51 24.57 2.52 5.12
Slovenia 66.37 8.18 49.79 18.77 2.26 6.29
Tajikistan 62.74 15.87 51.35 28.18 2.21 4.26
Turkey 74.93 6.04 37.59 32.75 2.06 7.01
Ukraine 55.14 24.45 42.19 33.24 2.36 5.39
Uzbekistan 68.4 12.24 43.55 38.04 2.27 3.84

42
Table A5. Indices of Democracy and Country Rankings
FREEDOM HOUSE BTI POLITY IV
Democracy
(Nations in Transit)
(i)
Freedom
in the
World
(ii)
Ranking Democracy
indicator
(iv)
Polity (v)
Consolidated democ.
Slovenia 1.75 95 1
Estonia 1.96 95 2 7 6
Slovakia 1.96 91 5 9 9
Hungary 2 93 4 10 10
Latvia 2.07 89 9 8 8
Poland 2.14 92 7 10 10
Lithuania 2.21 90 6 10 10
Czech Rep. 2.25 92 3 10 10
Bulgaria 2.93 98 10 9 9
Romania 3.39 75 11 9 9
Croatia 3.71 84 8 7 7
Serbia 3.71 76(vi) 14 (vi) 6 (vi) 6 (vi)
Albania 3.79 63 16 7 7
Macedonia 3.82 61 12 9 9
Montenegro 3.89 NA NA NA NA
Bosnia 4.07 62 17 NA NA
Ukraine 4.21 72 13 6 6
Georgia 4.86 61 21 7 7
Moldova 4.96 57 23 8 8
Armenia 5.14 41 19 5 5
Kyrgyzstan 5.64 47 24 4 -3
Russia 5.75 35 20 7 7
Tajikistan 5.93 30 27 1 -3
Azerbaijan 5.93 33 25 0 -7
Kazakhstan 6.39 32 22 0 -6
Belarus 6.71 15 26 0 -7
Uzbekistan 6.82 3 28 0 -9
Mongolia NA 83 18 10 10
Turkey NA 65 15 8 7

43
(i) The democracy score ratings from Nations in Transit survey by Freedom House are based
on a scale of 1 to 7, with 1 representing the highest level of democratic progress and 7 the
lowest. The Democracy Score is an average of ratings for electoral process, civil society,
independent media, independence of the judicial system, and corruption.
(ii) The Freedom in the World survey provides an annual evaluation of the state of global
freedom as experienced by individuals. The ratings process is based on a checklist of 10
political rights questions and 15 civil liberties questions. The political rights questions
encompass electoral process, political pluralism and participation, and functioning of the
government. The civil liberties questions are concerned with freedom of expression and
belief, associational and organizational rights, rule of law, and personal autonomy and
individual rights. The highest number of points that can be awarded to the political rights
checklist is 40, and that to the civil liberties checklist is 60, with the highest score indicating
more freedom. This index is thus more global than the democracy index and more concerned
with the actual rights and social freedoms enjoyed by individuals.
(iii) The Bertelsmann Transformation Index (BTI) is a global ranking that analyzes and
evaluates development and transformation processes in 119 countries. This index is however
not only concerned with democracy, but also with the development of the market economy in
each country, and for that reason, is less well suited than indicators purely concerned with
democracy for our identification strategy.
(iv) The Polity IV Democracy indicator is an additive eleven-point scale (0-10), which is a
weighted indicator of the competitiveness of political participation, the openness and
competitiveness of executive recruitment, and constraints on the chief executive.
(v) The Polity indicator from Polity IV is a combined polity score that is computed by
subtracting the ‘autocracy score’, which indicates how restricted or suppressed political
participation is, to the democracy score. A negative ranking thus signifies that autocratic
characteristics of a regime outweigh its democracy characteristics.
(vi) Serbia and Montenegro are pooled.

44
Table A6. Indices of Industrial Market Development at Frontier-Zones
Frontier-Zone i j Frontier zone i Country_i Frontier zone
j
Country j
Albania Montenegro 2.27 2.36 2.43 2.24
Armenia Georgia 2.00 2.36 2.38 2.24
Azerbaijan Georgia 1.89 1.89 2.25 2.24
Belarus Lithuania 1.95 1.92 2.53 2.70
Belarus Poland 2.04 1.92 2.03 2.38
Belarus Russia 2.00 1.92 2.00 2.38
Belarus Ukraine 2.14 1.92 2.21 2.33
Bosnia Croatia 2.42 2.38 2.38 2.37
Bosnia Serbia 2.56 2.38 2.12 2.25
Bulgaria Macedonia 2.47 2.62 2.18 2.29
Croatia Bosnia 2.38 2.37 2.42 2.38
Croatia Slovenia 2.31 2.37 2.19 2.25
Czech Poland 2.62 2.61 2.26 2.38
Czech Slovakia 2.80 2.61 2.28 2.49
Estonia Russia 2.34 2.74 2.55 2.38
Estonia Latvia 3.14 2.33 2.27 2.80
Kazakh-Kyrgyzstan 2.65 2.48 2.32 2.25
Kazakhstan Russia 2.57 2.48 2.38 2.38
Kyrgyzstan Tajikistan 2.00 2.25 2.55 2.20
Latvia Lithuania 2.91 2.80 2.96 2.70
Macedonia Serbia 2.15 2.29 2.50 2.25
Moldova Romania 2.35 2.26 2.93 2.56
Poland Slovakia 2.58 2.38 2.55 2.49
Poland Ukraine 2.27 2.38 3.14 2.33
Romania Serbia 2.53 2.56 2.29 2.25
Russia Ukraine 2.47 2.38 2.40 2.33
Slovakia Ukraine 3.00 2.49 2.67 2.33