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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 preferences of the foreign country over alternative local groups are determined by each group's international economic ties. In equilibrium, the foreign country supports the group with which it has the strongest ties, since this is most influenceable from the outside. However this is counterweighted by the tendency of the domestic political system to favour the least influenceable group. I allow for a non-economic dimension of policy (geopolitics), and study how the saliency of this dimension may play in favor of the incumbent group. My results help interpret the economic rationale for many Western interventions in developing countries in the 20th century, and the role of economic nationalism in motivating the struggle for regime change. Furthermore, they help explain why the Cold War strengthened the West's preference for specific local groups. I provide detailed historical evidence in favor of my arguments.

Suggested Citation

  • Roberto Bonfatti, 2011. "An Economic Theory of Foreign Interventions and Regime Change," CESifo Working Paper Series 3475, CESifo.
    • Handle: RePEc:ces:ceswps:_3475
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    References listed on IDEAS

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    1. Kreps, David M & Wilson, Robert, 1982. "Sequential Equilibria," Econometrica, Econometric Society, vol. 50(4), pages 863-894, July.
    2. 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.
    3. Masahiro Endoh, 2012. "Cross-border political donations and Pareto-efficient tariffs," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 21(4), pages 493-512, July.
    4. Ticchi, Davide & Vindigni, Andrea, 2007. "War and endogenous democracy," POLIS Working Papers 97, Institute of Public Policy and Public Choice - POLIS.
    5. Daniel Berger & William Easterly & Nathan Nunn & Shanker Satyanath, 2013. "Commercial Imperialism? Political Influence and Trade during the Cold War," American Economic Review, American Economic Association, vol. 103(2), pages 863-896, April.
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    Cited by:

    1. Aidt, Toke S. & Albornoz, Facundo & Gassebner, Martin, 2018. "The golden hello and political transitions," Journal of Comparative Economics, Elsevier, vol. 46(1), pages 157-173.
    2. Garcia-Alonso, Maria D.C. & Levine, Paul & Smith, Ron, 2016. "Military aid, direct intervention and counterterrorism," European Journal of Political Economy, Elsevier, vol. 44(C), pages 112-135.

    More about this item

    Keywords

    regime change; foreign interventions; economic power; economic nationalism; Cold War; Latin America;

    JEL classification:

    • D70 - Microeconomics - - Analysis of Collective Decision-Making - - - General
    • F10 - International Economics - - Trade - - - General
    • F50 - International Economics - - International Relations, National Security, and International Political Economy - - - General
    • N40 - Economic History - - Government, War, Law, International Relations, and Regulation - - - General, International, or Comparative

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