Publications

Political Predation and Economic Development
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Economic growth occurs as resources are reallocated from the traditional sector to the modern sector, which is more productive. It is also more vulnerable to political predation, however. Political risk can therefore hinder development. We analyze a politico-economic game between citizens and governments, whose type (benevolent or predatory) is unknown to the citizens. In equilibrium, opportunistic governments mix between predation and restraint. As long as restraint is observed, political expectations improve and the economy grows. Once there is predation, the reputation of the current government is ruined and the economy collapses. If citizens are unable to overthrow this government, the collapse is durable. Otherwise, a new government is drawn and the economy can rebound. Equilibrium dynamics are characterized as a Markov chain. Consistent with stylized facts, equilibrium political and economic histories are random, unstable and exhibit long—term divergence. Our theoretical model also generates new empirical implications on the joint dynamics of income inequality, output and political variables.
Publication Type: WCFIA Working Paper
Published Date: April 3, 2006.
Field of Interest: International Economics
Bates, Robert H., Jean Paul Azam, and Bruno Biais. "Political Predation and Economic Development." Working Paper 2008-0095, Weatherhead Center for International Affairs, Harvard University, April 3, 2006.