Objectives: Questions have been raised whether globalization will make more countries democratic or make a country more democratic. This paper is a theoretical piece addressing this issue. We construe the key role of democracy to be allowing information flows, political debates, and informed policy decisions to be made. We develop a model comparing, in an international context, the performances of three types of political institutions: autocracy, non-pluralistic democracy, and pluralistic democracy. A political institution is said to be an autocracy if the executive branch, under the control of a ruling party, chooses the policy on its own, without consent from the legislature or the public; it is said to be a democracy if the executive branch implements the policy chosen by the legislature or the public. The difference between a non-pluralistic democracy and pluralistic democracy is that opposition parties are weak in the former but strong in the latter.
Methods: More specifically, we consider an information transmission game. A country needs to choose between alternative policies. The ruling party possesses some noisy, yet useful signal about the respective efficacies. In case of pluralistic democracy, the opposition party also possesses its own signal, positively correlated with the ruling party's signal. As such, pluralistic democracy is potentially valuable because maximum amount of useful information can be conveyed. Each party's interests need not be completely aligned with the public, reflected by a degree of bias toward some policy. We compare the three different political institutions under autarky and under globalization. By autarky, we refer to a benchmark exercise in which whether a policy is good for the country depends solely on the state of the nature, i.e., the underlying hidden, domestic factors, unrelated with the rest of the world. By globalization, we refer to the environment in which the payoffs coming from a policy also depend on the decision by a foreign player.
Results: Our main results are as follows. Under autarky, pluralistic democracy always performs at least as good as non-pluralistic democracy, which in turn always performs at least as good as autocracy. Globalization, however, may either enhance or hinder the efficacy of democracy. In the former, favorable case, there will be a greater scope of environment in which information flows and informed decisions take place. In the latter, unfavorable case, the efficacy of democracy is hampered for two reasons. First, the parameters over which information flows actually take place in equilibrium are more restricted. Second, even if informative flows take place, the information uttered by the ruling and opposition parties in equilibrium may become harmful to the public. Worth noticing is that this applies also to the party whose interest is completely aligned with the public. This paper goes on to clarify what favorable and unfavorable conditions under globalization exactly mean. The conditions we develop, in a special form, capture the idea of task interdependence between the home country's policy and the policy of the foreign player.