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Isolated Capital Cities and Misgovernance: Theory and Evidence

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  • Campante, Filipe R.

    (Harvard University)

  • Do, Quoc-Anh

    (Sciences Po, Paris)

  • Guimaraes, Bernardo

    (Sao Paulo School of Economics)

Abstract

Motivated by a novel stylized fact--countries with isolated capital cities display worse quality of governance--we provide a framework of endogenous institutional choice based on the idea that elites are constrained by the threat of rebellion, and that this threat is rendered less effective by distance from the seat of political power. In established democracies, the threat of insurgencies is not a binding constraint, and the model predicts no correlation between isolated capitals and misgovernance. In contrast, a correlation emerges in equilibrium in the case of autocracies. Causality runs both ways: broader power sharing (associated with better governance) means that any rents have to be shared more broadly, hence the elite has less of an incentive to protect its position by isolating the capital city; conversely, a more isolated capital city allows the elite to appropriate a larger share of output, so the costs of better governance for the elite, in terms of rents that would have to be shared, are larger. We show evidence that this pattern holds true robustly in the data. We also show that isolated capitals are associated with less power sharing, a larger income premium enjoyed by capital city inhabitants, and lower levels of military spending by ruling elites, as predicted by the theory.

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Paper provided by Harvard University, John F. Kennedy School of Government in its series Working Paper Series with number rwp12-058.

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Date of creation: Dec 2012
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Handle: RePEc:ecl:harjfk:rwp12-058

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  1. Timothy Besley & Torsten Persson, 2009. "The origins of state capacity: property rights, taxation and politics," LSE Research Online Documents on Economics 33768, London School of Economics and Political Science, LSE Library.
  2. Filipe R. Campante & Quoc-Anh Do, 2013. "Isolated Capital Cities, Accountability and Corruption: Evidence from US States," NBER Working Papers 19027, National Bureau of Economic Research, Inc.
  3. Acemoglu, Daron & Johnson, Simon & Robinson, James A., 2005. "Institutions as a Fundamental Cause of Long-Run Growth," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 6, pages 385-472 Elsevier.
  4. Quamrul Ashraf & Oded Galor & Omer Ozak, 2009. "Isolation and Development," Department of Economics Working Papers 2009-04, Department of Economics, Williams College.
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  6. Alberto Alesina & Sule Ozler & Nouriel Roubini & Phillip Swagel, 1992. "Political Instability and Economic Growth," NBER Working Papers 4173, National Bureau of Economic Research, Inc.
  7. Nunn, Nathan & Puga, Diego, 2007. "Ruggedness: The Blessing of Bad Geography in Africa," CEPR Discussion Papers 6253, C.E.P.R. Discussion Papers.
  8. Davis, James C. & Henderson, J. Vernon, 2003. "Evidence on the political economy of the urbanization process," Journal of Urban Economics, Elsevier, vol. 53(1), pages 98-125, January.
  9. Edward Glaeser & Giacomo Ponzetto & Andrei Shleifer, 2007. "Why does democracy need education?," Journal of Economic Growth, Springer, vol. 12(2), pages 77-99, June.
  10. Guimarães, Bernardo & Sheedy, Kevin D., 2012. "A Model of Equilibrium Institutions," CEPR Discussion Papers 8855, C.E.P.R. Discussion Papers.
  11. Filipe Campante & Edward L. Glaeser, 2009. "Yet Another Tale of Two Cities: Buenos Aires and Chicago," NBER Working Papers 15104, National Bureau of Economic Research, Inc.
  12. Qi Li & Jeffrey Scott Racine, 2006. "Nonparametric Econometrics: Theory and Practice," Economics Books, Princeton University Press, edition 1, volume 1, number 8355.
  13. Filipe R. Campante & Quoc-Anh Do, 2009. "A Centered Index of Spatial Concentration : Axiomatic Approach with an Application to Population and Capital Cities," Development Economics Working Papers 22059, East Asian Bureau of Economic Research.
  14. Kaufmann, Daniel & Kraay, Aart & Mastruzzi, Massimo, 2010. "The worldwide governance indicators : methodology and analytical issues," Policy Research Working Paper Series 5430, The World Bank.
  15. Daniel Kaufmann & Aart Kraay, 2002. "Growth without Governance," JOURNAL OF LACEA ECONOMIA, LACEA - LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION.
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Cited by:
  1. Campante, Filipe R. & Do, Quoc-Anh, 2012. "Isolated Capital Cities, Accountability and Corruption: Evidence from US States," Working Paper Series rwp12-016, Harvard University, John F. Kennedy School of Government.
  2. Filipe R Campante & Quoc-Anh Do, 2013. "Isolated Capital Cities, Accountability and Corruption Evidence from US States: Evidence from US States," Sciences Po Economics Discussion Papers 2013-01, Sciences Po Departement of Economics.
  3. Shaun Larcom & Mare Sarr & Tim Willems, 2014. "Dictators Walking the Mogadishu Line: How Men Become Monsters and Monsters Become Men," HiCN Working Papers 176, Households in Conflict Network.

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