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An Economic Theory of Political Institutions: Foreign Intervention and Overseas Investments

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  • Toke A. Aidt
  • Facundo Albornoz

Abstract

The recent literature on endogenous political institutions highlights domestic economic factors, such as recessions, economic growth and inequality, as key determinants of political transitions. We argue that international capital flows and the possibility that foreign governments, in order to protect specific economic interests, might seek influence on the regime choice in other countries are important, yet overlooked, additional determinants of political institutions. Building on Acemoglu and Robinson (2001), we develop a theory of political transitions in economies with access to international capital markets and show that the possibility of foreign intervention significantly affects regime dynamics and the set of sustainable political regimes

Suggested Citation

  • Toke A. Aidt & Facundo Albornoz, 2007. "An Economic Theory of Political Institutions: Foreign Intervention and Overseas Investments," Discussion Papers 07-03, Department of Economics, University of Birmingham.
    • Handle: RePEc:bir:birmec:07-03
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    References listed on IDEAS

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    1. Philipp Harms & Heinrich W. Ursprung, 2002. "Do Civil and Political Repression Really Boost Foreign Direct Investments?," Economic Inquiry, Western Economic Association International, vol. 40(4), pages 651-663, October.
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    3. Bourguignon, Francois & Verdier, Thierry, 2000. "Oligarchy, democracy, inequality and growth," Journal of Development Economics, Elsevier, vol. 62(2), pages 285-313, August.
    4. Justman, Moshe & Gradstein, Mark, 1999. "The Industrial Revolution, Political Transition, and the Subsequent Decline in Inequality in 19th-Century Britain," Explorations in Economic History, Elsevier, vol. 36(2), pages 109-127, April.
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    6. John P. Conley & Akram Temimi, 2001. "Endogenous Enfranchisement When Groups' Preferences Conflict," Journal of Political Economy, University of Chicago Press, vol. 109(1), pages 79-102, February.
    7. repec:cup:apsrev:v:53:y:1959:i:01:p:69-105_00 is not listed on IDEAS
    8. Aidt, Toke S. & Magris, Francesco, 2006. "Capital taxation and electoral accountability," European Journal of Political Economy, Elsevier, vol. 22(2), pages 277-291, June.
    9. 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, President and Fellows of Harvard College, vol. 119(2), pages 707-765.
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    Cited by:

    1. Aidt, Toke S. & Albornoz, Facundo, 2011. "Political regimes and foreign intervention," Journal of Development Economics, Elsevier, vol. 94(2), pages 192-201, March.

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    More about this item

    Keywords

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    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances; Revolutions
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
    • P16 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Capitalist Institutions; Welfare State

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