Political Instability and Growth in Proprietary Economics
AbstractDeveloping country leaders typically resemble proprietors more than benevolent social planners, i.e., they are powerful individuals pursuing their own interests while they remain in power. We model growth in a 'proprietary economy" facing each period an endogenous probability of 'political catastrophe" that would hurt foreign investors and extinguish the proprietor's wealth extraction ability. We develop a model in which domestic capital exhibits a bifurcation point determining economic growth or shrink,9,ge. With low initial domestic capital the proprietor plunders the country's resources and the economy shrinks, even when shrinkage is not socially optimal. With high initial domestic capital the economy grows faster than is socially optimal.
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Bibliographic InfoPaper provided by William Davidson Institute at the University of Michigan in its series William Davidson Institute Working Papers Series with number 172.
Date of creation: 01 Aug 1998
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political economy; growth; propreitary economy; bifurcation; and political catastrophe;
Find related papers by JEL classification:
- D9 - Microeconomics - - Intertemporal Choice and Growth
- O1 - Economic Development, Technological Change, and Growth - - Economic Development
- H - Public Economics
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