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Isolated Capital Cities and Misgovernance: Theory and Evidence

  • Filipe R. Campante

    (Harvard University)

  • Quoc-Anh Do

    (Département d'économie)

  • Bernardo Guimaraes

    (Sao Paulo School of Economics)

Motivated by a novel stylized fact - countries with isolated capital cities display worse quality of governance - we provide a framework of endogenous institutional choice based on the idea that elites are constrained by the threat of rebellion, and that this threat is rendered less elective by distance from the seat of political power. In established democracies, the threat of insurgencies is not a binding constraint, and the model predicts no correlation between isolated capitals and misgovernance. In contrast, a correlation emerges in equilibrium in the case of autocracies. Causality runs both ways: broader power sharing (associated with better governance) means that any rents have to be shared more broadly, hence the elite has less of an incentive to protect its position by isolating the capital city; conversely, a more isolated capital city allows the elite to appropriate a larger share of output, so the costs of better governance for the elite, in terms of rents that would have to be shared, are larger. We show evidence that this pattern holds true robustly in the data. We also show that isolated capitals are associated with less power sharing, a larger income premium enjoyed by capital city inhabitants, and lower levels of military spending by ruling elites, as predicted by the theory.

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Paper provided by Sciences Po in its series Sciences Po publications with number 10.

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Date of creation: Mar 2013
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Handle: RePEc:spo:wpmain:info:hdl:2441/4eh5eurum690ur8datvh2sb4g9
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  1. Campante, Filipe Robin & Do, Quoc-Anh, 2014. "Isolated Capital Cities, Accountability and Corruption: Evidence from US States," Scholarly Articles 8830780, Harvard Kennedy School of Government.
  2. Roubini, Nouriel & Swagel, Phillip & Ozler, Sule & Alesina, Alberto, 1996. "Political Instability and Economic Growth," Scholarly Articles 4553024, Harvard University Department of Economics.
  3. Quamrul Ashraf & Oded Galor & Ömer Özak, 2010. "Isolation and Development," Journal of the European Economic Association, MIT Press, vol. 8(2-3), pages 401-412, 04-05.
  4. Campante, Filipe Robin & Do, Quoc-Anh, 2009. "A Centered Index of Spatial Concentration: Axiomatic Approach with an Application to Population and Capital Cities," Scholarly Articles 4481653, Harvard Kennedy School of Government.
  5. Timothy Besley & Torsten Persson, 2007. "The Origins of State Capacity: Property Rights, Taxation, and Politics," NBER Working Papers 13028, National Bureau of Economic Research, Inc.
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  11. Acemoglu, Daron & Johnson, Simon & Robinson, James A., 2005. "Institutions as a Fundamental Cause of Long-Run Growth," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 6, pages 385-472 Elsevier.
  12. Edward Glaeser & Giacomo Ponzetto & Andrei Shleifer, 2006. "Why Does Democracy Need Education?," NBER Working Papers 12128, National Bureau of Economic Research, Inc.
  13. Alesina, Alberto, et al, 1996. " Political Instability and Economic Growth," Journal of Economic Growth, Springer, vol. 1(2), pages 189-211, June.
  14. Qi Li & Jeffrey Scott Racine, 2006. "Nonparametric Econometrics: Theory and Practice," Economics Books, Princeton University Press, edition 1, volume 1, number 8355.
  15. Filipe Campante & Edward L. Glaeser, 2009. "Yet Another Tale of Two Cities: Buenos Aires and Chicago," NBER Working Papers 15104, National Bureau of Economic Research, Inc.
  16. Kaufmann, Daniel & Kraay, Aart & Mastruzzi, Massimo, 2010. "The worldwide governance indicators : methodology and analytical issues," Policy Research Working Paper Series 5430, The World Bank.
  17. Davis, James C. & Henderson, J. Vernon, 2003. "Evidence on the political economy of the urbanization process," Journal of Urban Economics, Elsevier, vol. 53(1), pages 98-125, January.
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