Political Growth Collapses

We argue that economic collapses can result from the adoption by political actors of strategies that generate severe negative economic externalities for society. We establish the conditions for political conflict to become economically destructive and develop a diagnostics toolkit to identify when income declines are consequence of the breakdown of conflict-management arrangements. When political conflict drives a collapse in growth, we expect the onset of the contraction to coincide with the intensification of political conflict, authority to be truly contested, politically advantageous strategies to generate negative externalities, economic collapse to be driven by productivity losses, short-term biases in policies to increase with contestation of power, and the policy framework to improve once political conflict recedes. We argue that all these conditions were satisfied in two of the largest peacetime collapses in modern history: Venezuela (2012-2020) and Zimbabwe (1997-2008).