Political Predation and Economic Development

Bruno Biais, Jean-Paul Azam () and Robert Bates

No 5062, CEPR Discussion Papers from Centre for Economic Policy Research

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 analyse 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; Reputation; Economic development; Political predation (search for similar items in EconPapers)
JEL-codes: D82 H11 O0 O17 (search for similar items in EconPapers)
Date: 2005-05
New Economics Papers: this item is included in nep-dev, nep-pbe and nep-pol
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Related works:
Journal Article: POLITICAL PREDATION AND ECONOMIC DEVELOPMENT (2009)
Working Paper: Political Predation and Economic Development (2009)
Working Paper: Political Predation and Economic Development (2009)
Working Paper: Political Predation and Economic Development (2009)
Working Paper: Political Predation and Economic Development (2009)
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