Economic Factors of Democratization

A Case Study on Vietnam

Master's Thesis, 2009

60 Pages, Grade: 8



1. Introduction

2. Democratization and Economic Transition
2.1. Determinants of Democracy
2.2. Democratization and Transition
2.3. Growth
2.4. The Correlation between Growth and Democracy
2.4.1. Does growth cause democratization?
2.4.2. Does only growth cause democratization?

3. Economic Factors of Democratization
3.1. Wealth
3.2. Industrialization
3.3. Economic Openness
3.4. Level of Education
3.5. Expansion of the Middle-Class
3.5.1. Middle-Class
3.5.2. Urban working-class
3.5.3. Determining the Strength of the Middle-Class
3.5.4. Determinants of Urbanization
3.6. Inequality

4. Development in Vietnam since Doi Moi
4.1. Economic Transition
4.2 Political Development

5. Economic Factors of Democratization in Vietnam
5.1. Wealth
5.2. Industrialization
5.3. Economic Openness
5.4. Education
5.5. Middle Class
5.6. Inequality

6. Conclusion

7. References

8. Annex


Table 2.1. Factors of polyarchy

Table 2.2. Transition

Table 3.1. Economic Factors of Democratization

Table 4.1. Socioeconomic Development of Vietnam

Table 5.1. Economic factors for democratization and measures

Table 5.2. Gross Domestic Product Growth and Wealth

Table 5.3. Poverty

Table 5.4. Other determinants of wealth

Table 5.5. Energy Use

Table 5.6. Total Investment

Table 5.7. Communication/Technology

Table 5.8. Foreign visitors

Table 5.9. Education

Table 5.10. Gini Coefficients

Table 5.11. GDP/GNI per capita

Table 5.12. Labor Force per sector, in % of total employment

Table 5.13. GDP, by economic sector, at constant 1994 prices, in %

Table 5.14. Export and Import, as % of GDP

Table 5.15. Export and Import, annual % growth

Table 5.16. Foreign Direct Investment

Table 5.17. Investment by Ownership, in % of total investment

Table 5.18. School Enrollment

Table 5.19. Consumption Percentiles

Table 5.20. Middle Class

Table 5.21. Inequality

Table 5.22. Urbanization

Table 5.21. Income Distribution by area, 2006, in 2006$

Table 5.22. Gini Coeficients based on real per capita income and consumption by area


Figure 3.1. Impact of a large middle class

Figure 3.2. Impact of economic inequality

Figure 5.1. GDP/GNI per capita

Figure 5.2. Labor Force per sector, in % of total employment

Figure 5.3. GDP at constant 1994 prices by economic sector

Figure 5.4. Export and Import as % of GDP

Figure 5.5. Export and Import, annual % growth

Figure 5.6. Foreign Direct Investment, net inflows (Balance of Payments)

Figure 5.7. Investment by Ownership, in % of total investment

Figure 5.8. School Enrollment

Figure 5.9. Consumption Distribution for Middle Class

Figure 5.10. Level of Urbanization by urban share of total population

Figure 5.11. Monthly income per capita by area, in 2006

Figure 5.12. Inequality by consumption

Figure 5.13. Lorenz curve for urban income per capita, 1993 to 2006, for the bottom of the income distribution

Figure 5.14. Lorenz curve for rural income per capita, 1993 to 2006, for the bottom of the income distribution


”Vietnam has the potential to be one of the great success stories in development. It has already achieved one of the fastest improvements in living standards in the world, with a great reduction in poverty. Driven by the first stage of reforms and the benefits of trade and WTO accession, Vietnam is on pace to become a middle income country by 2010” (World Bank 2007).

Following current World Bank President Robert Zoellick’s presupposition of acknowledging Vietnam’s economic success story during a visit in 2007, the aim of this paper is to assess the determinants of this success story, if there is one, and utilize them to explore the effects Vietnam’s economic growth would have on the prospect of a transition to democracy.

At least since Seymour Lipset’s hypothesis that “[t]he more well-to-do a nation, the greater the chances that it will sustain democracy” (Lipset 1959: 75), the research on the effects of economic development and growth on the process of democratization makes a large part of comparative politics and democracy research. Nevertheless, other countries in South East Asia, like Thailand, Malaysia or even Singapore are more in the centre of attention of the comparative political science scholars than Vietnam. That is since the communist regime has hardly shown any sign of political liberalization and seems untouched by Lipset’s assumption until today. Its constant economic growth makes it one of the most stable autocracies in the world reducing, in addition, the prospect of a successful transition in the near future.

The general concentration on transition regimes is one reason to choose Vietnam as an example for regimes detached from democracy and its values. The question one would pose is where to look for democratic elements under these conditions. There are many areas to begin with, such as the level of economic development, the influence of grass-root organizations and civil society, religion, the level of political rights and social liberties or the colonial inheritance. Still, this paper will focus exclusively on the impact of economic development on democratization since, as Przeworski and Limongi once said: “[it] is important in its own right, that it lends itself to divergent answers, and that it raises methodological issues that are not well understood” (Przeworski/Limongi 1997: 155). Furthermore, economic development is a factor which is also very well applicable for today’s Vietnam.

Since the beginning of the 1990s, Vietnam has had an exceptional development due to growth rates at an average of around 7% a year, only surpassed by the development of China. Among other efforts, the poverty of the population living below 1$ a day was more than halved and Vietnam achieved the transition from an almost autarkic economy which could not sustain its own population Vietnam changed to a highly recognized export-led nation which exports, next to the traditional agricultural products, also several manufactured goods. This successful performance, however, has not been accompanied by a political opening, since the Communist Party of Vietnam (CPV) which is highly legitimized sustains the one-party regime under its control with suppression of political as well as human rights.

However, if Lipset was right in his assumption, then should not fast sustained growth change a system and start a transition process? This also constitutes the first main question of this paper: Is economic growth correlated with democracy? Emanating from the assumption that there is a correlation the next step is to explore the factors through which economic growth is being generated. Thus, a second question comes forward: Which are the economic determinants of democratization? After the identification and analysis of the above mentioned research questions, the results will be applied to the case of Vietnam under the following query: Which is the level of economic development in Vietnam on its way to democracy?

The modus operandi of this paper includes both qualitative and quantitative methods of interpretation under the guidance of an extensive literature review. The first part is composed by summarizing theories and different angles of democracy, transition, and democratization. Through the analysis of the empirical research on democracy, the correlation between economic growth and democratization will be evaluated subsequently. This section includes basic theoreticians ranging from Lipset and Przeworski to Epstein and Acemoglu who primarily used regressions as quantitative tools. The third division is concerned with the determination of the economic factors of democratization based on the works of Huntington and Lipset and will address each factor in detail. After a short overview of Vietnam’s economic and political development, using Bertelsmann as a main source, the case study will constitute the fifth part. In this section all the factors developed in the previous chapter will be used to evaluate the economic status and development of Vietnam. The instruments of analysis are data originating inter alia from the World Bank Indicators and the General Statistics Office of Vietnam which will be presented in tables and figures and adjacently interpreted. A conclusion will summarize the results and the initial postulations of this work.

2. Democratization and economic transition

2.1. Determinants of democracy

The aim of this work is to determine the economic factors which lead to democratization and therefore, the features of democracy should first be briefly explained with regard to representative selection of the most influential scholars on democracy. Firstly, Schumpeter gives an interesting perspective of the theory of democracy seen in the 19th century writing that “the democratic method is that institutional arrangement for arriving at political decisions which realizes the common good by making the people itself decide issues through the election of individuals who are to assemble in order to carry out its will.” (Schumpeter 1942: 250) Like Rousseau says in his “volonteé general” the main factor of democracy is an elected government which acts for the common good. Schumpeter, however, dismisses the existence of a common good, as the notion of values or a society “are beyond the range of mere logic” (Schumpeter 1942: 251). Even if an end is agreed on, like a utilitarian’s maximum of economic satisfaction, still the opinions on individual goals differ; policies for the child benefits are agreeable, but should they be done in cash or in-kind, means-tested or universal?; accordingly, Przeworski rejects the existence of the common good: “Let us put the consensualist view of democracy where it belongs—in the Museum of Eighteenth-century Thought—and observe that all societies are ridden with economic, cultural, or moral conflicts.” (Przeworski 1999: 26) Schumpeter introduces, subsequently, the idea of the will of the majority in opposition to the will of the people and, along with that, he introduces a minimalist democracy theory since the main concern is the competitive struggle of rulers for the majority’s vote (Schumpeter 1942: 269ff).

Thus, Przeworski defends this minimalist conception when he argues with the premise of competition for elections but also participation. The stability of a democracy originates from the acceptance of the vote by the minority and therefore attains legitimacy not by the majority but by the willingness of the losers to accept outcomes as long as they can participate in the making of these outcomes. “This is not consensus, yet not mayhem” (Przeworski 1999: 37) and after this interaction there is no need for violence or rebellion.

Diamond instead thinks that the Schumpeterian theory omits too many important factors of democracy and expands the definition from a minimalist to a liberal democracy theory. He develops three elements in addition to the competitive struggle for the people’s votes:

“How does liberal democracy extend beyond these formal and intermediate conceptions? In addition to the elements of electoral democracy, it requires, first, the absence of reserved domains of power for the military or other actors not accountable to the electorate, directly or indirectly. Second, in addition to the vertical accountability of rulers to the ruled (secured mainly through elections), it requires the horizontal accountability of officeholders to one another; this constrains executive power and so helps protect constitutionalism, legality, and the deliberative process. Third, it encompasses extensive provisions for political and civic pluralism as well as for individual and group freedoms, so that contending interests and values may be expressed and compete through ongoing processes of articulation and representation, beyond periodic elections.” (Diamond 1999: 10f)

Diamond assumes that the accountability of the government and the minimization of violence in political life are basic goods and that human rights are universal as well as inalienably recognized. Free, fair and competitive elections are not enough to acquire rule of law, liberty rights or horizontal accountability in the executive. Also, the electoral democracy theory, as Diamond names it, does not consider veto players or actions outside of the accountability elections can supply, like military, bureaucratic or oligarchic power outside of the government, or political repression and marginalization of minority groups in the society. Horizontal accountability addresses in particular checks-and-balances, constitutionalism and also the rule of law. The protection of human rights is the third and most important distinction to the minimalist theory, because it involves the people on another spectrum than periodical elections.

Finally, Dahl (1971) enlarged the research with his introduction of polyarchy. The term was introduced to distinguish firstly democracy today from the democracies of the 19th century with restricted right to vote and from the Greek-style democracies, possible in city-states. Secondly, it should be a distinction between the representative democracies with general right to vote and the ideal form of democracy in research. Dahl constructs this ideal form through five elements: effective participation, equal right to vote, gaining enlightening understanding, inclusion of all adults, and control over the agenda setting of policies of all the ones who have a right to vote. Polyarchy, on the other hand, is a political regime determined mainly through participation and contestation. Participation means the right of practically all adults to vote and compete for political office; moreover, contestation is the free and competitive organization of articulation and aggregation of interests, as well as the process of decision making (Schmidt 2000: 394). Seven either scaled or dichotomic main indicators are characterized by Dahl in his work to determine polyarchy more accurately (Dahl 1998 86f; Schmidt 2000: 394):

Table 2.1. Factors of Polyarchy

Abbildung in dieser eseprobe nicht enthalten

Newer democracy-indicators, which are mainly built on Dahl’s work, are used today primarily for the comparative research of regimes and their status and development of democracy. The two most well-known are the “Freedom-House-Index” and the “Polity IV-Index”. Freedom-House measures a standard for the political right and the civil liberties on a scale from 1 to 7, where 1 is the highest value. It utilizes a question catalogue and uses as measures inter alia the existence of free and fair elections, the competiveness of parties and political groups or the importance of elections for the actual division of power (Freedom-House 2009/Gastil 1990).

Polity IV, a project founded by Gurr (1975) with then Polity I, “examin[ing] concomitant qualities of democratic and autocratic authority in governing institution“(Marshall 2009). It creates a scale from -10 to 10, which can be read trichotomous, where countries with the score -10 to -6 are described as autocracies; regimes from -5 to 5 are “anacrocies” (ibd.) or mixed, incoherent, authority regimes; democracies have scores from 6 to 10. The constituent measures are composed of qualities of executive recruitment, constraints on executive authority, and political competition.

2.2. Democratization and Transition

After giving definitions and the determinants of democracy, the next step is to clarify the requirements for a transition from an authoritarian to a democratic regime. Schmidt summarizes six paths to democracy (Schmidt 2000: 470f):

1. The first path to democracy consists of occupied regimes which are re-democratized after defeat of the occupying force.
2. The second kind is the (re-)introduction of democracy by an occupying force after the military defeat of an authoritarian or totalitarian regime.
3. Moreover, the third category is the regime-induced democratization which means the agreement of civil and military groups of a regime that initiates the basis for democratic successor regime. This type is usually a top down change, thus the old regime plays the main role.
4. However, a fourth path sees a joint action of the old regime with the opposition where the old regime reforms the system under the decisive participation of the opposition.
5. In contrast, the opposition takes the leading position in the fifth form of transition and either the old regime collapses or is captured by the opposition.
6. Eventually, the sixth point at Schmidt is the democratization through a revolution; nonetheless, this is supposed to lead in the majority of the cases to an authoritarian one party system.

The three dominant paths in the literature are three, four and five which were given different names for the same process summarized by Huntington (Huntington 1991: 114):

Table 2.2. Transition

Abbildung in dieser eseprobe nicht enthalten

It is the same with these ideal forms of transition as with the ideal forms of democracy, they do not happen precisely in reality. Mainly all the historical cases show that not one but to two or more types could be applied to different transitions (Huntington 1991: 115).

The process of transition is captured inclusively by the research of Merkel (1999: 120ff) who presents three phases for the change from autocratic to democratic systems:

1. End of the authoritarian regime
2. Institutionalization of democracy
3. Consolidation of democracy

After the end of the old regime, institutional changes have to be made, like the drafting of a new constitution or the introduction of general elections to set up a structure for democracy. Following, in the consolidation phase and after democracy is embedded in the political institutions and the constitutional reality, it still has to penetrate the general values of society and must be legitimized through economic stability, social development and existence of elites with strong democratic values (Schmidt 2000).

Dahl wants to express with his term of polyarchy the non-ideal but realistic form of democracy and Diamond concurs with him on this point when he views democracy always as a development phenomenon even when it is consolidated; it can always be improved (Diamond 1999: 18).

Derived from these definitions and theories about democracy and democratization a broad research segment has developed which tests the status or development of democratization in cross-country measurements. Indexes and datasets, like the above mentioned Freedom-House Index and Polity III/IV or the Bertelsmann Transformation Index, are developed in constantly improving calculations to show in a qualitative or quantitative manner in what stage of democratic development a country can be found. The fourth chapter will make use of these indices for the evaluation of the political regime in Vietnam.

2.3. Growth

Dowd (1967: 153) defines growth as “a quantitative process, involving principally the extension of an already established structure, whereas development suggests qualitative changes, the creation of new economic and non-economic structures”. Growth and development are in general seen as a combined process but growth can also happen without development. In the 18th century, states like Britain could develop because of growth; in today’s globalized world, oil or other “enclave-sectors” can supply developing countries with a statistical high economic growth, but that does not necessary result in development (Schweinitz 1970: 524). Consequently, they are more factors than growth alone which will be developed at a later stage in this paper.

2.4. The correlation between economic growth and democracy

The straightforward hypothesis of Lipset that “[t]he more well-to-do a nation, the greater the chances that it will sustain democracy” (Lipset 1959: 75) is the basis of a large part of this work. He set in motion the continuous examination of this hypothesis and therefore the main research on the validity of the correlation between economic development and democracy is content of this section.

2.4.1. Does Economic Growth Cause Democratization?

Subsequent to Lipset´s hypothesis Moore (1966) and Rueschemeyer, E. Stephens, and J. Stephens (1992) linked, using like Lipset a small dataset, democratization to the rise of the middle class and to its political incorporation. The positive relation in large data sets was introduced and applied by Cutright (1963), Dahl in his “Polyarchy” (1971), Londregan and Poole (1996) or Burkhart and Lewis (1994), who find out that economic development Granger causes democracy.

This research was followed by Przeworski and Limongi (1997) as well as Przeworski et al. (2000). They assemble two explanations for democratization: first, the endogenous in which, “the basic assumption of this theory, in any of its versions, is that there is one general process of which democratization is but the final stage”. (Przeworski/Limongi 1997: 156f). Poor authoritarian regimes develop accordingly into a democracy after they pass the threshold[1] level of development. Przeworski does not agree with this causality and expects “to observe democracies to appear randomly with regard to levels of development, but to die in the poorer countries and survive in the wealthier ones. […]This is therefore no longer a modernization theory, since the emergence of democracy is not brought about by development. Rather, democracy appears exogenously as a deus ex machina. It survives if a country is ‘modern,’ but it is not a product of ‘modernization’.” (ibd: 159). In their dataset, regimes with less than a 6000$[2] income per capita are likely to experience a transition to democracy due to higher income; nevertheless, if a regime reaches this threshold of 6000$, dictatorships become more stable with higher development and this last result opposes the endogenous explanation.

Following this, Przeworski provides for the exogenous explanation with “[i]n turn, per capita income, our measure of the level of development, has a strong impact on the survival of democracies”, which indicates that democracies above a certain threshold of income per capita do not fall back to authoritarianism. His results show that unconditionally every democracy he observed stayed stable having a higher income than 6055$ per capita, while 39 out of 69 democracies under this threshold fell back to authoritarianism (ibd: 165). His reasoning builds up on the economic theory of utility maximization and marginal utility: In a poor society the gains from a violent struggle are higher and the losses are quite small compared to a wealthy society in which the marginal utility of consumption is lower at higher levels of consumption and a conflict about leadership can cost dearly since more wealth accumulation can be destroyed. Przeworski concludes that the population in a wealthy country is less likely to risk a struggle (ibd: 166).

Przeworski with Limongi and others created “a study that hit the field of political development like a bolt of lightning and immediately changed the landscape” (Boix/Stokes 2003: 518) which initiated various studies scrutinizing their outcomes. First, on an empirical basis Boix and Stokes refuse their result due to a biased sample size, selection problems and omitted variable bias and second, they countered the theoretical approach and concluded “that when the status quo is democracy, income growth does increase the stability of democracy (or at least it does so under certain assumptions about the likely outcomes of each type of struggle –whether by elections or by war – and about how the pie is divided between the winners and losers of elections). But when the status quo is dictatorship, the results are the same. Economic growth increases the incentives for the ruling faction to democratize (under the same conditions that apply to the first game). Hence, Przeworski and Limongi’s intuitive story fails to produce the theoretical underpinnings for the idea that development favors democracy exogenously but not endogenously.“ (ibd: 521).

Epstein et al. (2006) give other reasons why Przeworski err in abandoning the causal chain of economic growth and democratization. Przeworski uses a dichotomous approach to classify political regimes with either democratic or authoritarian governments and pay no heed to the prospect of a transitional category in the middle. Epstein entitles them “partial democracies” (2006: 551) and thus uses a trichotomous measure to reevaluate Przeworski’s results. He observes that the modernization theory holds in both ways, that indeed a higher per capita income raises the chances of democratization as well as decreases the possibility of a relapse from democracy to autocracy. By using the Polity IV Index Epstein finds the importance of partial democracies since in a five year period only 11% of all autocracies and only 7% of the democracies change the polity, whereas 40% of partial democracies change into either an autocracy or a democracy. In Tobit-Regressions they confirm the correlation between economic development and democratization, while they verify in Markov-Regression their hypothesis that economic growth has also a significant impact on democratization, if the regime is an autocracy or a partial democracy.

Another very recent study also examines polities in the context of their stability as this seems to be the primary area of interest in the current research on democratization. Gates et al. (2006) hypothesize, while they recognize consistent democracies and consistent autocracies as the most stable political systems, that “both democratic and autocratic stability depend on self-enforcing equilibria, such that the maintenance of a polity’s institutional structure is in the interest of political officials, whether through autocratic or democratic control. Where such equilibria are lacking, instability will follow.” (Gates 2006: 893).

Like Epstein, they also use a three-dimensional approach which includes autocracies, democracies and institutional inconsistent polities. According to them, Przeworski attributes, due to his dichotomous classification, differences between regimes in durability to wrong explanatory variables and furthermore categorizes many inconsistent polities to non-democracies. Their results show that these three categories are distinct and that “an analysis that fails to take these distinct polity types into consideration may conclude that a factor is important/unimportant when in actuality the interpretation is more nuanced. For example, the results show that the estimated survival rates of autocracies and democracies (…) are altered when including information on the extent to which the regime types are consistent.” (Gates 2006: 906)

They conclude that there is a tendency of inconsistent polities to change towards the nearest consistent ideal type but that there is a long-term trend towards democratization since consistent democracies are more stable than consistent autocracies.

Finally, Acemoglu et al. (2008) come again to a different conclusion: by using regressions that apply fixed effects and include instrumental variables, their results show no significant effect of income on democratization over the past 100 years. However, these results are directly doubted by Paldam and Gundlach (2008) who reviewed Acemoglu’s outcomes. They deduced that the construction of the data set was too restrictive due to the use of fixed effect and instrumental variables, thus Acemoglu could not produce a significant effect of income on democracy.

2.4.2. Does Only Economic Growth Cause Democratization?

The research on the correlation of economic development on democracy is still not brought to a close and since Przeworski even more hotly debated. Nonetheless, there is a definite tendency that the growth has some effect on democratization, even though Lipset already acknowledges that the economic factor is not the only determinant of democracy, since it depends also upon the effectiveness and legitimacy of the political system (Lipset 1960: 77). Nevertheless, he is concentrated uniquely on the socioeconomic determinants and until the 80s of the last century, most other researchers hold on to this as the single determinant of democratization despite that fact that Lipset himself rejects a mono-causality of growth to democracy.

Other studies concur, like Arat who shows that the hypothesis holds in a cross-sectional analysis but not in a longitudinal analysis, so “it is clear that democracy is not a one-way ladder that countries climb as their economy and social structures develop” (Arat 1988: 34). Gates et al. (2006:906) found in their data analysis that the explanation of the stability of a polity through differences in institutional consistency is equal or even more important than other factors like economic development. Finally, Epstein finds “that none of coefficients on partial democracy are significant on their own. Numerous, volatile, and shaping the dynamics of regime transitions, the determinants of the behavior of the partial democracies elude our understanding” (2006: 564).

Concluding this section, there is a significant reason to examine the economic factors of democratization on a state like Vietnam. First, although economic development is not the dominant factor, it was shown that there is a significant impact on democratization. Particularly, in regimes in the medium category of the “partial democracies”, there is no definite understanding of the factors on development, but in stable regimes growth or income had a significant impact on polity change. Vietnam is categorized as a very consistent and stable autocracy, and especially here it is of great interest if the economic factors for development are given, even ignoring other determinants.

3. Economic Factors of Democratization

Introducing the economic factors on democratization of Lipset and Huntington, the following section will briefly mention and combine them in a schema in table 3.1. Afterwards, every issue will be tackled individually.

The indices Lipset used for the test of this hypothesis are the wealth of a nation, the degree of industrialization and urbanization and the level of education (Lipset 1959: 75). On all four indicators he found that the democratic countries were more advanced than the non-democratic countries (Lipset 1959: 75). Furthermore, although not in his initial indices he elaborates on the importance of the middle class and its impact on economic development (Lipset 1959:83).

Huntington argues that “economic development appears to have promoted changes in social structure and values that, in turn, encourage democratization” (1991: 65) and sets similar but slightly different determinants:

“First, the level of economic well-being within a society itself, it has been argued, shapes ‘the values and attitudes of its citizen,’ fostering development of feelings of interpersonal trust, life satisfaction, and competence, which in turn, correlate strongly with the existence of democratic institutions. Second, economic development increases the levels of education in a society. […] Third, economic development makes greater resources available for distribution among social groups and hence facilitates accommodation and compromise. Forth, economic development in the 1960s and 1970s both required and promoted the opening of societies to foreign trade, investment, technology, tourism, and communications. […] Finally, economic development promotes the expansion of the middle class: a larger and larger proportion of society consists of businesspeople, professionals, shopkeepers, teachers, civil servants, managers, technicians, clerical and sales workers.” (Huntington 1999: 65f).


[1] The idea of a economic threshold for democracy was first made by Neubauer (1967) who examined the correlation between socioeconomic development and democracy

[2] Growth rates are expressed in constant U.S. dollars computed at purchasing-power parities and expressed in 1985 prices

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Economic Factors of Democratization
A Case Study on Vietnam
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Vietnam, democratization, demokratisierungsprozess, economy, asia, South-East-Asia, Asian politics, comparative politic, länderstudie, wirtschaftsstudie, economic study, economic transition, democracy, demokratisierung, development, economic development, inequality
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Frederik Marmann (Author), 2009, Economic Factors of Democratization, Munich, GRIN Verlag,


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