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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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Bibliographic Info

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. Quamrul Ashraf & Oded Galor & Omer Ozak, 2009. "Isolation and Development," Department of Economics Working Papers 2009-04, Department of Economics, Williams College.
  2. Bernardo Guimaraes & Kevin D. Sheedy, 2012. "A model of equilibrium institutions," LSE Research Online Documents on Economics 42017, London School of Economics and Political Science, LSE Library.
  3. Kaufmann, Daniel & Kraay, Aart, 2002. "Growth without governance," Policy Research Working Paper Series 2928, The World Bank.
  4. Filipe R. Campante & Quoc-Anh Do, 2012. "Isolated Capital Cities, Accountability and Corruption: Evidence from US States," Working Papers 21-2012, Singapore Management University, School of Economics.
  5. Filipe R. Campante & Quoc-Anh Do, 2009. "A Centered Index of Spatial Concentration: Axiomatic Approach with an Application to Population and Capital Cities," Working Papers 02-2009, Singapore Management University, School of Economics.
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Cited by:
  1. Quoc-Anh Do & Filipe R. Campante, 2013. "Isolated Capital Cities, Accountability and Corruption: Evidence from US States," Sciences Po publications 12, Sciences Po.
  2. Filipe R Campante & Quoc-Anh Do, 2013. "Isolated Capital Cities, Accountability and Corruption Evidence from US States: Evidence from US States," Sciences Po publications 2013-01, Sciences Po.
  3. Tim Willems & Shaun Larcom & Mare Sarr, 2014. "Dictators Walking the Mogadishu Line: How Men Become Monsters and Monsters Become Men," Economics Series Working Papers 701, University of Oxford, Department of Economics.

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