IDEAS home Printed from https://ideas.repec.org/p/hol/holodi/9808.html
   My bibliography  Save this paper

Political Instability, Foreign Investment and Growth in Proprietary Economies

Author

Abstract

Developing country leaders typically resemble proprietors more than benevolent social planners, i.e., they are powerful individuals pursuing their own interests while they remain in power. We model growth in a "proprietary economy" facing each period an endogenous probability of "political catastrophe" that would hurt foreign investors and extinguish the proprietor's wealth extraction ability. We provide theory in which domestic capital exhibits a bifurcation point determining economic growth or shrinkage. With low initial domestic capital the proprietor plunders the country's resources and the economy shrinks, even when shrinkage is not socially optimal. With high initial domestic capital the economy grows faster than is socially optimal.

Suggested Citation

  • Jody Overland & Michael Spagat, 1998. "Political Instability, Foreign Investment and Growth in Proprietary Economies," Royal Holloway, University of London: Discussion Papers in Economics 98/8, Department of Economics, Royal Holloway University of London, revised 17 Feb 1998.
  • Handle: RePEc:hol:holodi:9808
    as

    Download full text from publisher

    File URL: http://www.rhul.ac.uk/economics/Research/WorkingPapers/pdf/dpe9808.pdf
    Download Restriction: no

    More about this item

    Keywords

    Political Economiy; Growth; proprietary Economy; Bifurcation; and Political Catastrophe;

    JEL classification:

    • D9 - Microeconomics - - Micro-Based Behavioral Economics
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • H - Public Economics

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hol:holodi:9808. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Claire Blackman). General contact details of provider: http://www.rhul.ac.uk/economics/ .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.