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On the political economy of a backward region

  • Abhirup Sarkar
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    Purpose – The purpose of this paper is to develop a political economy model for a less developed region where a significantly large number of people belonging to the informal sector depend on political favours for their survival due to ill-defined property rights. The purpose is to show that in such a scenario, democracy and political competition might lead to economic stagnation. Design/methodology/approach – The arguments in the paper are represented in terms of a theoretical model. Findings – The central result is that the party with a better political organization will have the incentive to maximize the size of the informal sector, which will also maximize its probability of winning. In equilibrium this party choosing anti-development policies will have a higher probability to be in power. Thus universal franchise may lead to inefficiencies in such economies. These inefficiencies stem from ill-defined property rights in the informal sector. Originality/value – This paper is an original contribution to the class of political economy models of less developed countries.

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    File URL: http://www.emeraldinsight.com/journals.htm?issn=1753-8254&volume=3&issue=2&articleid=1886336&show=abstract
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    Article provided by Emerald Group Publishing in its journal Indian Growth and Development Review.

    Volume (Year): 3 (2010)
    Issue (Month): 2 ( October)
    Pages: 122-137

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    Handle: RePEc:eme:igdrpp:v:3:y:2010:i:2:p:122-137
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    1. Philip Keefer, 2005. "Democracy, Public Expenditures, and the Poor: Understanding Political Incentives for Providing Public Services," World Bank Research Observer, World Bank Group, vol. 20(1), pages 1-27.
    2. Torsten Persson & Guido Tabellini, 1999. "Political Economics and Public Finance," NBER Working Papers 7097, National Bureau of Economic Research, Inc.
    3. Torsten Persson & Guido Tabellini, . "Political Economics and Macroeconomic Policy," Working Papers 121, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    4. Rogoff, Kenneth, 1990. "Equilibrium Political Budget Cycles," American Economic Review, American Economic Association, vol. 80(1), pages 21-36, March.
    5. Daron Acemoglu & Simon Johnson & James A. Robinson, 2001. "The Colonial Origins of Comparative Development: An Empirical Investigation," American Economic Review, American Economic Association, vol. 91(5), pages 1369-1401, December.
    6. Nordhaus, William D, 1975. "The Political Business Cycle," Review of Economic Studies, Wiley Blackwell, vol. 42(2), pages 169-90, April.
    7. Gene Grossman & Elhanan Helpman, 1994. "Electoral Competition and Special Interest Politics," NBER Working Papers 4877, National Bureau of Economic Research, Inc.
    8. Keefer, Philip & Khemani, Stuti, 2003. "Democracy, public expenditures, and the poor," Policy Research Working Paper Series 3164, The World Bank.
    9. Barro, Robert J, 1996. " Democracy and Growth," Journal of Economic Growth, Springer, vol. 1(1), pages 1-27, March.
    10. Meltzer, Allan H & Richard, Scott F, 1981. "A Rational Theory of the Size of Government," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 914-27, October.
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