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World Price Shocks, Income, and Democratization

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  • Benjamin Zissimos

Abstract

This paper shows how a world price shock can increase the likelihood that democratization must be used to resolve the threat of revolution. Initially, a ruling elite may be able to use trade policy to maintain political stability. But a world price shock can push the country into a situation where the elite face a commitment problem that only democratization can resolve. Because the world price shock may also reduce average incomes, the model provides a way to understand why the level of national income per capita and democracy may not be positively correlated. The model is also useful for understanding dictatorial regimes’ rebuttal of World Bank calls to keep their export markets open in the face of the 2007-08 world food crisis.

Suggested Citation

  • Benjamin Zissimos, 2015. "World Price Shocks, Income, and Democratization," CESifo Working Paper Series 5228, CESifo Group Munich.
  • Handle: RePEc:ces:ceswps:_5228
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    File URL: http://www.cesifo-group.de/DocDL/cesifo1_wp5228.pdf
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    References listed on IDEAS

    as
    1. Zissimos, Ben, 2017. "A theory of trade policy under dictatorship and democratization," Journal of International Economics, Elsevier, vol. 109(C), pages 85-101.
    2. Acemoglu,Daron & Robinson,James A., 2009. "Economic Origins of Dictatorship and Democracy," Cambridge Books, Cambridge University Press, number 9780521671422.
    3. repec:ucp:bkecon:9780226731445 is not listed on IDEAS
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    More about this item

    Keywords

    democracy; institutions; price shocks; social conflict; trade policy;

    JEL classification:

    • D30 - Microeconomics - - Distribution - - - General
    • D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances; Revolutions
    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • P16 - Economic Systems - - Capitalist Systems - - - Political Economy of Capitalism

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