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Interstate Competition and Political Stability

  • Hugh-Jones, David

    (University of Warwick)

Previous theories of globalization have examined factor mobility’s effect on the political conflict between social classes. But factor mobility also increases competition between state rulers in providing services for citizens. I ask how this interstate competition affects the process of political change. In a simple model, interstate competition substitutes for democracy, by forcing rulers to invest in public goods so as to avoid capital and labor leaving the country. As a result, citizens are less willing to struggle for democracy, and rulers are less willing to oppose it, when interstate competition is strong. Therefore, there is less conflict over the level of democracy. The theory is tested on a post-war panel of countries, using neighboring countries’ financial openness as a proxy for factor mobility. As the theory predicts, states experience fewer changes in their level of democracy when their neighbors are financially open.

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Paper provided by Competitive Advantage in the Global Economy (CAGE) in its series CAGE Online Working Paper Series with number 26.

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Date of creation: 2010
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Handle: RePEc:cge:wacage:26
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Web page: http://www2.warwick.ac.uk/fac/soc/economics/research/centres/cage/

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  1. Jonathan Eaton & Mark Gersovitz, 1982. "A Theory of Expropriation and Deviations From Perfect Capital Mobility," NBER Working Papers 0972, National Bureau of Economic Research, Inc.
  2. Bruce Blonigen, 2005. "A Review of the Empirical Literature on FDI Determinants," Atlantic Economic Journal, International Atlantic Economic Society, vol. 33(4), pages 383-403, December.
  3. Benjamin F. Jones & Benjamin A. Olken, 2005. "Do Leaders Matter? National Leadership and Growth Since World War II," The Quarterly Journal of Economics, MIT Press, vol. 120(3), pages 835-864, August.
  4. Mancur Olson, 1996. "Distinguished Lecture on Economics in Government: Big Bills Left on the Sidewalk: Why Some Nations Are Rich, and Others Poor," Journal of Economic Perspectives, American Economic Association, vol. 10(2), pages 3-24, Spring.
  5. Bewley, Truman F, 1981. "A Critique of Tiebout's Theory of Local Public Expenditures," Econometrica, Econometric Society, vol. 49(3), pages 713-40, May.
  6. Jeffrey M Wooldridge, 2002. "Simple solutions to the initial conditions problem in dynamic, nonlinear panel data models with unobserved heterogeneity," CeMMAP working papers CWP18/02, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
  7. Westhoff, Frank, 1977. "Existence of equilibria in economies with a local public good," Journal of Economic Theory, Elsevier, vol. 14(1), pages 84-112, February.
  8. repec:cup:cbooks:9780521855266 is not listed on IDEAS
  9. Charles M. Tiebout, 1956. "A Pure Theory of Local Expenditures," Journal of Political Economy, University of Chicago Press, vol. 64, pages 416.
  10. Tavares, Jose & Wacziarg, Romain, 2001. "How democracy affects growth," European Economic Review, Elsevier, vol. 45(8), pages 1341-1378, August.
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