Political Predation and Economic Development

52 Pages Posted: 3 Aug 2005

See all articles by Jean-Paul Azam

Jean-Paul Azam

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

Robert Bates

Harvard University - Department of Government

Bruno Biais

Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 3 versions of this paper

Date Written: May 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 economy, political predation, reputation, economic development

JEL Classification: D82, H11, O00, O17

Suggested Citation

Azam, Jean-Paul and Bates, Robert and Biais, Bruno, Political Predation and Economic Development (May 2005). CEPR Discussion Paper No. 5062. Available at SSRN: https://ssrn.com/abstract=775904

Jean-Paul Azam

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

21 Allee de Brienne
Toulouse, 31000
France

Robert Bates

Harvard University - Department of Government ( email )

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

Bruno Biais (Contact Author)

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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