The Middle Class Consensus and Economic Development Ii. Empirical Testing on Commodity Endowment, Middle Class Consensus, and Development

Modern political economy stresses “society’s polarization” as a determinant of development outcomes. Among the most common sources of social polarization are class divisions and ethnic divisions. A middle class consensus is defined as a high share of income for the middle class and a low degree of ethnic divisons. A middle class consensus distinguishes development successes from failures. The paper links the existence of a middle class consensus to exogenous country characteristics like resource endowments, along the lines of the provocative thesis of Engerman and Sokoloff 1997 that tropical commodity exporters are more unequal than other societies. This hypothesis is confirmed with cross-country data. This paper exploits this association using resource endowments as instruments for inequality. A higher share of income for the middle class and lower ethnic divisions are empirically associated with higher income and higher growth. These associations are robust to a number of alternative controls. A middle class consensus is also associated with more education, better health, better infrastructure, better economic policies, less political instability, less civil war and ethnic minorities at risk, more social “modernization” and more democracy.