Extractive Institutions, Closed Borders and Economic Development
49 Pages Posted: 10 Jan 2015
Date Written: May 7, 2014
Autocratic regimes often limit access to information concerning the outside world, to prevent their citizenry from learning about the comparatively poor performance of their economy. In this paper, we analyze the use of censorship, and consider it as an information asymmetry problem, in the context of an augmented Solow growth model. We find that higher technological backwardness, lower quality of domestic institutions, low level of income inequality and low costs of collecting information about foreign economies lead to more restrictive and comprehensive censorship. These findings are consistent with stories of socialist dictatorships, as the Soviet Union or North Korea, where very restrictive forms of censorship, as political isolationism, were/are used. We also explain why these forms of censorship are less popular now. We argue that isolationism reduces opportunities for adoption of technologies, which results in underdevelopment, higher vulnerability to negative shocks, and potentially higher political turbulence. To avoid these outcomes, a political regime can prefer not to implement the most strict forms of censorship. This finding is in line with censorship policy which is applied in nowadays China.
Keywords: Isolationism, Institutions, Economic Growth
JEL Classification: O11, P26
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