Isolated Capital Cities and Misgovernance: Theory and Evidence

56 Pages Posted: 1 Feb 2013

See all articles by Filipe R. Campante

Filipe R. Campante

Harvard University - Harvard Kennedy School (HKS)

Quoc-Anh Do

Sciences Po - Department of Economics; Centre for Economic Policy Research (CEPR)

Bernardo Guimarães

London School of Economics & Political Science (LSE) - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: January 2013

Abstract

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 effective 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.

Keywords: Capital Cities, Democracy, Governance, Institutions, Insurgencies, Population Concentration, Power sharing

JEL Classification: D02, D74, R12

Suggested Citation

Campante, Filipe R. and Do, Quoc-Anh and Guimarães, Bernardo, Isolated Capital Cities and Misgovernance: Theory and Evidence (January 2013). CEPR Discussion Paper No. DP9284, Available at SSRN: https://ssrn.com/abstract=2210254

Filipe R. Campante (Contact Author)

Harvard University - Harvard Kennedy School (HKS) ( email )

79 John F. Kennedy Street
Cambridge, MA 02138
United States
617-384-7958 (Phone)

Quoc-Anh Do

Sciences Po - Department of Economics ( email )

28 rue des Saints-Pères
Paris, 75007
France

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Bernardo Guimarães

London School of Economics & Political Science (LSE) - Department of Economics ( email )

Houghton Street
London WC2A 2AE
United Kingdom
+44 (0)20 7955 7502 (Phone)

HOME PAGE: http://personal.lse.ac.uk/guimarae

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