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An Economic Theory of Foreign Interventions and Regime Change

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  • Roberto Bonfatti

Abstract

I construct a theory of foreign interventions in which the political preferences of the foreign country are determined by its different economic ties with alternative local groups.� Stronger economic ties make a group more influenceable from the outside, and thus more willing to grant economic and geopolitical concessions to the foreign country.� In the model, foreign interventions in favor of the most influenceable group are counterweighted by a natural tendency of the home country's political system to bring to power the least influenceable group.� While the foreign country can use its economic power to influence the geopolitical alignment of the home country, the outcome of this endeavor may be compromised by regime change.� In particular, when concessions to the foreign country cannot be renegotiated efficiently (possibly because of reputational concerns in the foreign country), regime change may lead to a loss of geopolitical alignment, even if all groups are ex-ante identical in terms of their geopolitical preferences.� These results may help interpret the pattern of Western interventions in the 20th century, as well as the role of economic nationalism in the political economy of regime change.� In particular, they may help understand the role of the Cold War in strengthening the West's preference for the status quo in many countries.� I provide historical evidence in favor of my arguments.

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Bibliographic Info

Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number 549.

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Date of creation: 01 Apr 2011
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Handle: RePEc:oxf:wpaper:549

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Keywords: Regime change; Foreign interventions; Economic power; Economic nationalism; Cold War; Latin America;

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  1. Ticchi, Davide & Vindigni, Andrea, 2007. "War and endogenous democracy," POLIS Working Papers 97, Institute of Public Policy and Public Choice - POLIS.
  2. William Easterly & Shanker Satyanath & Daniel Berger, 2008. "Superpower Interventions and their Consequences for Democracy: An Empirical Inquiry," NBER Working Papers 13992, National Bureau of Economic Research, Inc.
  3. Kreps, David M & Wilson, Robert, 1982. "Sequential Equilibria," Econometrica, Econometric Society, vol. 50(4), pages 863-94, July.
  4. 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.
  5. Berger, Daniel & Easterly, William & Nunn, Nathan & Satyanath, Shanker, 2013. "Commercial Imperialism? Political Influence and Trade during the Cold War," Scholarly Articles 11986334, Harvard University Department of Economics.
  6. Arindrajit Dube & Ethan Kaplan & Suresh Naidu, 2011. "Coups, Corporations, and Classified Information," The Quarterly Journal of Economics, Oxford University Press, vol. 126(3), pages 1375-1409.
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Cited by:
  1. Aidt, Toke & Albornoz, Facundo & Gassebner, Martin, 2010. "The Golden Halo and Political Transitions," Proceedings of the German Development Economics Conference, Hannover 2010 48, Verein für Socialpolitik, Research Committee Development Economics.
  2. Toke Aidt & Uk Hwang, 2014. "To Ban or Not to Ban: Foreign Lobbying and Cross National Externalities," Cambridge Working Papers in Economics 1402, Faculty of Economics, University of Cambridge.

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