Investment without Democracy: Ruling-Party Institutionalization and Credible Commitment in Autocracies

29 Pages Posted: 3 Jan 2008 Last revised: 28 Oct 2009

See all articles by Scott Gehlbach

Scott Gehlbach

University of Wisconsin-Madison

Philip Keefer

Inter-American Development Bank

Date Written: October 26, 2009

Abstract

What explains private investment in autocracies, where institutions that discourage expropriation in democracies are absent? We argue that institutionalized ruling parties allow autocrats to make credible commitments to investors. Such parties promote investment by solving collective-action problems among a designated elite, who invest with the expectation that the autocrat will not attempt their expropriation. We derive conditions under which autocrats want to create such parties, and predict that private investment and governance will be stronger in their presence. We illustrate the model by examining the institutionalization of the Chinese Communist Party.

Keywords: investment, dictatorship, ruling parties, credible commitment

JEL Classification: O17, P16, P26

Suggested Citation

Gehlbach, Scott and Keefer, Philip, Investment without Democracy: Ruling-Party Institutionalization and Credible Commitment in Autocracies (October 26, 2009). Available at SSRN: https://ssrn.com/abstract=1080169 or http://dx.doi.org/10.2139/ssrn.1080169

Scott Gehlbach (Contact Author)

University of Wisconsin-Madison ( email )

1050 Bascom Mall
Madison, WI 53706
United States
608-263-2391 (Phone)

Philip Keefer

Inter-American Development Bank ( email )

1300 New York Ave., NW
Washington, DC 20577
United States
202-623-1961 (Phone)

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