Industrialization under monopoly

Theocharis Grigoriadis

No 2026/15, Discussion Papers from Free University Berlin, School of Business & Economics

Abstract: Why does industrialization in some cases generate social consolidation and in other cases political conflict? This paper argues that the answer depends on how industrial finance is allocated. I develop a dynamic political-economy model in which the government channels external liquidity into industry under either centralized or decentralized finance. Under decentralization, adverse shocks harden budget constraints and permit replacement of inefficient incumbents by new entrepreneurs. Under centralization, by contrast, the government is more likely to refinance inefficient incumbents, soften budget constraints, and block entry. Industrialization then generates concentrated rents and a higher risk of conflict. I interpret late imperial Russia as a historically revealing case of this mechanism. Rather than treating Russia as the sole object of interest, the paper uses it to motivate a general theory of industrialization under monopoly.

Keywords: industrialization; soft budget constraints; centralized finance; incumbent protection; political conflict (search for similar items in EconPapers)
Date: 2026
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:fubsbe:342461

DOI: 10.17169/refubium-52115

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