Democracy, Development, and the International Political Economy Tyson Roberts EITM Presentation July 18, 2007

Empirical phenomenon to explain: Why has the modal joint political-economic strategy shifted from autocratic-statist to democratic-capitalist? Why have some deviated from this pattern? StatistCapitalist Authoritarian 51% (Togo, Benin, Ghana) 27% Democratic 14%8% Authoritarian 27% (Benin) 43% (Togo, Ghana) Democratic 6% (Ghana for 2 years) 27% Authoritarian 16% 24% (Togo) Democratic 11% 49% (Ghana, Benin) N=66 for and 72 for the other two periods. Low- and Middle-Income countries with populations over 1M are included. Former Soviet Republics are excluded.

The General Argument Capital scarce countries policies and institutions are affected by changes in the IPE Sensitivity to external changes depends on the existing political institution and the domestic distribution of power and preferences Decisions regarding political institutions interact with decisions regarding the investment strategy –Important to look at the joint strategy

The game: Players Government (G) Political power pivot player (P): can overthrow G with force. Collective action costs > 0. Median voter (M): can overthrow G electorally. Collective action costs > 0. Foreign investors of all stripes are non-strategic players whose preferences are reflected in the payoffs.

The game: Order of play 0. External shock: level of foreign financial inflows, conditional on government’s joint strategy, shifts 1.Government chooses a joint strategy - political regime type and economic policy (may or may not be a change from SQ) 2.The power pivot player chooses to acquiesce or mobilize against the government 3.The median voter chooses to support or oppose the government 4.The game ends and payoffs are consumed Complete information - single-shot game

The game: Outcomes  P and M support the G: peaceful government success (no costs incurred)  P and M oppose the G: a popular coup (costs for P)  If G chooses/retains democracy,  and P acquiesces and M opposes G : electoral overthrow (costs for M)  and P mobilizes and M supports G: failed coup (costs for P & M)  If G chooses autocracy,  and P acquiesces and M opposes G,  and the autocracy is ongoing: suppressed rebellion (costs for P & M)  and the SQ is democracy: electorally defeated regime change (costs for M)  and P mobilizes against and M supports G: violent coup (costs for P & M)

Utility is function of policy and regime type Worker power pivot: AS>DS>DC>AC Landowner power pivot: AC>DC>DS>AS Urban median voter: DS>DC>AS>AC Rural median voter: DC>DS>AC>AS Government: AS>AC>DS>DC U(G) = 0 if overthrown

Utility is also determined by the level of finance inflows available conditional on regime type and economic policy UMUM DS DC AS AC Financial inflows under different conditions

An external shock in the international political economy will affect the utility of each joint strategy. For example, suppose all flows start as equally funded UMUM DS DC AS AC Supply of financial inflows under different conditions DS DC AS AC DS DC AS AC

An external shock in the international political economy will affect the utility of each joint strategy. And then capitalist economies receive more inflows relative to statist economies. The order of preferences may then change for each player. UMUM DS DC AS AC Supply of financial inflows under different conditions DS AS DS AS DC’ AC’ DC’ AC’ Marginal increase in flows from  S  C

An external shock may lead a government to change its strategy in order to survive and maximize utility U(G) for democracy > 0 if –Utility gain for M from electoral overthrow < c m < utility loss from autocratic takeover, OR –Utility gain for M and P from mobilizing < c U(G) > 0 for an ongoing autocracy if –Utility gain for P from coup < c p U(G) > 0 for a shift to autocracy if –Utility gain for M and P from mobilizing < c

Comparative statics will predict how, conditional on preferences, the SQ regime type, and mobilization costs, an external shock will affect government decisions CmCm Marginal increase in flows from  S  C AS Low High DC AC SQ: Aut; M: DC>DS>AC>AS; P: AS>DS>AS>AC U G (AS)<U G (AC)

Other predictions from the model Change in IPE -> change in stability-> change -> change in preferences for FDI re: political institutions Preference for capital openness in labor- abundant democracies is time-dependent

Operationalization Relative availability of foreign funds: –Indifferent sources: low interest rates, high commodity prices (esp. oil), Cold War –Preference for capitalist: Total volume of FDI to LDCs, SAP period (post-1982) –Preference for democracy: Post-Cold War –Affiliation with donors (UN voting record) Costs of mobilization for M: Experience with democracy, education rates, low fractionalization Costs of mobilization for P: Experience with coups, general strikes Democracy: Przeworski measure Economic policy: A challenge

Operationalization Indicators of statist policy: –Communist (but what about China?) –Increase in public enterprise as share of GDP (Gwartney et al) –High capital controls –High risk of expropriation –Nationalization of foreign assets

Stylized distribution of players: A potential operationalization of player preferences Labor abundant, Land scarceLabor scarce, land abundant Low urbanization Description: Land owners heavily outnumbered by low-wage laborers Power pivot: Organized rural worker, prefers statist policies Median voter: Non-union worker, prefers capitalist policies (perhaps due to influence from landowners) Description: Farmers with few if any high-wage laborers Power pivot: Large landowner, prefers capitalist policies Median voter: Small landowner, prefers capitalist policies High urbanization Description: Lots of workers in the city with low wages; landowners wealthy Power pivot: Organized labor, prefers statist policies Median voter: Urban labor, prefers statist policies Description: Large plots of land with high-wage workers; high-wage workers in urban areas Power pivot: Landowners, prefer capitalist policies Median voter: Urban worker, prefers statist policies

Another potential operationalization of player preferences Indicators of statist pivot player: –Communist –Single party dictatorship –Military regime led by junior officer Indicators of capitalist pivot player –Military regime led by senior officer

Conclusion R&R Rocks