DP2653 Political Instability and Growth in Dictatorships

Author(s): Jody Overland , Kenneth L Simons , Michael Spagat

Publication Date: December 2000

Keyword(s): Dictatorship , Growth , Political Economy , Bifurcation

JEL(s): D90 , O10

Programme Areas: Public Policy , Transition Economics

Link to this Page: www.cepr.org/pubs/dps/DP2653.asp

We model growth in dictatorships facing each period an endogenous probability of ‘political catastrophe’ that would extinguish the regime's wealth extraction ability. Domestic capital exhibits a bifurcation point determining economic growth or shrinkage. With low initial domestic capital the dictator plunders the country's resources and the economy shrinks. With high initial domestic capital the economy eventually grows faster than is socially optimal.