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An Economic Theory of Political Institutions: Foreign Intervention and Overseas Investments

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  • Toke A. Aidt
  • Facundo Albornoz

Abstract

The recent literature on endogenous political institutions highlights domestic economic factors, such as recessions, economic growth and inequality, as key determinants of political transitions. We argue that international capital flows and the possibility that foreign governments, in order to protect specific economic interests, might seek influence on the regime choice in other countries are important, yet overlooked, additional determinants of political institutions. Building on Acemoglu and Robinson (2001), we develop a theory of political transitions in economies with access to international capital markets and show that the possibility of foreign intervention significantly affects regime dynamics and the set of sustainable political regimes

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Bibliographic Info

Paper provided by Department of Economics, University of Birmingham in its series Discussion Papers with number 07-03.

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Length: 47 pages
Date of creation: Mar 2007
Date of revision:
Handle: RePEc:bir:birmec:07-03

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Postal: Edgbaston, Birmingham, B15 2TT
Web page: http://www.economics.bham.ac.uk
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Keywords: Political transitions; democracy; autocracy; foreign investments; foreign government intervention;

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References

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  1. John P. Conley & Akram Temimi, 2001. "Endogenous Enfranchisement When Groups' Preferences Conflict," Journal of Political Economy, University of Chicago Press, vol. 109(1), pages 79-102, February.
  2. Philipp Harms & Heinrich Ursprung, 2001. "Do Civil and Political Repression Really Boost Foreign Direct Investments?," CESifo Working Paper Series 421, CESifo Group Munich.
  3. Aidt, T. & Magris, F., 2003. "Capital Taxation and Electoral Accountability," Cambridge Working Papers in Economics 0318, Faculty of Economics, University of Cambridge.
  4. Bourguignon, F. & Verdier, T., 1997. "Oligarchy, Democracy, Inequality and Growth," DELTA Working Papers 97-10, DELTA (Ecole normale supérieure).
  5. Persson, Torsten & Tabellini, Guido, 1994. "Representative democracy and capital taxation," Journal of Public Economics, Elsevier, vol. 55(1), pages 53-70, September.
  6. Alberto Alesina & Roberto Perotti, 1993. "Income Distribution, Political Instability, and Investment," NBER Working Papers 4486, National Bureau of Economic Research, Inc.
  7. Perotti, Roberto & Alesina, Alberto, 1996. "Income Distribution, Political Instability, and Investment," Scholarly Articles 4553018, Harvard University Department of Economics.
  8. Alessandro Lizzeri & Nicola Persico, 2004. "Why Did the Elites Extend the Suffrage? Democracy and the Scope of Government, With an Application to Britain's "Age of Reform"," The Quarterly Journal of Economics, MIT Press, vol. 119(2), pages 705-763, May.
  9. Justman, Moshe & Gradstein, Mark, 1999. "The Industrial Revolution, Political Transition, and the Subsequent Decline in Inequality in 19th-Century Britain," Explorations in Economic History, Elsevier, vol. 36(2), pages 109-127, April.
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Cited by:
  1. Aidt, Toke S. & Albornoz, Facundo, 2011. "Political regimes and foreign intervention," Journal of Development Economics, Elsevier, vol. 94(2), pages 192-201, March.

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