**Democratization:** We next move to the role of democratization in explaining liberalization. Milner and Kubota (2005) show that democratization makes it harder for protectionist governments to maintain political support in developing (labor-abundant) countries. Suppose individuals possess capital and labor in a two-sector, two-factor economy. In a labor-abundant country freer trade through structural reform increases the reward to labor and reduces the return on capital. In a labor-abundant country where only the elite (the relative capital-rich individuals) can vote, we will see protectionist policies in place since those policies will benefit the scarce factor, namely capital, at the expense of the abundant factor, namely labor. Democratization gives the relatively capital-poor (people with fewer assets) the right to vote, which moves the country to more liberalized policies as it benefits the abundant factor, labor. Milner and Kubota (2005) find strong support for their hypothesis using data from developing countries for the period 1970-99. Also, Mitra, Thomakos and Ulubasoglu (2002) find that the weight the government puts on aggregate welfare relative to political contributions in a Grossman-Helpman “Protection for Sale” model has been higher with democratic governments than with dictatorships in Turkey. In the presence of lobbies that predominantly represent import-competing sectors, this result supports the positive relationship between democratization and liberalization: democratization leads to reforms. Since the only way democratization can affect the labor market would be through changes in economic policies, virtually all changes in such policies would be part of structural reforms, making democratization uncorrelated with the error term. Thus a change in a country’s democracy score over the last several years could be a suitable instrument for structural reforms.

# **4. Econometric Methodology**

We first run the following regression for each of our labor-market outcomes: 1 10 i 0 1 i + P P P P i P P P P i i (1) jj jj ii where YY = ββ denotes the country, + ββ XX �γγ denotes the year, (jj) + �γγ _Y_ denotes the labor-market outcome variable under PP(jj) + vv + εε jj=10 jj=1 consideration (unemployment rate, employment, female employment, wage index, labor force ii PP participation rate or female labor force participation rate), includes control variables if specified (these regressions are run with and without controls), _PreDummy_ ( _j_ ) is a dummy variable equal to 1 years XX prior to reform (0 otherwise), _PostDummy_ ( _j_ ) is a dummy variable equal to 1 years after reform (0 jj otherwise), is the country fixed effect and is the idiosyncratic error. The coefficient of each jj _PreDummy_ ( _j_ ) and _PostDummy_ ( _j_ ) dummy variable represents the average level of the outcome variable vv εε in its corresponding time period relative to the average level the year of reform. The controls include real GDP, the labor force participation rate and the working age population for all labor-market outcome variables except when the overall and female labor force participation rates are themselves the dependent variables. When the dependent variable is the overall of female labor force participation rate, the controls used are real GDP and the working age population. After running the above regressions, we present graphs that plot the estimated dummy variable regression coefficients against time where time is equal to -1 the year prior to reform, 0 the year of reform, 1 the year after reform, etc.

We next run the following regression for each labor-market outcome variable: i 0 1P P i 2 i 3 i 2 4 i i (2) 12 ii YY = αα + αα + αα PPiiP + αα PPiiP + αα XX + PP + ωω