Isolated Capital Cities and Misgovernance: Theory and Evidence

Filipe Campante, Quoc-Anh Do and Bernardo Guimaraes

No 19028, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: D02 D74 D78 R12 (search for similar items in EconPapers)
Date: 2013-05
New Economics Papers: this item is included in nep-pol and nep-ure
Note: POL
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Citations: View citations in EconPapers (10)

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Related works:
Working Paper: Isolated Capital Cities and Misgovernance: Theory and Evidence (2013)
Working Paper: Isolated capital cities and misgovernance: theory and evidence (2013)
Working Paper: Isolated Capital Cities and Misgovernance: Theory and Evidence (2013)
Working Paper: Isolated Capital Cities and Misgovernance: Theory and Evidence (2013)
Working Paper: Isolated Capital Cities and Misgovernance: Theory and Evidence (2012)
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