Political Instability and Growth in Proprietary Economics

Jody Overland () and Michael Spaget

No 172, William Davidson Institute Working Papers Series from William Davidson Institute at the University of Michigan

Abstract: Developing country leaders typically resemble proprietors more than benevolent social planners, i.e., they are powerful individuals pursuing their own interests while they remain in power. We model growth in a 'proprietary economy" facing each period an endogenous probability of 'political catastrophe" that would hurt foreign investors and extinguish the proprietor's wealth extraction ability. We develop a model in which domestic capital exhibits a bifurcation point determining economic growth or shrink,9,ge. With low initial domestic capital the proprietor plunders the country's resources and the economy shrinks, even when shrinkage is not socially optimal. With high initial domestic capital the economy grows faster than is socially optimal.

Keywords: political economy; growth; propreitary economy; bifurcation; and political catastrophe (search for similar items in EconPapers)
JEL-codes: D9 H O1 (search for similar items in EconPapers)
Pages: pages
Date: 1998-08-01
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