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Why doesn't Capitalism flow to Poor Countries?

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  • Rafael Di Tella

    (Harvard Business School)

  • Robert MacCulloch

    (Princeton University)

Abstract

We find evidence consistent with the hypothesis that governments in poor countries have a more left wing rhetoric than those in OECD countries. A possible explanation is that corruption, which is more widespread in poor countries, reduces the electoral appeal of capitalism more than that of socialism. The empirical pattern of beliefs within countries is consistent with this explanation: people who perceive corruption to be high in the country are also more likely to lean left ideologically and to declare to support a more intrusive government in economic matters. Finally, we show that the corruption-left connection can be explained if corruption is seen as unfair behavior on the part of capitalists. Voters then react by moving left, even if this is materially costly to them. There is a negative ideological externality since the existence of corrupt entrepreneurs hurts good entrepreneurs by reducing the general appeal of capitalism.

Suggested Citation

  • Rafael Di Tella & Robert MacCulloch, 2004. "Why doesn't Capitalism flow to Poor Countries?," Others 0404005, EconWPA.
  • Handle: RePEc:wpa:wuwpot:0404005 Note: Type of Document - pdf; pages: 42
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    Cited by:

    1. Ugo Panizza & Mónica Yañez, 2005. "Why are Latin Americans so unhappy about reforms?," Journal of Applied Economics, Universidad del CEMA, vol. 8, pages 1-29, May.
    2. Alberto Chong & Mark Gradstein, 2006. "Redistributional Preferences and Imposed Institutions," Research Department Publications 4482, Inter-American Development Bank, Research Department.
    3. Dimitrova-Grajzl, Valentina & Grajzl, Peter & Guse, A. Joseph, 2012. "Trust, perceptions of corruption, and demand for regulation: Evidence from post-socialist countries," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 41(3), pages 292-303.
    4. Deepa Narayan & Lant Pritchett & Soumya Kapoor, 2009. "Moving Out of Poverty : Volume 2. Success from the Bottom Up," World Bank Publications, The World Bank, number 11838.
    5. Alesina, Alberto & Angeletos, George-Marios, 2005. "Corruption, inequality, and fairness," Journal of Monetary Economics, Elsevier, vol. 52(7), pages 1227-1244, October.
    6. Alberto Chong & Mark Gradstein, 2008. "Who Needs Strong Leaders?," Research Department Publications 4563, Inter-American Development Bank, Research Department.
    7. Di Tella, Rafael & Dubra, Juan, 2008. "Crime and punishment in the "American Dream"," Journal of Public Economics, Elsevier, vol. 92(7), pages 1564-1584, July.
    8. Gustavo Federico Torrens, 2008. "The economic value of ideology," CEMA Working Papers: Serie Documentos de Trabajo. 378, Universidad del CEMA.
    9. Perez Truglia, Ricardo Nicolas, 2007. "Conspicuous consumption in the land of Prince Charming," MPRA Paper 22009, University Library of Munich, Germany, revised 22 Mar 2010.
    10. Bonnet, Céline & Dubois, Pierre & Martimort, David & Straub, Stéphane, 2009. "Empirical Evidence on Satisfaction with Privatization in Latin America: Welfare Effects and Beliefs," IDEI Working Papers 566, Institut d'Économie Industrielle (IDEI), Toulouse.
    11. Smyth, Russell & Qian, Joanne Xiaolei, 2009. "Corruption and left-wing beliefs in a post-socialist transition economy: Evidence from China's 'harmonious society'," Economics Letters, Elsevier, vol. 102(1), pages 42-44, January.
    12. Eduardo Lora & Mauricio Olivera, 2005. "The Electoral Consequences of the Washington Consensus," ECONOMIA JOURNAL OF THE LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION, ECONOMIA JOURNAL OF THE LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION, vol. 0(Spring 20), pages 1-61, January.
    13. Santiago Urbiztondo & Marcela Cristini & Cynthia Moskovits & Sebastián Saiegh, 2009. "The Political Economy of Productivity in Argentina: Interpretation and Illustration," IDB Publications (Working Papers) 1119, Inter-American Development Bank.
    14. Rafael Di Tella & Juan Dubra & Robert MacCulloch, 2008. "A Resource Belief-Curse? Oil and Individualism," NBER Working Papers 14556, National Bureau of Economic Research, Inc.
    15. Alberto Chong & Mark Gradstein, 2008. "¿A quién le hacen falta líderes autoritarios?," Research Department Publications 4564, Inter-American Development Bank, Research Department.
    16. Rafael Di Tella & Robert MacCulloch, 2007. "Happiness, Contentment and Other Emotions for Central Banks," NBER Working Papers 13622, National Bureau of Economic Research, Inc.
    17. Francisco J. Buera & Alexander Monge‐Naranjo & Giorgio E. Primiceri, 2011. "Learning the Wealth of Nations," Econometrica, Econometric Society, vol. 79(1), pages 1-45, January.
    18. Michael Mitsopoulos and Theodore Pelagidis, 2009. "Vikings in Greece: Kleptocratic Interest Groups in a Closed, Rent-Seeking Economy," Cato Journal, Cato Journal, Cato Institute, vol. 29(3), pages 399-416, Fall.
    19. Eduardo Lora & Mauricio Olivera, 2005. "Repercusiones electorales del Consenso de Washington," Research Department Publications 4406, Inter-American Development Bank, Research Department.
    20. Thomas Moutos & Lambros Pechlivanos, 2013. "The Democratization of Rent Seeking in Greece," CESifo Working Paper Series 4331, CESifo Group Munich.
    21. Di Tella, Rafael & Galiani, Sebastian & Schargrodsky, Ernesto, 2012. "Reality versus propaganda in the formation of beliefs about privatization," Journal of Public Economics, Elsevier, pages 553-567.
    22. Chong, Alberto & Gradstein, Mark, 2006. "Imposed Institutions and Preferences for Redistribution," CEPR Discussion Papers 5922, C.E.P.R. Discussion Papers.
    23. repec:elg:eechap:15325_24 is not listed on IDEAS

    More about this item

    Keywords

    beliefs; corruption; fairness; legitimacy; ideological externality.;

    JEL classification:

    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
    • D6 - Microeconomics - - Welfare Economics
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • P16 - Economic Systems - - Capitalist Systems - - - Political Economy of Capitalism

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