nep-pol New Economics Papers
on Positive Political Economics
Issue of 2007‒06‒30
eleven papers chosen by
Eugene Beaulieu
University of Calgary

  1. Civil war risk in democratic and non-democratic neighborhoods By Raleigh, Clionadh
  2. Political Regimes and Economic Growth in Latin America By Facundo Albornoz; Jayasri Dutta
  3. The Colonial Origins of Civil War By Simeon Djankov; Marta Reynal-Querol
  4. Inefficient Policies and Incumbency Advantage By Roland Hodler; Simon Loertscher; Dominic Rohner
  5. Should market liberalization precede democracy? Causal relations between political preferences and development By Pauline Grosjean; Claudia Senik
  6. False Alarm? Terror Alerts and Reelection By Roland Hodler; Simon Loertscher; Dominic Rohner
  7. Risk, Government and Globalization: International Survey Evidence By Mayda, Anna Maria; O'Rourke, Kevin H; Sinnott, Richard
  8. Island Status, Country Size and Institutional Quality in Former Colonies By Congdon Fors, Heather
  9. Corruption, uncertainty and growth By Djumashev, R
  10. Decentralization and Ethnic Conflict: The Role of Empowerment By Tranchant, Jean-Pierre
  11. Consensual and Conflictual Democratization, Rule of Law, and Development By Cervellati, Matteo; Fortunato, Piergiuseppe; Sunde, Uwe

  1. By: Raleigh, Clionadh
    Abstract: This study questions the extent to which domestic conflict is influenced by national, regional, and international relationships. It is designed to answer specific questions relating to the effects of neighboring characteristics on a state ' s risk of conflict and instability: What is the interaction between neighboring conflict and political disorder? Do democratic neighborhoods have different conflict trajectories than non-democratic neighborhoods and if so, where and why? Given that most poor countries are located in poor and conflictual neighborhoods, to what extent is there a relationship between poverty and political disorder in different regime neighborhoods? Using spatial lag terms to specify neighboring regime characteristics and multilevel models to differentiate between explanatory levels, this study reiterates the importance of domestic and neighboring factors in promoting or diminishing the risk of instability and conflict. However, the pronounced negative effects of autocratic and anocratic neighborhoods are mitigated by a growing domestic GDP. This study also finds that democratic neighborhoods are more stable, regardless of income level. Research presented here is unique in its contribution on how regime type is a significant development indicator, which in turn is salient in determining the risks of civil war across states.
    Keywords: Peace & Peacekeeping,Population Policies,Services & Transfers to Poor,Social Conflict and Violence,Post Conflict Reintegration
    Date: 2007–06–01
  2. By: Facundo Albornoz; Jayasri Dutta
    Abstract: Living in a democratic society has been internationally recognized as a basic human right. While most of the literature tries to identify the effect of democracy on economic prosperity, little work has been done to understand the determinants of economic growth under democracy. This paper examines whether the determinants of economic growth in Latin America are sensitive to political institutions. We find two stark differences between democratic and autocratic growth: (1) democratic government consumption is significantly positive for economic growth. The opposite is true for autocratic government consumption. (2) The impact of human capital is only significant under democracies.
    Keywords: Economic Growth, Latin America, Democracy, Autocracy, Government Consumption, human capital
    JEL: H50 P16 N46
    Date: 2007–06
  3. By: Simeon Djankov; Marta Reynal-Querol
    Abstract: The dominant hypothesis in the literature that studies conflict is that poverty is the main cause of civil wars. We instead analyze the effect of institutions on civil war, controlling for income per capita. In our set up, institutions are endogenous and colonial origins affect civil wars through their legacy on institutions. Our results indicate that institutions, proxied by the protection of property rights, rule of law and the efficiency of the legal system, are a fundamental cause of civil war. In particular, an improvement in institutions from the median value in the sample to the 75th percentile is associated with a 38 percentage points’ reduction in the incidence of civil wars. Moreover, once institutions are included as explaining civil wars, income does not have any effect on civil war, either directly or indirectly.
    Keywords: Institutions, Civil wars
    Date: 2007–05
  4. By: Roland Hodler; Simon Loertscher; Dominic Rohner
    Abstract: We study incumbency advantage in a dynamic game with incomplete information between an incumbent and a voter. The incumbent knows the true state of the world, e.g., the severity of an economic recession or the level of criminal activities, and can choose the quality of his policy. This quality and the state of the world determine the policy outcome, i.e., the economic growth rate or the number of crimes committed. The voter only observes the policy outcome and then decides whether to reelect the incumbent or not. Her preferences are such that she would reelect the incumbent under full information if and only if the state of the world is above a given threshold level. In equilibrium, the incumbent is reelected in more states of the world than he would be under full information. In particular, he chooses ine±cient policies and generates mediocre policy outcomes whenever the voter's induced belief distribution will be such that her expected utility of reelecting the incumbent exceeds her expected utility of electing the opposition candidate. Hence, there is an incumbency advantage through ine±cient policies. We provide empirical evidence consistent with the prediction that reelection concerns may induce incumbents to generate mediocre outcomes.
    Keywords: Elections; Incumbency Advantage; Political Economics
    JEL: D72 C73
    Date: 2007
  5. By: Pauline Grosjean; Claudia Senik
    Abstract: This paper is dedicated to the relation between market development and democracy. We distinguish contexts and preferences and ask whether it is true that the demand for democracy only emerges after a certain degree of market development is reached, and whether, conversely, democratization is likely to be an obstacle to the acceptation of market liberalization. Our study hinges on a new survey rich in attitudinal variables: the Life in Transition Survey (LITS) conducted in 2006 by the European Bank for Reconstruction and Development and the World Bank, in 28 post-Transition countries. Our identification strategy consists in relying on the specific situation of frontier-zones. We find that democracy enhances the support for market development whereas the reverse is not true. Hence, the relativist argument according to which the preference for democracy is an endogenous by-product of market development is not supported by our data.
    Date: 2007
  6. By: Roland Hodler; Simon Loertscher; Dominic Rohner
    Abstract: We study a game with asymmetric information to analyze whether an incumbent can improve his reelection prospects using distorted terror alerts. The voters’ preferred candidate depends on the true terror threat level, and the voters are rational and therefore aware of the incumbent’s incentive to distort alerts. In equilibrium, a moderately “Machiavellian” incumbent reports low and high threat levels truthfully, but issues the same distorted alert for a range of intermediate threat levels. He thereby ensures his reelection for some threat levels at which he would not be reelected under full information.
    Keywords: Terror alerts; voting and elections; signalling; political economics
    JEL: D72 C72 D82
    Date: 2007
  7. By: Mayda, Anna Maria; O'Rourke, Kevin H; Sinnott, Richard
    Abstract: This paper uses international survey data to document two stylized facts. First, risk aversion is associated with anti-trade attitudes. Second, this effect is smaller in countries with greater levels of government expenditure. The paper thus provides evidence for the microeconomic underpinnings of the argument associated with Ruggie (1982), Rodrik (1998) and others that government spending can bolster support for globalization by reducing the risk associated with it in the minds of voters.
    Keywords: risk; trade attitudes
    JEL: F13 P16
    Date: 2007–06
  8. By: Congdon Fors, Heather (Department of Economics, School of Business, Economics and Law, Göteborg University)
    Abstract: The purpose of this paper is to explore the effects of island status and country size on institutional quality, and to determine if these institutional effects can explain the relatively strong economic performance of islands and small countries. One of the main findings of this paper is that the relationship between island status and institutional quality is significantly positive, and that these results are robust to the inclusion of a number of control variables. Further, we find that country size is negatively related to institutional quality, which is in keeping with previous results. Finally, using an instrumental variable method we demonstrate that when Rule of Law is included in regressions on levels of per capita GDP, the positive effects of small country size and island status disappear. These results provide further support for our hypothesis that institutions account for these countries’ relatively better economic performance. <p>
    Keywords: islands; political institutions; economic institutions; rule of law; development
    JEL: N40 O10
    Date: 2007–06–19
  9. By: Djumashev, R
    Abstract: Corruption in the public sector erodes tax compliance and leads to higher tax evasion. Moreover, corrupt public officials abuse their public power to extort bribes from the private agents. In both types of interaction with the public sector, the private agents are bound to face uncertainty with respect to their disposable incomes. To analyse effects of this uncertainty, a stochastic dynamic growth model with the public sector is examined. It is shown that deterministic excessive red tape and corruption deteriorate the growth potential through income redistribution and public sector inefficiencies. Most importantly, it is demonstrated that the increase in corruption via higher uncertainty exerts adverse effects on capital accumulation, thus leading to lower growth rates.
    Keywords: Corruption; growth; public goods; tax evasion; uncertainty
    JEL: E20 O16 O41 D92 D72 E60 H26 G11 H41
    Date: 2007–06–26
  10. By: Tranchant, Jean-Pierre
    Abstract: Decentralization is increasing in all parts of the world. Assessing the efficiency of decentralization as a means to mitigate ethnic conflict is then of primarily importance. This paper builds a simple model of decentralization as an empowerment mechanism. It suggests that decentralization could promote peace conditional on a set of countries and groups characteristics. Typically, decentralization should empower minorities which are small at the national level, while representing a critical mass of the population in the regions they live in. Empirical results confirm that decentralization impacts ethnic conflict only when those conditioning factors are controlled for. Furthermore, decentralization dampens all forms of ethnic violence for groups spatially concentrated enough and/or for groups having a local majority. In contrast, it fuels protest and even rebellion for groups lacking one. The paper then highlights the crucial need to build checks and balances mechanisms at the regional level for local minorities not being harmed by the decentralization process.
    Keywords: Minorities; Ethnic Conflict; Decentralization; Panel Data Analysis
    JEL: D74 H77
    Date: 2007–05
  11. By: Cervellati, Matteo; Fortunato, Piergiuseppe; Sunde, Uwe
    Abstract: This paper investigates the endogenous emergence of democracy and rule of law in an economy where heterogeneous individuals can get involved in predation activities. Decisions about public policies concern the extent of fiscal redistribution and property rights, whose costs depend on the extent of predation in the population. We characterize the dynamic evolution of the economy in which both the political regimes and public policies are endogenously determined. The theory delivers several novel results. Multiple politico-economic equilibria involving different public policies can be sustained conditional on beliefs about property rights enforcement. Democratization is endogenous, but the features of democracies are shown to be crucially related to the conditions under which democratization initially takes place. Democratic transitions supported by a large consensus serve as coordination device and lead to better protection of property and more stable political systems than democratic transitions imposed under conflictual environments. Conflictual transitions lead to failed democracies with potentially worse property rights protection than oligarchies. The novel predictions are in line with existing evidence and with results from newly collected data on constitutional principles.
    Keywords: commitment; conflict; consensual democracy; constitutional principles; democratization; inequality; oligarchy
    JEL: H10 N10 O10
    Date: 2007–06

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