Political Predation and Economic Development

49 Pages Posted: 29 Mar 2005

See all articles by Bruno Biais

Bruno Biais

Centre for Economic Policy Research (CEPR)

Robert Bates

Harvard University - Department of Government

Jean-Paul Azam

University of Toulouse I - Advanced Research in Quantitative Applied Development Economics (ARQADE)

Multiple version iconThere are 3 versions of this paper

Date Written: March 2005

Abstract

Economic growth occurs as resources are reallocated from the traditional sector to the more productive modern sector. Yet, the latter is more vulnerable to political predation. Hence, political risk hinders development. We analyze a politico-economic game between citizens and governments, whose type (benevolent or predatory) is unknown to the citizens. In equilibrium, opportunistic governments mix between predation and restraint. As long as restraint is observed, political expectations improve and the economy grows. Once there is predation, the reputation of the current government is ruined and the economy collapses. If citizens are unable to overthrow this government, the collapse is durable. Otherwise, a new government is drawn and the economy can rebound. Equilibrium dynamics are characterized as a Markov chain. Consistent with stylized facts, equilibrium political and economic histories are random, unstable and exhibit long-term divergence. Our theoretical model also generates new empirical implications on the joint dynamics of income inequality, output and political variables.

Keywords: political risk, economic development, two-sector economy, growth paths, markov chain, reputation

JEL Classification: D72, D82, O14, O17, O41, O55, O57

Suggested Citation

Biais, Bruno and Bates, Robert and Azam, Jean-Paul, Political Predation and Economic Development (March 2005). Available at SSRN: https://ssrn.com/abstract=683881 or http://dx.doi.org/10.2139/ssrn.683881

Bruno Biais (Contact Author)

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Robert Bates

Harvard University - Department of Government ( email )

1737 Cambridge Street
Cambridge, MA 02138
United States
617-496-0919 (Phone)
617-496-6849 (Fax)

Jean-Paul Azam

University of Toulouse I - Advanced Research in Quantitative Applied Development Economics (ARQADE) ( email )

21 Allee de Brienne
Toulouse, 31000
France

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