On the looting of nations
TL;DR: The authors developed a dynamic discrete choice model of an unchecked ruler making decisions regarding the development of a resource rich country, and showed that unstructured lending from international credit markets can create incentives to loot the country; and an enhanced likelihood of looting causes greater political instability, and diminishes growth.
Abstract: We develop a dynamic discrete choice model of an unchecked ruler making decisions regarding the development of a resource rich country. Resources serve as collateral and facilitate the acquisition of loans. The ruler chooses either to stay in power while facing the risk of being ousted, or loot the country’s riches by liquefying the resources through lending. We show that unstructured lending from international credit markets can create incentives to loot the country; and an enhanced likelihood of looting causes greater political instability, and diminishes growth. Using a treatment effects model, we find evidence that supports our predictions.
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Posted Content•
01 Jan 2013
TL;DR: In this paper, the authors investigate some of the effects of humanitarian aid and the production of natural resources in developing countries and suggest that these "free lunches" can have negative (unintended) consequences.
Abstract: The studies in this thesis investigate some of the effects of humanitarian aid and the production of natural resources in developing countries. The studies suggest that these “free lunches” can have negative (unintended) consequences. Even though it achieves its goal of increasing food consumption and life expectancy, humanitarian aid can have adverse effects on government expenditure for education, health, and military purposes. Commodity exports can negatively influence the rule of law, corruption, and political stability and can crowd out other economic activities. But if properly managed windfalls resulting from aid and natural resources can improve economic conditions.
9 citations
Cites background from "On the looting of nations"
...…that we abstract from in this chapter are technology adaptation (Oechslin (2010)), private capital (Shen (2007)), international capital markets (Sarr et al. (2011)), an endogenous rate of extraction of natural resources (Robinson, Torvik & Verdier (2006)), ethnic differences (Caselli & Coleman…...
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TL;DR: In this article, the authors develop a dynamic discrete choice model of a self-interested and unchecked ruler making decisions regarding the exploitation of a resource-rich country, where the dictator makes the recursive choice between either investing domestically to live off the productivity of the country while facing the risk of being ousted, or looting the country's riches by liquefying the resources and departing.
Abstract: We develop a dynamic discrete choice model of a self-interested and unchecked ruler making decisions regarding the exploitation of a resource-rich country. This dictator makes the recursive choice between either investing domestically to live off the productivity of the country while facing the risk of being ousted, or looting the country’s riches by liquefying the resources and departing. We demonstrate that important parameters determining this choice include the level of resources, liquidity and indebtedness. We find that the dictator’s choice regarding the timing of departure is significantly related to external lending, investment and debt. We then argue that this looting phenomenon provides an explanation for the generation of corrupt economies in resource-rich countries. An empirical analysis of available corruption indices suggests that instability-led looting provides a more fundamental explanation of perceived corruption than do various social and cultural indicators or the economic theory of internal political competition.
8 citations
01 Dec 2015
TL;DR: In this paper, the authors investigated the determinants of Malaysia's external debt for the period of 1970 to 2013 by using annual data and performed the Johansen cointegration test, vector error correction model (VECM), and Granger causality test.
Abstract: Since the 1980’s, Malaysia’s external debt has been on an increase as a result of several economic factors, including two economic crises. Rapid increase in the external debt has become a national concern. In this study, we aim to investigate the determinants of Malaysia’s external debt for the period of 1970 to 2013 by using annual data. For this aim, we have performed the Johansen cointegration test, vector error correction model (VECM), and Granger causality test. The findings show that there is a long-run relationship between the variables and the GDP, recurrent and capital expenditure Granger causes external debt. These findings indicate that GDP growth is a solution for the external debt problem. In contrast, we believe that recurrent expenditures should especially be kept under control, and we offer several policy recommendations, such as reforming subsidy systems. Also, finding alternative sources to finance capital expenditure is important for a healthy growth of the economy.
8 citations
Dissertation•
01 Jan 2015
TL;DR: The authors investigated the relationship between military expenditure and economic growth, considering group heterogeneity and non-linearity, and found that military burden has a negative effect on economic growth in some countries.
Abstract: This dissertation is a collection of studies on the economics of peace and security. Chapter one introduces the roles military spending and conflict play in affecting economic growth, while also considering the causes of civil conflict. Chapter two investigates the relationship between military expenditure and economic growth, considering group heterogeneity and non-linearity. Using an exogenous growth model and dynamic panel approach, the results suggest military burden to have a negative effect on growth. Breaking the overall panel down into various sub-samples shows estimates that are remarkably consistent with the full panel. These results provide strong support for the argument that military spending has an adverse effect on growth. There are, however, some intriguing results suggesting that for certain types of countries military burden has no negative growth effect. Chapter three deals with the transnational spatial spillover effects of conflict on neighbouring countries. It moves beyond using geographical distance as a spillover measurement and allows for economic and political distances. The initial empirical results suggest that conflict has a strong negative spillover effect on directly contiguous countries growth, but no significant impacts were observed for non-contiguous countries. When economic and political factors are considered, this result remains, but the spillover effect is smaller. While the impact of conflict remains devastating, it is important to take other factors into account as studies using only geographical distance may be overestimating the impact on neighbours. The fourth chapter examines the determinants of civil war, using a zeroinflated modelling approach to deal with excess zeroes in the dependent variable. Traditional probit and logit models have limited capacity in dealing with this issue and can create misleading results, which is illustrated through replicating published work. A general greed-grievance model is then estimated giving further support to using zero-inflated models. While the standard probit models tend to emphasise opportunity variables, consistent in other studies, the zero-inflated model gives supports both opportunity and grievance variables. In particular, ethnicity, democracy and inequality are found to play a significant role in civil war prevalence. Finally, chapter five summarises the findings of the dissertation, providing some policy recommendations, concluding remarks and discusses future research opportunities.
4 citations
Cites background from "On the looting of nations"
...Sarr et al. (2011) explains that in a resource-rich country, an unchecked ruler can use resources as collateral and facilitate acquisition of loans and loot the economy....
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TL;DR: In this paper, a model is developed to provide the first theoretical justification for true credit rationing in a loan market, where the amount of the loan and amount of collateral demanded affect the behavior and distribution of borrowers, and interest rates serve as screening devices for evaluating risk.
Abstract: According to basic economics, if demand exceeds supply, prices will rise, thus decreasing demand or increasing supply until demand and supply are in equilibrium; thus if prices do their job, rationing will not exist. However, credit rationing does exist. This paper demonstrates that even in equilibrium, credit rationing will exist in a loan market. Credit rationing is defined as occurring either (a) among loan applicants who appear identical, and some do and do not receive loans, even though the rejected applicants would pay higher interest rates; or (b) there are groups who, with a given credit supply, cannot obtain loans at any rate, even though with larger credit supply they would. A model is developed to provide the first theoretical justification for true credit rationing. The amount of the loan and the amount of collateral demanded affect the behavior and distribution of borrowers. Consequently, faced with increased credit demand, it may not be profitable to raise interest rates or collateral; instead banks deny loans to borrowers who are observationally indistinguishable from those receiving loans. It is not argued that credit rationing always occurs, but that it occurs under plausible assumptions about lender and borrower behavior. In the model, interest rates serve as screening devices for evaluating risk. Interest rates change the behavior (serve as incentive mechanism) for the borrower, increasing the relative attractiveness of riskier projects; banks ration credit, rather than increase rates when there is excess demand. Banks are shown not to increase collateral as a means of allocating credit; although collateral may have incentivizing effects, it may have adverse selection effects. Equity, nonlinear payment schedules, and contingency contracts may be introduced and yet there still may be rationing. The law of supply and demand is thus a result generated by specific assumptions and is model specific; credit rationing does exist. (TNM)
13,126 citations
"On the looting of nations" refers background in this paper
...Banks recognise that adverse selection can result from price-based lending and so limit lending levels instead (Stiglitz and Weiss 1981)....
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TL;DR: This paper showed that differences in physical capital and educational attainment can only partially explain the variation in output per worker, and that a large amount of variation in the level of the Solow residual across countries is driven by differences in institutions and government policies.
Abstract: Output per worker varies enormously across countries. Why? On an accounting basis, our analysis shows that differences in physical capital and educational attainment can only partially explain the variation in output per worker--we find a large amount of variation in the level of the Solow residual across countries. At a deeper level, we document that the differences in capital accumulation, productivity, and therefore output per worker are driven by differences in institutions and government policies, which we call social infrastructure. We treat social infrastructure as endogenous, determined historically by location and other factors captured in part by language.
7,208 citations
TL;DR: Acemoglu, Johnson, and Robinson as discussed by the authors used estimates of potential European settler mortality as an instrument for institutional variation in former European colonies today, and they followed the lead of Curtin who compiled data on the death rates faced by European soldiers in various overseas postings.
Abstract: In Acemoglu, Johnson, and Robinson, henceforth AJR, (2001), we advanced the hypothesis that the mortality rates faced by Europeans in different parts of the world after 1500 affected their willingness to establish settlements and choice of colonization strategy. Places that were relatively healthy (for Europeans) were—when they fell under European control—more likely to receive better economic and political institutions. In contrast, places where European settlers were less likely to go were more likely to have “extractive” institutions imposed. We also posited that this early pattern of institutions has persisted over time and influences the extent and nature of institutions in the modern world. On this basis, we proposed using estimates of potential European settler mortality as an instrument for institutional variation in former European colonies today. Data on settlers themselves are unfortunately patchy—particularly because not many went to places they believed, with good reason, to be most unhealthy. We therefore followed the lead of Curtin (1989 and 1998) who compiled data on the death rates faced by European soldiers in various overseas postings. 1 Curtin’s data were based on pathbreaking data collection and statistical work initiated by the British military in the mid-nineteenth century. These data became part of the foundation of both contemporary thinking about public health (for soldiers and for civilians) and the life insurance industry (as actuaries and executives considered the
6,495 citations
TL;DR: This article showed that the differences in capital accumulation, productivity, and therefore output per worker are driven by differences in institutions and government policies, which are referred to as social infrastructure and called social infrastructure as endogenous, determined historically by location and other factors captured by language.
Abstract: Output per worker varies enormously across countries. Why? On an accounting basis our analysis shows that differences in physical capital and educational attainment can only partially explain the variation in output per worker—we find a large amount of variation in the level of the Solow residual across countries. At a deeper level, we document that the differences in capital accumulation, productivity, and therefore output per worker are driven by differences in institutions and government policies, which we call social infrastructure. We treat social infrastructure as endogenous, determined historically by location and other factors captured in part by language. In 1988 output per worker in the United States was more than 35 times higher than output per worker in Niger. In just over ten days the average worker in the United States produced as much as an average worker in Niger produced in an entire year. Explaining such vast differences in economic performance is one of the fundamental challenges of economics. Analysis based on an aggregate production function provides some insight into these differences, an approach taken by Mankiw, Romer, and Weil [1992] and Dougherty and Jorgenson [1996], among others. Differences among countries can be attributed to differences in human capital, physical capital, and productivity. Building on their analysis, our results suggest that differences in each element of the production function are important. In particular, however, our results emphasize the key role played by productivity. For example, consider the 35-fold difference in output per worker between the United States and Niger. Different capital intensities in the two countries contributed a factor of 1.5 to the income differences, while different levels of educational attainment contributed a factor of 3.1. The remaining difference—a factor of 7.7—remains as the productivity residual. * A previous version of this paper was circulated under the title ‘‘The Productivity of Nations.’’ This research was supported by the Center for Economic Policy Research at Stanford and by the National Science Foundation under grants SBR-9410039 (Hall) and SBR-9510916 (Jones) and is part of the National Bureau of Economic Research’s program on Economic Fluctuations and Growth. We thank Bobby Sinclair for excellent research assistance and colleagues too numerous to list for an outpouring of helpful commentary. Data used in the paper are available online from http://www.stanford.edu/,chadj.
6,454 citations
TL;DR: This article showed that the current prevalence of internal war is mainly the result of a steady accumulation of protracted conflicts since the 1950s and 1960s rather than a sudden change associated with a new, post-Cold War international system.
Abstract: An influential conventional wisdom holds that civil wars proliferated rapidly with the end of the Cold War and that the root cause of many or most of these has been ethnic and religious antagonisms. We show that the current prevalence of internal war is mainly the result of a steady accumulation of protracted conflicts since the 1950s and 1960s rather than a sudden change associated with a new, post-Cold War international system. We also find that after controlling for per capita income, more ethnically or religiously diverse countries have been no more likely to experience significant civil violence in this period. We argue for understanding civil war in this period in terms of insurgency or rural guerrilla warfare, a particular form of military practice that can be harnessed to diverse political agendas. The factors that explain which countries have been at risk for civil war are not their ethnic or religious characteristics but rather the conditions that favor insurgency. These include poverty—which marks financially and bureaucratically weak states and also favors rebel recruitment—political instability, rough terrain, and large populations.We wish to thank the many people who provided comments on earlier versions of this paper in a series of seminar presentations. The authors also gratefully acknowledge the support of the National Science Foundation (Grants SES-9876477 and SES-9876530); support from the Center for Advanced Study in the Behavioral Sciences with funds from the William and Flora Hewlett Foundation; valuable research assistance from Ebru Erdem, Nikolay Marinov, Quinn Mecham, David Patel, and TQ Shang; sharing of data by Paul Collier.
5,994 citations