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Political Predation and Economic Development

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Author Info
Azam, Jean-Paul
Bates, Robert H
Biais, Bruno

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Abstract

Economic growth occurs as resources are reallocated from the traditional sector to the more productive modern sector. Yet, the latter is more vulnerable to political predation. Hence, political risk hinders development. We analyse 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.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 5062.

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Date of creation: May 2005
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Handle: RePEc:cpr:ceprdp:5062

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Related research
Keywords: Economic Development; Political Economy; political predation; reputation;

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Find related papers by JEL classification:
D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information
H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
O00 - Economic Development, Technological Change, and Growth - - General - - - General
O17 - Economic Development, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Goriaev, Alexei P. & Sonin, Konstantin, 2005. "Is Political Risk Company-Specific? The Market Side of the Yukos Affair," CEPR Discussion Papers 5076, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  2. Besley, Timothy J. & Kudamatsu, Masayuki, 2007. "Making Autocracy Work," CEPR Discussion Papers 6371, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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