(Oxford Handbooks) Carol Lancaster, Nicolas Van de Walle - The Oxford Handbook of The Politics of Development-Oxford University Press (2018)

The Oxford Handbook of
THE POLITICS OF
DEVELOPMENT
THE POLITICS OF
DEVELOPMENT
Edited by
C A R O L L A N C A ST E R
and
N IC O L A S van de WA L L E
1
3
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Library of Congress Cataloging-in-Publication Data

Names: Lancaster, Carol, editor. | van de Walle, Nicolas, 1957–edtior.
Title: The Oxford handbook of the politics of development /
edited by Carol Lancaster and Nicolas van de Walle.
Other titles: Handbook of political development
Description: New York, NY : Oxford University Press, 2018. |
Includes bibliographical references.
Identifiers: LCCN 2017036018 (print) | LCCN 2017056884 (ebook) |
ISBN 9780199981816 (ebook) | ISBN 9780199845156 (hbk)
Subjects: LCSH: Developing countries—Politics and government. |
Developing countries—Economic policy. | Economic development—Developing countries. |
Institution building—Developing countries. | Democratization—Developing countries.
Classification: LCC JF60 (ebook) | LCC JF60 .O84 2018 (print) | DDC 320.9172/4—dc23
LC record available at https://lccn.loc.gov/2017036018
1 3 5 7 9 8 6 4 2
Printed by Sheridan Books, Inc., United States of America
Contents
Preface: Nicolas van de Walle ix

List of Contributors xi
PA RT I : M AJ OR T H E OR I E S
A N D I N T E L L E C T UA L H I STOR I E S
1. Modernization Theory: Does Economic Development Cause

Democratization? 3
JosÉ Antonio Cheibub and James Raymond Vreeland
2. Dependency Theory 22
James Mahoney and Diana Rodríguez-Franco
3. Structuralism 43
Elliott D. Green
4. Political Development 64
Robert H. Bates
5. The Washington Consensus and the New Political Economy
of Economic Reform 73
Kevin M. Morrison
6. Penury Traps and Prosperity Tales: Why Some Countries
Escape Poverty While Others Do Not 88
M. Steven Fish
PA RT I I : D OM E ST IC FAC TOR S
7. Culture, Politics, and Development 107

Michael Woolcock
8. Religion, Politics, and Economic Development: Synergies
and Disconnects 123
Katherine Marshall
vi Contents
9. Does Inequality Harm Economic Development and

Democracy?: Accounting for Missing Values, Noncomparable
Observations, and Endogeneity 140
Christian Houle
10. Ethnicity and Development 162
Nic Cheeseman
11. Civil Conflict and Development 177
Håvard Hegre
12. The Politics of the Resource Curse: A Review 200
Michael L. Ross
13. Taxation and Development 224
Mick Moore
14. How Do Governments Build Capabilities to Do Great
Things?: Ten Cases, Two Competing Explanations, One Large
Research Agenda 256
Matt Andrews
15. Leadership and the Politics of Development 276
Adrian Leftwich and Heather Lyne De Ver
PA RT I I I : I N T E R NAT IONA L FAC TOR S
16. Colonialism and Development in Africa 295

Leander Heldring and James A. Robinson
17. Investment and Debt 328
Layna Mosley
18. The Role of the State in Harnessing Trade-and-Investment
for Development Purposes 356
Theodore H. Moran
19. International Financial Institutions and Market Liberalization in
the Developing World 385
Stephen C. Nelson
20. Foreign Aid and Democratization in Developing Countries 409
Danielle Resnick
Contents vii
PA RT I V: P OL I T IC A L SYS T E M S
A N D ST RU C T U R E S
21. Organizing for Prosperity: Collective Action, Political Parties, and

the Political Economy of Development 431
Philip Keefer
22. Missing Links in the Institutional Chain 458
Anirudh Krishna
23. The Comparative Politics of Service Delivery in Developing
Countries 480
Evan S. Lieberman
24. Party Systems and the Politics of Development 499
Allen Hicken
25. Populism and Political Representation 517
Kenneth M. Roberts
PA RT V: R E G IONA L A N D C OU N T RY
P E R SP E C T I V E S
26. Africa’s Political Economy in the Contemporary Era 537

Peter M. Lewis
27. The Politics of Development in Latin America and East Asia 567
James W. McGuire
28. Development and Underdevelopment in the Middle East
and North Africa 596
Melani Cammett
29. Rethinking the Institutional Foundations of China’s
Hypergrowth: Official Incentives, Institutional Constraints,
and Local Developmentalism 626
Fubing Su, Ran Tao, and Dali L. Yang
30. The Political Economy of Growth and Development
in India: Two Puzzles 652
Stuart Corbridge, John Harriss, and Craig Jeffrey
viii Contents
31. The Politics of Growth in South Korea: Miracle, Crisis, and

the New Market Economy 669
Stephan Haggard and Myung-Koo Kang
Index 685
Preface
The preparation of this volume was deeply marked by the illness and passing away of my
friend and colleague, Carol Lancaster, in October 2014. This book was Carol’s idea and
would not exist without her efforts and inspiration. Carol was that rare combination of
distinguished scholar and accomplished policy maker, who left her mark in these two dis-
tinct worlds. Her research on foreign aid remains authoritative, but she could also claim
exceptional insights into the inner workings of official Washington. She was also funny and
insightful on many topics unrelated to the politics of development, always generous in her
views and wise in the ways of the world. I thank her for involving me in this project and
I greatly appreciate the opportunity it gave me to work with her on issues both of us cared
about deeply (and often disagreed about!). Many of us will miss her for a long time.
Capturing the complex interaction between economic development and politics in a
single volume was always a presumptuous task, and many readers will no doubt identify
sins of omission in our coverage of the topic. In our defense, and apart the from the usual
practical vagaries of assembling such a collection with dozens of authors, we have sought to
assemble three dozen essays that cover a large number of issues of contemporary theoretical
and policy importance from different perspectives. The volume starts with discussions of
the main theoretical currents that have shaped the political economy of development from
its beginnings in the years after World War II to the present. Following this intellectual his-
tory of our topic, a second part consists of essays that focus on the main domestic factors
that shape the politics of development, from such sociological dynamics as ethnicity or re-
ligion, to fiscal politics. A third part of the volume examines international political factors
that shape economic development, with essays on topics such as sovereign debt, trade and
the conditionality of the international donors. Part 4 of the volume includes essays focusing
on institutional factors, before the volume concludes with five broad historical reviews of
the distinctive regional experiences with development.
I wish to thank all of the people who contributed to the completion the volume. I thank
Oxford University Press for its forbearance with the various inevitable delays and for
shepherding the volume to completion. The many different contributors similarly de-
serve my gratitude, not only for their enormous patience and professionalism, but also for
delivering exceptional work.
A number of other colleagues also deserve my warm thanks. Deborah Brautigam, Erin
Hern, Lauren Honig, Adrian Leftwich, Peter Lewis, Katherine Marshall, Kevin Morisson,
Danielle Resnick, and Ken Roberts all provided helpful advice on the project, or contributed
useful comments on chapters. Clare Ogden was a huge help through out the process, playing
a key organizational role early on, and then helping to keep the project on track when
Carol fell ill. I am also grateful for the research assistance of Mayesha Alam and Nicholas
Starvaggi.
Nicolas van de Walle
List of Contributors
Matt Andrews Harvard University

Robert H. Bates Eaton Professor of the Science of Government, Harvard University
Melani Cammett Professor of Government, Harvard University, and Faculty Affiliate at
the Belfer Center’s Middle East Initiative
Nic Cheeseman Oxford University
José Antonio Cheibub University of Illinois at Urbana-Champaign
Stuart Corbridge Vice-Chancellor and Warden, Durham University
M. Steven Fish Department of Political Science, University of California, Berkeley
Elliott D. Green London School of Economics
Stephan Haggard Lawrence and Sallye Krause Professor of Korea–Pacific Studies and di-
rector of the Korea-Pacific Program, University of California, San Diego
John Harriss Professor of International Studies and Director of the School for International
Studies at Simon Fraser University in Vancouver, Canada
Håvard Hegre Department of Peace and Conflict Research, Uppsala University Peace
Research Institute Oslo
Leander Heldring Harvard University
Allen Hicken Research Associate Professor in the Center for Political Studies, Director
and Faculty Associate, Center for Southeast Asian Studies, and Associate Professor in the
Department of Political Science, University of Michigan
Christian Houle Michigan State University
Myung-Koo Kang Assistant Professor of Political Science at Baruch College, City University
of New York
Philip Keefer Principal Economic Advisor, Inter-American Development Bank
Anirudh Krishna Edgar T. Thompson Professor of Public Policy, Duke University
Carol Lancaster was Dean, School of Foreign Service, Georgetown University
Adrian Leftwich was Senior lecturer in Politics, University of York
Peter M. Lewis Paul H. Nitze School of Advanced International Studies, Johns Hopkins
University
xii List of Contributors
Evan S. Lieberman Professor of Politics, Princeton University

Heather Lyne De Ver Institute of Applied Health Research College of Medical and Dental
Sciences, University of Birmingham
James Mahoney Gordon Fulcher Professor in Decision-Making, Professor of Sociology,
Department of Sociology, and Professor of Political Science, Department of Political
Science, Northwestern University, Evanston, Illinois
Katherine Marshall Senior fellow, Georgetown University’s Berkley Center for Religion,
Peace, and World Affairs and visiting professor in the School of Foreign Service
James W. McGuire Department of Government, Wesleyan University
Mick Moore Institute of Development Studies, Sussex University
Theodore H. Moran Georgetown University
Kevin M. Morrison University of Pittsburgh
Layna Mosley Department of Political Science, University of North Carolina at Chapel Hill
Stephen C. Nelson Assistant Professor of Political Science, Northwestern University
Danielle Resnick Research Fellow in the Development Strategies and Governance Division,
International Food Policy Research Institute
Kenneth M. Roberts Department of Government, Cornell University
James A. Robinson Professor in the School of Public Policy, University of Chicago
Diana Rodríguez-Franco Department of Sociology, Northwestern University
Michael L. Ross Professor of Political Science, University of California, Los Angeles
Fubing Su Associate professor of Political Science, Vassar College
Ran Tao Professor of Economics, Renmin University of China
Nicolas van de Walle Cornell University
James Raymond Vreeland Georgetown University
Michael Woolcock Senior Social Scientist in the World Bank’s Development Research
Group, founding Research Director of the Brooks World Poverty Institute, and former
Professor of Social Science and Development Policy, University of Manchester
Dali L. Yang Professor of Political Science and faculty director, the University of Chicago
Center in Beijing, University of Chicago
Craig Jeffrey Professor of Human Geography, University of Melbourne
THE POLITICS OF
DEVELOPMENT
Pa rt I
M AJ OR T H E OR I E S
A N D I N T E L L E C T UA L
H I STOR I E S
Chapter 1
Moderniz ation T h e ory

Does Economic Development Cause
Democratization?
José Antonio Cheibub and

James Raymond Vreeland
Introduction
Theories about democracy—its emergence, sustainability, and breakdown—have long

influenced U.S. foreign policy. Perhaps the most well-known—and the most debated—
is called “modernization theory,” which emerged around the same time that President
Kennedy initiated the United States Agency for International Development (USAID) in
1961. Modernization theory derives from a straightforward observation: The correlation
between economic development and democracy. That democratic countries are— on
average—richer than authoritarian countries is one of the best-established facts in political
science. This observation has led many—theorists and practitioners alike—to conclude the
following: Democracy becomes more likely to emerge as a country modernizes econom-
ically. Yet this conclusion, while intuitive and plausible, provides only one possible causal
path to explaining the correlation between economic development and democracy. Scholars
have proposed several other explanations, and the true reason for the apparent connection
is widely disputed. Our goal in this chapter is to lay out the debate and discuss the evidence.
Why is there such a strong connection between economic development and democracy?
To anticipate, our conclusion is this: Economic modernization does not cause democracy
to emerge. Rather, the correlation between economic development and democracy derives
from the survival of democracy. Democracy emerges under all sorts of circumstances, and
it often collapses. But democracy is more likely to survive at higher incomes. Specifically,
democracy has never collapsed above the per capita income of about $8,165, measured in
2005 constant purchasing power parity prices.1 Sophisticated scrutiny of the existence of
such a threshold suggests that it is statistically significant.
With this conclusion in mind, we suggest that providing economic assistance to a poor
authoritarian regime—either in terms of foreign aid or access to markets through trade—
is not likely to cause democracy to emerge. Indeed, there is evidence that authoritarian
4 José Antonio Cheibub and James Raymond Vreeland
regimes with thriving economies are actually unlikely to transform themselves into demo-
cratic regimes. Efforts to promote democracy, therefore, should be devoted to helping poor,
existing democracies to survive. Note, however, that the correlation is not between eco-
nomic growth and survival, but rather between economic level and survival. This means
that only sustained economic growth can be helpful. The poorest democracies require the
most help—more help, in fact, than any single governmental donor is willing to provide,
according to a recent comprehensive evaluation of the USAID Democracy and Governance
program.2 The greatest impact that a donor might have, therefore, is to focus on middle-
income democracies—those that are nearing the $8,000 threshold. Economic assistance to
these developing democracies should prove the most fruitful, according to the statistical
evidence we review here. Still, it is not obvious that economic assistance can promote eco-
nomic development; thus, our ultimate position is that policy-makers should approach the
promotion of democracy with a great deal of humility.
Modernization Theory
Most scholars credit Seymour Martin Lipset’s study, published in 1959 in the American
Political Science Review, as the first to demonstrate the existence of the correlation between
economic development and democracy. He interpreted it as evidence in support of a causal
relationship; in so doing, he was one of the first to articulate the specifically political tenets
of modernization theory. Much has been written about modernization theory, and we can
refer the interested reader to thorough and systematic accounts of its underpinnings, his-
tory, and pitfalls.3 Here we simply want to highlight a few of its features.
Modernization theory is based on the classical social theories of Karl Marx, Ferdinand
Tönnies, Émile Durkheim, Max Weber, and Talcott Parsons, all of whom emphasized, al-
beit in different ways, the distinction between tradition and modernity. As distilled as a set
of propositions about how societies leave their traditional ways and embrace modernity,
the theory can be crudely depicted as an account of the psychological, social, and political
consequences of capitalist development. Once societies start to develop economically—that
is, once technological advances and the specialization that results from division of labor
leads to the expansion of economic output—a series of interrelated and self-reinforcing
processes are set in motion, culminating in democracy.
In his 1959 article, Lipset spelled out these processes in some detail.4 According to him,
economic development sets in motion a process that instills individuals with the values
that are necessary for democracy to exist. Development increases the level of education,
and, in Lipset’s words, “education presumably broadens men’s outlooks, enables them to
understand the need for norms of tolerance, restrains them from adhering to extremist and
monistic doctrines, and increases their capacity to make rational electoral choices” (1959,
p. 79). Economic development also shapes every segment of the social stratification struc-
ture in such a way as to make them compatible with a democratic regime. Thus, because it
increases incomes and provides greater economic security, development increases the time
horizons of the lower classes and their acceptance of “more complex and gradualist views of
politics”; development swells the middle class, which “plays a mitigating role in moderating
conflict since it is able to reward moderate and democratic parties and penalize extremist
Modernization Theory 5
groups”; and development affects the psychology of the members of the upper classes be-
cause, by reducing the differences in the lifestyle of those at the top and at the bottom,
it makes them more willing to share power (1959, p. 83). Finally, economic development
entails the appearance of myriad interest organizations, which indirectly serve a number
of democratic functions. As Lipset puts it, “They are a source of countervailing power,
inhibiting the state or any single major source of private power from dominating all polit-
ical resources; they are a source of new opinions; they can be the means of communicating
ideas, particularly opposition ideas, to a large section of the citizenry; they serve to train
men in the skills of politics; and they help increase the level of interest and participation in
politics” (1959, p. 84).5
Each of these processes is broad, and one can easily see how they resonate with themes
that are, to this day, central to the research agenda on democracy and democratization.
Questions concerning the relationship between development and culture as well as be-
tween culture and democracy, about the importance of interpersonal trust and social cap-
ital, about the deleterious role of ethnic and other identity-based cleavages, and about the
strategic interactions between the different social groups can be seen as pertaining to issues
raised by the process of democratization. The generality of what goes by “modernization
theory”—or the fact that virtually anything is compatible with modernization theory—is,
in our view, part of the reason it is still alive and kicking, in spite of the fact that, as we will
argue, the evidence to support it is, at best, weak.
Political Order before Change
In the wake of Lipset, scholars produced a flurry of papers seeking to document the rela-
tionship between development and democracy.6 Modernization theory, however, did not
go unchallenged. The strongest criticism came from those who focused on the very premise
of the theory—namely, the notion that development is unilinear. Both dependency theory
and world-systems theory called attention to the idea that the trajectory of economic trans-
formation differed significantly and systematically as a function of the way that countries
were inserted in the international system. Modernization did not necessarily mean ever-
expanding economic output across all countries and, even when it did, certainly not the
widespread sharing of its benefits.
But even the narrower question of whether economic development is causally associated
with democracy was challenged early on by authors such as Barrington Moore Jr. (1966),
Samuel Huntington (1968), and Guillermo O’Donnell (1973). Moore argued that there is
more than one path to modernity and that these paths do not always end in democracy. The
circumstances that in England led to the marketization of labor relations and the dilution
of the landed aristocracy’s power in response to the stimulus of capitalist development were
unique and were the only ones that would “naturally” lead to the emergence of democracy.
Absent an exogenous shock that would destroy the repressive system of labor relations—
such as the one that happened in 1789 France—capitalist development would either lead
to “modernization from above,” characterized by an alliance of the state with the landed
aristocracy to repress labor and guarantee economic development, or to a “communist rev-
olution,” where labor would take over the state to repress the landed aristocracy. Neither of
these two alternatives is democratic, even though they result from the emergence of market
relations—that is, from the very process of economic development.
Huntington, in turn, called attention to the importance of political institutions in the
process of modernization, which he saw as inherently unsettling of existing social relations.
In the absence of strong political institutions able to absorb, control, and guide the newly
emerging social relations, he argued, modernization leads to praetorian politics. Improving
economic circumstances leads to mass economic and political demands that an underde-
veloped state cannot meet. Since inequality makes socialism attractive, leading to the estab-
lishment of a one-party socialist state, Huntington’s advice during the Cold War was thus to
support noncommunist one-party states, encouraging the development of robust political
institutions able to withstand the destabilizing force of rapid economic development.7 He
did not promise that economic development would lead to democracy; for Huntington,
whereas modernity may be associated with democracy, modernization is not necessarily.
Interestingly, while Huntington cast himself as against modernization theory, he did
so because he viewed economic development as a nonsufficient cause of democracy. In
other words, economic development might not lead to democracy in all cases. Yet he did
not challenge the idea that economic development might be necessary for democracy. He
added that political development was also required, but did not challenge the basic corre-
lation between economic development and democracy. There still seemed to be something
to the idea that as a country develops economically, democracy somehow becomes more
likely.
Finally, O’Donnell argued, not unlike De Schewnitz (1964), that “dependent develop-
ment,” such as experienced by Latin American countries in the 1950s and 1960s, eventually
faces constraints that can only be overcome by the force of an authoritarian regime. After
an “easy” phase of economic development driven by the local production of previously
imported consumer goods (called import-substitution industrialization, or ISI), countries
face a bottleneck that cannot be addressed in the context of a democratic system that is
based on a nationalist ideology and the political mobilization of urban workers. A “coup
coalition” thus emerges that is ready to implement the bitter policies necessary for further
economic development. Democracy actually becomes a casualty of modernization. Thus,
he argues that dictatorships emerged in the 1960s and 1970s in countries such as Argentina,
Brazil, Chile, and Uruguay not because of their lack of development, but rather precisely
because they were successful in generating a domestic industrial sector. These dictatorships
emerged as the vehicles for the implementation of the next development phase.
Distinguishing Dynamics: Emergence versus

Survival of Democracy
Whether development causes the emergence or the survival of democracy—or both—is left
ambiguous by Lipset, as well as by other writers associated with modernization theory. At
moments Lipset refers to the emergence of democracy, as when he argues that increased
wealth changes class structure and is thus “related causally to the development of democ-
racy” (1959, p. 83).8 At other times, Lipset seems to mean that economic development affects
the prospects of existing democracies, as when he states that “the more well-to-do a nation,
the greater the chances that it will sustain democracy” (p. 75).9 As it turns out, however, the
distinction between the impact of economic development on the emergence versus the sur-
vival of democracy warrants greater scrutiny and more theoretical rigor.
The process of democratization encompasses both the emergence and the sustainability
of democracy. Yet these processes are not equivalent. We say that a country democratized or
became a democracy, or that a democracy emerged in a given country, when political actors
decide that the choice of rulers will proceed through competitive or contested elections.
The emphasis on competitiveness and contestation is meant to draw attention to the idea
that not all countries holding elections qualify as democratic. The legislature and the exec-
utive must be filled by elections, and there must be viable alternatives presented in these
elections. Importantly, when incumbents lose, they must abide by the results and allow
alternation in power. Contested elections are ex ante uncertain, ex post irreversible, and
repeatable (Przeworski et al. 2000, p. 16). The question about the emergence of democracy
is: What accounts for the relevant actors’ decision to allow such a process to begin? Thus,
when considering the impact that economic development may have on the establishment
of democracy, or, equivalently, on the emergence of democracy, or, still equivalently, on the
breakdown of a dictatorial or authoritarian regime, the question is: Does economic devel-
opment make it more likely that the relevant actors will decide to choose leaders through a
contested election?
Democracy is sustained when the actors who were involved in allowing a competitive
election to take place choose to abide by the results and, after the agreed-upon term of
rule expires, choose to allow another competitive election to take place and, following that
election, choose to abide by the results, and so on. Thus, when talking about the impact
that economic development may have on the sustainability of democracy, or, equivalently,
on the survival of democracy, or, still equivalently, on the emergence of a dictatorial or au-
thoritarian regime, the question is: Does economic development make it less likely that a
democratic regime will breakdown into a dictatorship?
Economic development needs not have the same effect on both the emergence and the
survival of democratic regimes. The first to recognize this were Adam Przeworski and
Fernando Limongi in their 1997 article, “Modernization: Theories and Facts.” Until their
study, most people thought about the correlation between development and democracy in
one of two ways: Either development causes democracy, or democracy causes development.
Przeworski and Limongi challenged this way of thinking by introducing into the debate the
dynamics of democracy. They recognized that the pattern of political regimes around the
world is a function of two processes: the emergence of democracy and the breakdown or
survival of democracy. They hypothesized that even if the emergence of democracy were
completely random with respect to economic development, the well-established pattern of
richer countries experiencing more democracy than poorer ones could still be observed.
The pattern could simply result from democracy regularly collapsing in the poor countries
where it had emerged, but consistently surviving in countries with higher income levels.
The intuition behind these ideas is complicated, so consider some examples. The
Republic of Congo saw democracy emerge in 1960, when it became independent, and then
again in 1992; the Central African Republic experienced a transition to democracy in 1993;
Myanmar in 1948 and 1960; and Sudan in 1956, 1965, and 1986. So, despite being among
the poorest countries in the world, democracy has emerged in all of these cases. But, as we
know, it has not survived very long: Democracy broke down in the Republic of Congo in
1963 and 1996; in the Central African Republic in 2003; in Myanmar in 1958 and 1962; and in
Sudan in 1958, 1969, and 1989. The pattern is not limited to Africa. Democracy also emerged
a few times in France during the nineteenth century (1848 and 1870), but also collapsed into
nondemocratic regimes (1852 and 1940). Then it emerged after World War II, and France
soon reached a high level of economic development; democracy has survived ever since.
When France was poor, it saw democracy emerge, then collapse; but once it reached a cer-
tain level of economic development, democracy finally survived. A similar story can be
told for many countries (consider Brazil, Chile, and the Czech Republic). An interesting
case is Argentina, which has seen democracy collapse at the highest level of income in
the world, $8,165 in 1976 (Heston et al. 2011). Even in this case, however, since democ-
racy has reemerged in 1983, it has been sustained, in spite of profound bouts of economic
crises. A controversial case is Venezuela, where the Chavez administration abridged media
freedoms, property rights, and amended the constitution to allow for reelection (with the
last actually not being undemocratic at all). The administration won contested elections to
assume and maintain power, however; at the end of Chavez’s time in office, Venezuela again
chose the next government through a contested election. So, while democracy has emerged
at many levels of development, it has never collapsed above an income of $8,165 (measured
in 2005 purchasing power parity).
In subsequent work Przeworski and co-authors showed that the only causal pathway that
connects development to democracy is through the survival of democracy (Przeworski et al.
2000). Specifically, they showed that development does not cause democracy to emerge and
that democracy does not lead to higher levels of economic development. Rather, they pro-
vide robust evidence that democracy is more likely to be sustained at higher levels of eco-
nomic development.
In substantive terms, the theory of democratization that emerged as a result of these
studies can be stated as follows. At a general level, democracy emerges either because one
actor who happens to prefer democracy is politically successful or because there is a balance
of forces among relevant actors so that no one can impose his or her preferences over the
others. There are multiple reasons why the existence of such an actor or of such a balance
of forces may exist. Sometimes it is because economic development favored a democratic
actor (the working class, according to Rueschemeyer, Stephens and Stephens 1992; the
middle class, according to Lipset 1959). But at other times, the reasons have nothing to do
with economic development: The military government decides that the political system is
too centralized and sets in motion a process that, against its own preferences, ultimately
leads to an alternation in power via competitive elections (Lamounier 1984); geopolitical
considerations importantly shape the decisions of the dominant party to implement polit-
ical reforms (Dickson 1998); the military, which is unable to govern the country or win an
international war of its own making, gives up power (like in Argentina, according to Munck
1998 and Karl 1990); a civil war ends militarily in a way that induces warring factions to
accept power-sharing agreements (Mukherjee 2006); neighbors and regional partners be-
come increasingly democratic (Gleditsch 2002; Brinks and Coppedge 2006; Elkins and
Simmons 2005; Pevehouse 2005; Donno 2010); the leader allows elections to happen as
an attempt to avoid civil war (Cheibub, Hays, and Savun 2013); there is an international
norm that favors democracy (Hyde 2011); and so on. Whatever the reason, there is nothing
predetermined about the outcomes of interactions revolving around the establishment of
democracy. Transition games are characterized by a multiplicity of equilibria, including

both the establishment of a democratic regime and the perpetuation of an authoritarian
one (Przeworski 1991).
For whatever reason that democracy emerges, however, if competitive elections are held
in countries that are sufficiently rich, it is likely that democracy will remain the method that
will be adopted again to select the next leader, and so on. Democracy survives in rich coun-
tries. The same cannot be assured for poor ones.
Why would democracies survive in rich countries, while those in poor countries face
manifest risks of reverting to an authoritarian regime? Przeworski (2005) addressed this
question formally (see also Benhabib and Przeworski 2006), and here we simply present the
intuition behind the argument.
The fundamental fact about democracy is that those who lose elections peacefully accept
their defeat and wait for the next round of elections to compete again. We take this fact for
granted, in part because most of us who write and read papers like this one are lucky to live
in countries where this happens routinely. But the most important event in a democracy is
the moment after elections are held, the results are announced, and those who occupy office
leave and pass the keys to those who have been newly elected. This is the moment of truth,
without which no democracy could ever exist.
One way to interpret elections is to think of them as contests over the ability to decide
how to distribute income. In every election, those who take part must decide between two
choices about what to do: (1) They can choose to comply with the verdict of the election (in
which case, they will get some share of the income to be distributed, but certainly not all
of it). Or (2) they can decide to fight to become the dictator and decide alone how income
will be distributed. In the latter case, if they are successful, they will get everything that is
at stake; if they are unsuccessful, they lose everything. The short of a relatively long story
is that in poor countries the incentives for the political actors or the parties are such that
they will more often choose to fight to become the sole decision maker rather than comply
with the results of the election and get only a part of the pie that is to be divided. As they
fight, democracy obviously breaks down. In rich countries, even losers are relatively well
off, and fighting is extraordinarily costly. In a rich country, if but a pair of buildings topple,
billions of dollars worth of capital may be lost, valuing more than the annual income of
a poor country. The all-or-nothing option simply becomes untenable at a certain level of
development.
Why will political actors in poor countries choose to fight rather than comply with the
outcome of the election? The reason has nothing to do with cultural proclivities of politicians
in these countries, any lack of knowledge or experience on their part, or the lack of political
cunning. It is not that political actors in poor countries “just do not get it,” are “used” to vio-
lence, or do not “have what it takes” to live under a democracy. Instead, the reason political
actors in poor countries often choose to reject the results of elections—for example, when
incumbents try to steal the election or announce that they will not leave office, or when the
opposition seeks support from armed groups to overthrow the incumbent—stems from two
economic facts that distinguish poor and rich countries: first, the value of an extra dollar
is smaller for those who already have many dollars; second, recovery from the destruction
of physical capital that fighting necessarily entails is faster in poor than in rich countries.
These two factors imply that, in poor countries, the value of becoming a dictator is rel-
atively high, and the cost of fighting is relatively low; in wealthy countries, in turn, the
gain from getting all rather than only a part of the income is relatively small, and the cost
of fighting to become a dictator is relatively high. This explains why we see more coups
and democratic reversals in poorer than in richer countries, even if democracy is estab-
lished quite frequently in poor countries. The difference is that in rich countries, when
democracies are established they tend to stay; in poor countries, they tend to die into an
authoritarian regime. Let us emphasize that even though the conditions in poor and rich
countries, and hence the incentives political actors face in choosing how to act, are different,
the people themselves are not. In both rich and poor countries, they are assumed to have
the same motivations and the same capacity to evaluate their circumstances and make the
decisions that are best for them.
Return to Modernization Theory
The work of Przeworski and his collaborators challenges the core premise of moderniza-
tion theory: Economic development under a nondemocratic political regime will engender
democracy. They offer an explanation that both is compatible with the well-documented
positive correlation between economic development and the incidence of democracy and
makes no reference to any process of cultural or social transformation resulting from eco-
nomic expansion.
This view, of course, has not gone unchallenged. Although all the best work in political
science on the subject now accounts for the dynamics of democratization, not all scholars
agree that development only matters for sustaining democracy, not for bringing it about.
Most concur that democracy is more likely to survive at higher levels of economic develop-
ment, but some also contend that democracy is more likely to emerge as an authoritarian
regime develops economically. In both cases, the survival finding is unambiguous, while the
emergence finding requires some nuance.
In one study, conducted by Epstein, Bates, Goldstone, Kristensen, and O’Halloran
(2006), the nuance is gradations of democracy. These scholars show that if one accounts
for an intermediate category of political regime—something between dictatorship and
democracy—there is evidence that as an economy develops, transitions to higher levels
of democracy become more likely. A problem we see with this study is that the authors
do not rigorously define their important new category of intermediate regime. Indeed,
in substantive terms, the category is not defined at all. The only “definition” one finds in
the work is that partial democracies are the regimes situated in the [+1, +7] interval of the
“Polity IV” measure. This interval, however, is arbitrary; it is neither justified by usage nor
by authority.10 Since there is no theoretical reason to slice the “Polity IV” scale in any par-
ticular way, the validity of the results depend on their robustness. And, as we have shown
in other work (e.g., Cheibub and Vreeland 2011), the results in the Epstein et al. (2006)
study happen to be too robust: they can choose to define the intermediate regime category
all the way from the [+1, +7] to the [–9, +9] interval, and they still find a positive coeffi-
cient for economic development when predicting transitions to democracy. In the former
case, “partial democracy” comprises 811 observations; in the latter, it comprises 4,503. But
what does it mean substantively to say that economic development affects the probability
of transitions to democracy if we consider partial democracies, when “partial democracy”
can mean virtually anything? When it can be defined to comprise a sample as small as 811
or as large as 4,503?
Boix and Stokes (2003) also challenge the findings of Przeworski and his co-authors with
two basic claims.11 First, had Przeworski et al. (2000) extended their analysis to the pre-
1950 period, they would have found that economic development had a statistically and sub-
stantively significant impact on the probability that an authoritarian regime will collapse
and a democracy will emerge. Second, Boix and Stokes argue that some key confounding
factors—such as income distribution and oil or the international system—must be included
in an analysis of democratic transitions for the post-1950 period in order to detect the real
effect of economic development on democratic transitions.
Regarding the second claim, they contend that the emergence of democracy is con-
tingent on what is at stake to redistribute. Under conditions of extreme income
inequality—or in countries where the productive assets are immobile, such as oil-rich
countries—democratization could lead to incredible economic upheavals through the re-
distribution of income or assets (or both).12 Because of this threat, elites in such societies are
willing to pay a high price for repressing democratic movements. The emergence of democ-
racy may be stymied despite economic development because of the political consequences
in these countries.13 Similarly, they argue that the effect of development on democracy
emergence would have been observed in the post–World War II period had it not been for
the Soviet Union’s role in crushing several democratizing movements in the rapidly devel-
oping countries under its influence. Once such cases are controlled in the data, Boix and
Stokes argue, one should see that economic development does play a role in promoting the
emergence of democracy: In non–oil rich countries with relatively low levels of income in-
equality, economic development leads to democracy.
Just as original modernization theorists made compelling arguments about the trans-
formation of culture and society as a function of economic development, Boix and Stokes
provide a compelling rational-choice mechanism linking development to the emergence
of democracy. The weakness of this research is once again that the findings are not robust.
That is, if we change the way the variables are defined, so as to include or exclude marginal
cases, if we introduce other variables, or change the sample of cases, the main finding on
economic development does not hold. Indeed, in other work we have shown that Boix and
Stokes mistakenly treat three observations in their sample.14 The technical mistake is un-
derstandable and unintended. Surprisingly, however, if we correctly address these three
observations, then the statistically significant effect of per capita income on the emergence
of democracy disappears. The original result is thus fragile.
Moreover, the extension of the analysis to the pre-1950 period is also problematic. Using
the same data as Boix and Stokes, one can see that even during the 1901–1949 period, statis-
tical analysis reveals no relationship between economic development and the emergence of
democracy. There is some evidence of a correlation during the 1850–1900 period, but one
must base conclusions on a handful of cases, and data on potential control variables are
unavailable for this historical period.15 The analysis thus leaves us with some skepticism.
In more recent work, Boix (2011) introduces two further factors on which to condition
the effect of economic development on democracy—one “endogenous” and the other “ex-
ogenous.” The endogenous factor is that there are diminishing returns to income. Beyond
a certain level of income, he contends, further economic growth has little impact on de-
mocratization. The exogenous factor, which actually generalizes the argument made about
the role of the Soviet Union in preventing democratization in countries that would have
otherwise democratized, is the international system. He notes that waves of transitions to
and from democracy have accompanied major changes in global power. Waves of autoc-
racy in the 1930s and 1950s are associated with the rearmament of Germany under Hitler
and the beginning of the Cold War, respectively. Democracy waves in the 1920s, late 1940s,
and 1990s, respectively, are associated with the defeat of the Central European empires in
1918, the end of World War II, and the end of the Cold War. Once Boix accounts for these
confounding factors, he shows robust statistically significant effect of income-level on de-
mocracy. The result even holds when controlling for country-specific factors, which we find
quite impressive. We return to this issue in the next section. It is unfortunate, however, that
Boix does not allow for differing effects of development on the onset and the sustainability
of democracy. He does account for the fact that political regime is serially correlated by in-
cluding lagged political regime in his analysis. But, ignoring the lesson of Przeworski and
Limongi (1997), he constrains the effect of income in such a way that it is captured by one
single coefficient. That is, the statistical model requires that income have the same effect
whether democracy is emerging or breaking down. We thus cannot use these findings to
settle that debate.16
Our objections aside, Boix’s studies (2003, 2011) and his work with Stokes (2003), as well as
the work of Epstein and his colleagues (2006), represent the vibrant and interesting ongoing
debate that continues in political science regarding the determinants of democratization.
Country-Specific Factors
Acemoglu and his collaborators (2007, 2008) have, more recently, altered the debate con-
siderably by rejecting the entire correlation between economic development and democ-
racy as spurious. They argue that the apparent correlation between development and
democracy actually derives from country-specific factors dating back centuries. Focusing
on former European colonies, they claim that the institutional structure built at the
moment of colonization—which they see as a “critical juncture” in the history of these
countries—created divergent development paths, which persisted through time. In in-
hospitable environments (e.g., the South American Andes), Europeans set up repressive
political structures to extract economic benefits from their colonies. Thus, one path was
characterized by economic failure and autocratic forms of governments. In more hospitable
environments (e.g., the northeast of the present-day United States), Europeans established
settler societies aimed at developing sustainable economies with more participatory forms
of governance. So the other path was characterized by economic success and democratic
forms of government—in particular, forms of government that impose constraints on the
executive power. Once these divergent paths are taken into consideration, they suggest, the
relationship between development and democracy disappears: development affects neither
the probability of transition to democracy nor the sustainability of democracy.
Yet, further research is needed in order to substantiate this claim. The empirical evidence
provided by Acemoglu and his colleagues comes from the estimation of regime-transition
models that include country fixed-effects.17 They find that, once country fixed-effects are
allowed, the impact of per capita income disappears entirely. They further support their
claim that these fixed-effects capture the historical events that took place around critical
junctures by showing that they, the country fixed-effects, are themselves correlated with
variables that are correlated with the institutional structures created at the moment of
European colonization and the development paths that countries embarked on at that time.
Specifically, the country fixed-effects are correlated with (1) settler mortality rates at the
time of colonization, (2) indigenous population density in 1500, (3) the average constraint
on the executive in the country’s first ten years after independence, and (4) the date of inde-
pendence. The intuition behind their argument is that two major contributors to democra-
tization are the strength of civil society and the structure of political institutions (meaning
the constraint on the executive branch of government), and—due to exogenous factors—
these developed the furthest in Western Europe. Where Western Europeans settled in
large proportions and survived, so did their civil society and institutions. These factors
contributed to both economic prosperity and democratization.
The estimates of country fixed-effects, thus, play a crucial role in the analysis of Acemoglu
and colleagues; not only do they use fixed-effects to eliminate the findings that per capita
income causes democracy to emerge and survive, but also to support their alternative claim
that what matters is the developmental path that countries embarked on at the moment of
European colonization. Yet this approach does not allow one to distinguish the civil society
and institutions that settlers bring with them from any other factor associated with the
country, such as its resource endowment, latitude and longitude, size, strategic importance,
etc. Part of the reason fixed-effects are used is to capture the effect of factors—whatever
they are—that are unique to each country and that may be affecting the dependent variable.
Interpreting fixed-effects as evidence that a specific factor is at work should be done, at best,
with a high degree of caution.
The use of country fixed-effects in the estimation of models of political regime change
is also problematic for statistical reasons. Some countries, such as the United States and
some in Western Europe, experienced a transition to democracy relatively early, and then
never changed. Others came into existence as independent entities under a nondemocratic
regime and have remained a nondemocracy (albeit of a different type in some cases) for
the rest of their history.18 Because they do not vary over the periods covered in specific
analyses, these cases effectively do not count when a country-fixed-effects approach is
employed. One can think of the problem this way: What is the probability of observing
a transition to democracy given that a country is always observed as a dictatorship? The
answer is zero. What is the probability of observing a transition to dictatorship given that
a country is always democracy? Again, the answer is obviously zero. We appear to “learn”
nothing from these cases, so they drop out of the analysis. But do we really learn nothing
from these cases?
Note, importantly, that the countries for which there is no variation in regime are not
randomly distributed around the world: the countries that established a democracy and
remained democratic for the period considered in most analyses tended to be relatively
wealthy, whereas the countries that were first observed as dictatorships and remained
dictatorships tended to be relatively poor. So, when we introduce country fixed-effects, we
drop key cases with respect to the question of economic development and democracy: we
effectively dismiss a large number of poor dictatorships and rich democracies, and there-
fore we disproportionately base the estimation of the impact of per capita income on tran-
sition to and from democracy on observations of countries with middle levels of per capita
income. Given this country-fixed-effects set-up, the lack of a statistically significant impact
of per capita income should come as no surprise.19
That said, more recent research has actually reestablished a correlation between develop-
ment and democracy, even when controlling for country fixed-effects. As noted in the pre-
vious section, Boix (2011) controls for country and year fixed-effects and further accounts
for the possibility of diminishing returns from income and for international factors in his
analysis. In this context, he shows that per capita income is correlated with political regime.
Another study, authored by Benhabib, Corvalan, and Spiegel (2011), also finds a positive and
statistically significant correlation between economic development and democracy. Their
innovations include a newer data set than used by Acemoglu et al. (2008); importantly, they
employ methods (e.g., the Tobit model and the two-sided estimator) that explicitly account
for the fact that regime transitions are typically censored. This approach addresses precisely
the problem highlighted previously, that we do not observe countries for sufficient duration
to know if or when they would transition from one political regime to the other.
Our disappointment in these recent studies, which have reaffirmed the old correlation
between development and democracy, is that they have forgotten the lessons of Przeworski
and Limongi (1997). On the bright side, all of the recent work accounts for the fact that a
country’s past political regime influences its future. They do this by including the lagged
political regime in their statistical models. In this sense, the models are “dynamic.” Yet,
they do not allow development to have different effects on (1) the emergence of democracy
and (2) the survival of democracy. In technical terms, allowing for two effects would re-
quire “interacting” the lagged measure of democracy with per capita income. This approach
would allow per capita income to have differing effects in autocracies and democracies. As
the new models stand, they control for whether the previous regime was an autocracy or a
democracy, but they do not condition the effect of income on the previous regime.
Our goal is not to dismiss the contributions of any of these authors. We find it exciting
that the debate has so many sides. On one side, some believe the correlation between devel-
opment and democracy is spurious. On the other side, among those who believe there is a
robust and statistically significant correlation, there are those who interpret it as implying
that development causes democracy to emerge (modernization theory), while others do
not. We continue to find most convincing the evidence that democracies survive at high
levels of economic development. Thriving and imaginative as the development and democ-
racy research agenda is, we are far from reaching a consensus over why we observe a corre-
lation between the two variables.
What Can Be Done?
If one were to search the literature for the factors that have been found to affect democra-
tization, one would end up with quite a long list. One would think that with an extensive
catalog of “determinants,” we would have an effective model of democratization. This model
might tell us when to expect the emergence of democracy, and when to expect its collapse.
Yet, this is not the case. In spite of all the work that has been done on the subject, all
the brainpower and the resources that have been dedicated to figuring out the conditions
under which democracy emerges and survives, we are utterly unable to predict when a
regime change will occur. No one predicted the fall of the communist regimes of Eastern
Europe in 1989–1990, but they gave way to democracy. Many expected the downfall of de-
mocracy in countries such as Brazil and Argentina in the 1980s and 1990s, and yet democ-
racy in these countries has survived well in the midst of challenging social and economic
conditions. Given the level of mobilization of civil society in Myanmar, few expected that
the military would ignore the results of the 1990 election and reverse the process of de-
mocratization. The survival of democracy in India, with its low per capita income and high
degree of ethnic and religious fragmentation, is still a source of puzzlement for anyone con-
sidering the conditions under which democracy emerges and survives. And there were few
observers who believed that democracy would come to Mexico in the peaceful way that it
did in the 1990s.
Our predictive power with respect to the emergence of democracy is virtually zero. Part
of the reason is, to a large extent, the fact that transitions from authoritarian regimes to
democratic ones are extraordinarily uncommon. In our data set, which covers 140 authori-
tarian regimes that have existed between 1946 and 2008, democratic transitions occur about
2 percent of the time.20 Transitions to democracy, thus, are rare events; as we have seen, they
occur in all sorts of contexts. Moreover, many of the facts considered to be important are
not ones over which anyone can have much control. For example, there is mounting evi-
dence that countries with oil are less likely to experience democratic transitions, but there is
not much that a policy-maker can do about whether oil is under the ground in a country.21
As the emergence of democracy is so uncertain an event, we question the efficacy of
many democracy-promotion efforts. This skepticism does not imply, however, that we
think countries and international organizations should abandon democracy-promotion al-
together. Rather, we suggest that the best way to promote democracy might be to aid in
the survival of democracy. We do know something useful and robust about the survival
of democracy: It is more likely at higher levels of democracy. Moreover, we know that the
chances of democratic breakdown reduce to near zero beyond a per capita income level of
about $8,000 (again, measured in 2005 constant purchasing power parity prices). We de-
rive this approximate threshold from observational data, and its statistical significance is
supported by rigorous analysis (for more precise details, see Przeworski et al. 2000).
Table 1.1 thus provides an explicit list of “democracies at risk,” specifically identifying the
currently existing democracies that are below this income threshold.22 We suggest that the
impact of assistance may be strongest for the countries near the top of the list. The very poor
democracies have such a long road to travel that it would take the commitment of multiple
generations of administrations to really have an impact. We speculate that the magnitude,
sophistication, and level of commitment similar, for example, to the one demonstrated by
the United States with the Marshall Plan that helped with European reconstruction after
World War II, might yield more favorable results in poor democracies. This, however, is not
a realistic expectation.
We expect, instead, the continuation of democracy-promotion programs as they exist
today—that is, at low levels of financial commitment by the rich democracies. Democracy
promotion is now a relatively large industry: there are many agencies and organizations and
many people who depend on the continuation of existing programs for the overall policy to
be changed in any significant way in the short run. But it might help to keep in mind that
the impact of these programs is, at best, small and that, as a consequence, one should be
cautious about what one tries to accomplish with them.
Table 1.1 Current Democracies with Per Capita Income Less Than $8,000

Country Per Capita Income Country Per Capita Income
Thailand $7,794 Macedonia $7,678

Colombia $7,529 St.Vincent & Grenadines $7,372
Peru $7,280 Marshall Islands $7,092
Albania $6,643 Dominica $6,577
Vanuatu $6,535 Ukraine $6,406
El Salvador $6,339 Guatemala $6,285
Ecuador $6,171 Armenia $5,369
Georgia $5,052 Bhutan $4,566
Maldives $4,458 Kiribati $4,092
Indonesia $4,075 Sri Lanka $4,034
Bolivia $3,794 Cape Verde $3,779
Paraguay $3,705 Honduras $3,605
Micronesia, Fed. Sts. $3,329 India $3,238
Mongolia $3,167 Philippines $2,839
Papua New Guinea $2,746 Moldova $2,494
Pakistan $2,353 Kyrgyzstan $2,299
Nicaragua $2,191 Nigeria $2,034
Solomon Islands $2,005 Sao Tome and Principe $1,680
Senegal $1,492 Ghana $1,239
Nepal $1,211 Kenya $1,206
Timor-Leste $1,155 Benin $1,116
Comoros $916 Sierra Leone $873
Guinea-Bissau $818 Madagascar $753
Malawi $653 Niger $534
Liberia $397 Burundi $368
Notes: Per capita income is measured in 2005 constant purchasing power parity prices, and the
observations are from the year 2009.
Source: Penn World Table 7.0 (Heston et al. 2011).
Thus, we would like to conclude by summarizing the practical implications of our anal-
ysis: Scholars may know a lot about democracy, but this knowledge does not allow us to
predict its emergence in any significant way. We do know that democracies survive in richer
countries. The policy prescription that follows from this piece of information is that the best
way to support democracy is to support the economic development of poor democracies.
Notes
1. This is the per capita income of Argentina in 1976, the wealthiest democracy to ever have
succumbed to a dictatorship. The income data come from Heston et al. (2011).
2. The study, by Finkel, Pérez-Liñán, and Seligson (2007) finds that the USAID program
has a positive but negligible effect on a recipient country’s level of democratization. The
study measures democracy on a scale that ranges from 1 (least democratic) to 13 (most
democratic); it shows that an additional 10 million dollars in democracy and governance

spending would increase the level of democracy by .25 points on this democracy scale
(Finkel et al. 2007, p. 424). During the period covered by the study (1990-2003), ninety-
three countries receive an average of two million dollars in democracy aid through the
USAID program. Given this result, in order for democracy to increase by .25 points
on the democracy scale, the average level of funds would have to be five times larger
than it actually is. The average amount of resources that is actually spent on democ-
racy promotion can be expected to move a country by .05 points on the scale. Thus, for
democracy promotion to be able to move existing democratic regimes on the 13-point
democracy scale in a significant way, the amount of resources available must increase
substantially. Given the current state of economic affairs in the United States and in
other rich democracies, it is hard to imagine that support for such an increase will be
forthcoming any time soon.
3. An excellent review of economic modernization and criticisms can be found in Oman
and Wignaraja (1991). Critical discussions of modernization and other development
theories include So (1990), Roxborough (1988), Valenzuela and Valenzuela (1978), Tipps
(1973), and Rustow (1968).
4. See also Lipset (1960, ch. 2).
5. See Diamond (1992) for a similar reading of Lipset.
6. See Cutright (1963), Neubauer (1967), Cutright and Wiley (1969), Smith Jr. (1969), and
Jackman (1973).
7. On the role of modernization theory in policy-making, see Packenham (1973) and
Gilman (2003).
8. See also the passage in which Lipset (1959, p. 85) summarizes the “historically unique
concatenation of elements” that linked the development of capitalism and the emergence
of democracy in “northwest Europe and their English-speaking offspring in America and
Australasia.”
9. Bollen (1990, pp. 15–16) took Lipset and other early empirical researchers to task for
confounding the two. See also Bollen and Jackman (1989).
10. Other work that classify partial democracy on the basis of Polity tend to use the in-
terval [–5, +5] (e.g., Fearon and Laitin 2003; see Vreeland 2008 for a discussion). The
authors of Polity recommend that one dichotomize the measure at +6 or +7 (Marshall
and Jaggers 2000).
11. See also Boix (2003).
12. For related work on income inequality and political regime, see Rosendorff (2001) and
Desai et al. (2003).
13. See, however, Houle (2009) for compelling evidence that income inequality is not related
to the emergence of democracy, but strongly related to its survival.
14. Bulgaria in 1990, Czechoslovakia in 1990, and Hungary in 1990. See Cheibub and
Vreeland (2011, pp. 165–166).
15. Again, see Cheibub and Vreeland (2011, pp. 162–164).
16. One explanation for this change in analytical position can probably be explained by
the fact that, unlike in Boix and Stokes (2003), the target in Boix (2011) is the work of
Acemoglu and Robinson who claim that per capita income is only spuriously correlated
with democracy. His concern, therefore, is to demonstrate that this is not true. He does so
by instrumenting per capita income. We are not entirely convinced that the instruments
he uses are adequate.
17. For readers unfamiliar with this jargon, a “fixed-effects” model is equivalent to including
a separate variable that uniquely identifies each country. So, if there are 135 countries in
the sample, 134 additional variables are de facto included to “control” for the “Algeria”
effect, the “Angola” effect, all the way to the “Zambia” effect, the “Zimbabwe” effect.
18. This is true whether one uses a dichotomous regime measure or, say, Polity, a 21-point
scale. Some countries achieve the highest score and remain there, or never move from the
lowest.
19. The data Acemoglu and his associates use to support their claim about the importance of
critical junctures, specifically, the critical juncture represented by the onset of European
colonization of the rest of the world, are not entirely free of problems. There is an ongoing
debate regarding their coding decisions, which we avoid here. Albouy (2006), probably
the most systematic of the critics of their data efforts, however, calls attention to the
fact that there may be a bias in the coding decisions of the settler mortality rates to-
ward assigning high values to countries that have “bad” institutions today. See Acemoglu,
Johnson, and Robinson (2006) for their reply to Albouy’s critiques.
20. Specifically, we observe 5,041 country-years of authoritarianism with 102 transitions to
democracy (Cheibub et al. 2010).
21. See, for example, Ross (2001, 2008), Boix (2003), Boix and Stokes (2003), and Gassebner
et al. (2013). For recent research with contrasting views on the importance of oil, see
Dunning (2005), Bazzi and Blattman (2011), and Liou and Musgrave (2012). For a quali-
tative study of authoritarianism in the Middle East, see King (2010). For broader studies
of the survival of autocracy, we also recommend Quinn (2009) and Gandhi (2008).
22. At our first writing, Mali was on our list as it had a democratic regime and a per capita in-
come listed as $999. We had listed it as the ninth most at-risk democracy in the world (it
was ninth from the bottom on our list of fifty-one poor democracies). The recent collapse
of democracy there has led us to remove it from our list of at-risk democracies. The risk
has already been realized.
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Chapter 2
Dependenc y T h e ory

James Mahoney and Diana
Rodríguez-F ranco
Writing in 1985, Peter Evans declared, “Dependency ‘theory,’ if such a thing ever existed,
may well have had its day. But the rich tradition of work that has been associated with
the concept of dependency continues to thrive and expand its horizons, both substantively
and theoretically” (1985: 159). In this chapter, we explore the dependency theory tradi-
tion of work as it has evolved over the more than twenty-five years since Evans made this
assessment. We consider the extent to which and how this tradition continues to influence
scholarly work in the field of international development.
We begin by proposing two ways of viewing the substance of dependency theory: (1) as
a set of general concepts and orientations for formulating theories and explanations; and
(2) as a set of directly testable and falsifiable hypotheses. We then consider the utility of de-
pendency theory for explaining outcomes across diverse empirical domains: (1) historical
trajectories of development in Latin America; (2) sustained high economic growth in South
Korea and Taiwan; (3) contemporary processes of globalization; and (4) recent high growth
in China and some of its raw material suppliers.
We find that the utility of dependency theory rests partly on how one understands this
tradition. As a testable theory, the record for dependency theory is mixed. Many simplistic
and predictive hypotheses associated with dependency are clearly false (e.g., the impossi-
bility of capitalist development in the periphery). Other more sophisticated hypotheses have
done a better job of withstanding empirical scrutiny, though even here the results are not
unambiguously positive. As a theoretical frame, by contrast, dependency theory has been
quite successful. Several dependency theory concepts are now built into the way in which
mainstream scholars study development, even if they do not call themselves dependencistas.
In addition, many recent theoretical innovations at the cutting edge of the field of develop-
ment can be seen as evolving directly from the dependency theory tradition.
What Is Dependency Theory?
The term “dependency theory” is associated with a heterogeneous set of ideas, ranging
from causal propositions about the possibilities for development in general to concepts for
Dependency Theory 23
analyzing historical processes of development in specific cases. One’s understanding of the

meaning of dependency theory shapes one’s evaluation of its past and present contributions.
The Rise of Dependency Theory

Dependency theory has roots in longstanding intellectual traditions, most notably the
Marxist tradition and writings on imperialism (e.g., Baran 1957; Hobson 1902; Lenin 1916).
But the emergence of dependency theory as a modern approach to development in the
1960s was due mostly to analysts of Latin America who were attempting to make sense of
the inability of this region to experience the kind of industrial development that marked
the advanced capitalist nations. Early formulations came from economists working at the
United Nations’ Economic Commission for Latin America (ECLA), including director Raúl
Prebisch (1949), who rejected the optimism that the neoclassical model assigned to growth
via trade and comparative advantage. In the 1960s, social scientists and historians in Latin
America looking at the structural roots of underdevelopment reached similar conclusions
and elaborated these ideas into what is now known as dependency theory. Important
founding scholarly works include Cardoso and Faletto (1969); dos Santos (1968, 1970a,
1970b); Furtado (1965, 1971); and Sunkel (1967, 1970). Many of the original dependencistas
were in close communication with one another, with several working together in Santiago
after the military seized power in Brazil in 1964. Variants of dependency theory (perhaps
not under this label) were simultaneously being developed and applied in English language
works by scholars such as Amin (1972), Emmanuel (1972), and Frank (1966, 1967).1 Key de-
pendency theory ideas such as unequal exchange and the notion of a core-periphery struc-
ture were also brought into studies designed to explain the evolution of the capitalist world
economy and the politics of the state system since 1450 (Wallerstein 1974). The resulting
tradition of world systems theory was, in this sense, an extension or offshoot of dependency
theory.
Dependency theorists reacted to and rejected core tenets of modernization theory, as it
existed in the post–World War II period. Whereas modernization theory seemed to suggest
that there was a single path to modernity that most or all underdeveloped states would even-
tually follow, dependency theorists believed that the countries of the Third World could not
follow a pattern of development at all similar to the rich western countries. And whereas
modernization theorists often explained underdevelopment in terms of causes internal to
the societies of the poor countries, especially traditional cultural orientations and values,
dependency theorists stressed the hierarchical and enduring structure of the international
economy and its relationship to internal class dynamics. Indeed, an important feature of
any version of dependency theory is the idea that the development of poor countries is
strongly conditioned by their relationship to wealthy countries and their positioning within
the global capitalist economy. From this idea comes the dependency theory’s conceptuali-
zation of a world economy divided asymmetrically into a core and a periphery.
Already by the late 1970s, however, tensions existed within the dependency theory tra-
dition about the specific content and purposes of the “theory.” Notably, Cardoso (1977)
criticized the way in which dependency was being “consumed” in the United States. He
denounced a “vulgar” current that overemphasized external conditioning and failed to
attend fully to the interrelationship between domestic processes and external relationships
24 James Mahoney and Diana Rodríguez-Franco
and to the internal evolution of the peripheral countries themselves. Cardoso also expressed
skepticism about mechanical tests of dependency hypotheses, arguing that the theory is
designed to inform historical inquiries and critical analysis, not to serve as a “corpus of
formal and testable propositions” (1977: 15). Around the same time, Palma’s (1978) influen-
tial essay titled “Dependency: A Formal Theory of Underdevelopment or a Methodology
for the Analysis of Concrete Situations of Underdevelopment?” raised directly the question
of whether dependency theory was a set of testable hypotheses or a metatheory for directing
historical inquiry. Like Cardoso, Palma argued that it was the latter, but the existence of his
essay was a clear acknowledgment that different scholars understood the content and pur-
pose of dependency theory in quite varied ways.
Dependency Theory as a Theory Frame

Most of the original formulators of dependency theory viewed it as an approach to analysis
or what Rueschemeyer (2009: 12–17) calls a “theory frame.” Theory frames suggest orienting
concepts, point toward some variables as being important and others not, and raise general
questions for analysis. However, they do not offer fully specified and testable hypotheses.
Instead, theory frames need to be “filled in” with more specific hypotheses derived in the
analysis of concrete historical cases and problems. As such, a given theory frame cannot
be evaluated as right or wrong, but rather must be judged in terms of its usefulness for
structuring explanatory investigations.
Latin American scholars generally treated the concept of dependencia as referring to a
context, or background setting, within which processes of development take place (Duvall
1978: 57–59). The core feature of this context is the external conditioning of internal
processes. As dos Santos (1970b: 236) put it, a dependent country is one whose economic
development is “conditioned by the development and expansion of another economy.” The
word “conditioned” of course leaves open the exact nature and extent of influence. But
the central question for analysis was not how much dependence exists across times and
places. Latin American countries were not understood to be poorer or richer because they
had more or less dependence. Instead, dependencistas treated dependence as a common
background feature and sought to analyze its different situations, forms, or historical
manifestations (Cardoso and Faletto 1969). In turn, starting with the original versions, this
kind of specification required looking at the historically evolving relationship between ex-
ternal forces and internal processes.
As a theory frame, the dependency theory approach calls attention to several different
variables as potentially important for understanding specific manifestations of depend-
ence. These variables include transnational actors and processes as well as domestic classes
and the state (Evans 1979). To elucidate specific situations of dependency, scholars asked
questions about the structural interrelationships among economic groups and states.
The International Economy: What is the relationship between a peripheral economy and core
economies? How reliant on international trade is the peripheral economy? What kinds of
products are being exchanged via trade (e.g., primary goods for manufactured products)?
What is the overtime trend in terms of trade?
Multinational Capital: What is the relationship between local entrepreneurs and mul-
tinational corporations? What is the relationship between the state and multinational
corporations? How much and which parts of the productive apparatus of a country are
foreign-owned?
The Local Bourgeoisie: What is the nature of the local bourgeoisie? How much economic
power does it command? What relationship does it have with classes and interest groups in
the advanced industrial nations?
The State: To what extent and in what ways does the state promote local industrialization
and development? How much and what forms of leverage do dominant classes have within
the state? What is the relationship between the state and transnational capital?
Dependency theory—as a theory frame—calls on scholars to pay attention to these kinds of

questions. The frame is useful insofar as answering these questions helps one to understand
and explain concrete development outcomes in specific cases. However, these questions
themselves are descriptive and do not contain specific explanatory hypotheses. They pro-
vide orienting concepts and point toward issues to be addressed, but they are not directly
testable themselves.
Dependency Theory as Testable Hypotheses

While most of the Latin American scholars who helped create dependency theory un-
derstood it as a theory frame, the approach was soon also evaluated as a set of directly
testable hypotheses about development and underdevelopment. North American scholars
were especially eager to assess dependency theory based on the empirical validity of its
propositions. The task was never straightforward, however, because the specific testable
propositions associated with dependency theory were not readily apparent.
In the most simplistic treatments, dependency theory was understood to embrace the
hypothesis that capitalist development within the periphery is simply impossible, given the
reliance of these countries on a single primary export, the negative terms of trade, tech-
nological dependence, and foreign ownership of the local productive apparatus. The as-
sociation of dependency theory with this hypothesis is also rooted in some dependency
theorists’ exploration of socialism and withdrawal from the international economy as a
plausible alternative to capitalist development (see Packenham 1992). In addition, cer-
tain early works—such as Frank (1966; 1967)—suggested that the development of the core
requires the underdevelopment of the periphery. From this came the conviction among
some that dependency theorists must believe that capitalist development cannot take place
in the periphery, a claim that was already obviously not true in the 1960s. Even today, su-
perficial dismissals of dependency theory continue to follow this line of argumentation.
More rigorous efforts to scientifically test dependency theory have explored the effects
of external factors on varying development outcomes among peripheral economies. This
research essentially tests Frank’s hypothesis proposing that “the satellites experience their
greatest economic development . . . if and when their ties to their metropolis are weakest”
(1966: 9). In particular, scholars explore statistically whether the level of dependence is
nonspuriously associated with outcomes such as economic growth (e.g., Boswell and
Dixon 1990; Dixon and Boswell 1996; Firebaugh 1992, 1996); inequality (Chase-Dunn 1975;
Evans and Timberlake 1980); and rebellion (Boswell and Dixon 1990). In these works, the
extent of dependency is usually measured with data on the level of foreign investment and/
or the level of trade with core nations. Cross-national statistical tests are then conducted
in which relevant controls are used in the effort to assess the net effect of the level of
dependency.
Unfortunately, the findings of this literature are subject to considerable debate. The
source of the debate is linked to the fact that the statistical tests used in this literature are
sensitive and specific measures, control variables, and regression methods (e.g., Jackman
1982). Different and even opposite conclusions can be generated by alternative models
and methods. Dependency theory is not unique in facing this kind of methodological
challenge. In this case, however, the problem has meant that findings often mirror political
divisions: scholars more sympathetic to neo-Marxist approaches find that the level of de-
pendency is negatively related to important development outcomes, whereas scholars not
predisposed to neo-Marxism reach opposite conclusions. Since the late 1990s, this stream
of statistical research has turned more to issues concerning global inequality. But once
again, findings are sensitive to statistical measurement and modeling issues, and scholars
with alternative ideological predispositions disagree among themselves (e.g., Firebaugh
2003; Korzeniewicz and Moran 2009). Thus, while dependency theory has been highly
successful at stimulating exercises in empirical hypothesis testing among statistically in-
clined researchers, the validity of its hypotheses remains quite contested.
This mixed or inclusive record of dependency theory as a set of testable propositions
would not trouble most of the formulators of this theory, given that they never intended it
to be used or evaluated in this way. They would surely argue that dependency theory as a
theory frame has had clear successes in teaching us about the sources of development and
underdevelopment in concrete cases in the past and present. The next section considers this
line of research across diverse substantive domains.
Dependency Theory and the Study of

Development
To explore the validity of Evans’s assertion that dependency theory “continues to thrive and
expand its horizons, both substantively and theoretically,” we examine works related to this
tradition in four areas: (1) historical trajectories of development in Latin America; (2) sus-
tained high economic growth in South Korea and Taiwan; (3) contemporary processes of
globalization; and (4) contemporary high growth in China and some of its raw material
suppliers. In doing so, we treat the dependency theory tradition as a theory frame to be
used in the analysis of concrete historical processes of development.
Historical Trajectories of Development in Latin America

Many of the original dependency theory studies were aimed at identifying the sources of de-
velopment problems in Latin America. These studies used dependency theory as a frame to
structure explanations of the long-run development trajectories for specific cases. Perhaps
the most famous study in this vein is Cardoso and Faletto’s Dependencia y desarrollo en
América Latina (1969).2
Cardoso and Faletto explored how different dependency theory situations shaped the ev-
olution of political and economic development in the region. Above all, they called attention
to two kinds of dependence: enclave economies and nationally controlled economies.
Enclave economies originated beginning in the late nineteenth century, when foreign cap-
ital investment came to dominate the most profitable sectors of the local economy. At the
extreme, foreign enclaves stunted industrial development, leaving economies rural and
backward, as in many parts of Central America. In less extreme situations, enclaves were
established without completely undermining urban growth, as in Chile, Mexico, Peru, and
Venezuela. Even here, however, industrial development was distorted and dependent on the
core for technology, especially when the middle classes could not wrest control from rural
oligarchs (Cardoso and Faletto 1969, 101–124).
In nationally controlled economies, by contrast, a local dominant class maintained con-
trol of the productive process. Although the starting point of capital accumulation in these
economies was internal, they nonetheless depended on the international market “to realize
the final steps of the capital circuit” (Cardoso and Faletto 1969, xixi). The extent to which
the national bourgeoisie could control external relations shaped the form and extent of de-
velopment. Argentina went furthest in developing this control, but even the Buenos Aires
bourgeoisie was partially subservient to British interests. In other nationally controlled
economies, such as Brazil and Colombia, the bourgeoisie was weaker, and internal class
conflict among landed elites, middle sectors, and merchants drove political dynamics and
uneven patterns of industrial development (ibid., 82–99).
Cardoso and Faletto’s explanation thus used general theoretical principles while still
looking closely at concrete historical cases. These authors emphasized the complex inter-
play of external and internal factors, calling attention to the distinctive structural situations
of individual cases. Their explanation of outcomes took as its starting point the degree and
type of linkages between domestic elites and external actors. But they also focused centrally
on internal class dynamics, including the historically evolving relationship between class
actors and the extent to which these actors controlled the state.
In truth, nearly all of the original empirical studies in the dependency theory tradition
gave central attention to domestic structures and dynamics. For instance, while the work
of Andre Gunder Frank is now sometimes understood to represent a simplistic version of
dependency theory, its empirical analysis paid much attention to local class structure and
internal processes of change. In Capitalism and Underdevelopment in Latin America (1967),
which focused on Chile and Brazil, Frank argued that the original sources of underdevelop-
ment were rooted in the colonial period and its aftermath. He especially stressed domestic
dynamics linked to land ownership, agrarian production, and class conflict within the
rural sector. While various criticisms can be raised about his explanation, Frank’s empirical
narrative is not a good example of a simplistic dependency theory that focuses almost ex-
clusively on external relationships.
The early work on Latin America had a substantial influence across various domains,
four of which we discuss here. First, the theory strongly influenced many scholars who did
not explicitly or fully identify themselves as dependency theorists. For instance, Guillermo
O’Donnell’s (1973) work on bureaucratic-authoritarian regimes in South America, Nora
Hamilton’s (1982) study on state autonomy in Mexico, and Gary Gereffi’s (1983) analysis
of the pharmaceutical industry were all steeped in the dependency theory tradition. As
Evans (1985) points out, even some studies that explicitly rejected dependency theory (e.g.,
Becker 1983) could be seen as largely consistent with this approach when it is understood
as a theory frame.
Second, dependency theory was closely linked to economic policy within Latin America,
specifically the policy of import substitution industrialization (ISI) that began after the
Great Depression and took off in the 1950s and 1960s. Advocates of ISI suggested that the
position of the Latin American economies in the world economy as food and raw material
exporters was disadvantageous, industrialization was necessary for development, and the
achievement of industrialization required protecting local industries by replacing imports
from the advanced countries with the domestic production of manufactured products.
The remedy involved a package of policies that included protective tariffs, preferential
import exchange rates for industrial raw materials, public financial support for favored
industries, and direct state participation in certain (often “heavier”) industries. Although
these ISI policies arose from various sources (e.g., wars, balance-of-payments problems,
and growing domestic markets), they grew up along with and were likely influenced by
(and also influenced) dependency theory. For instance, Prebisch’s (1949) original ECLA
statement urged the adoption of industrialization via the domestic market, as did other key
dependency works, such as Furtado’s (1960) influential analysis of development policy in
Brazil (see Hirschman 1968).3 In turn, it is probably no accident that the replacement of ISI
policies with market-oriented approaches in the 1980s went hand in hand with the decline
of dependency theory as an explicit mode of analysis.
Third, scholars drew upon the work of Latin Americanists to make sense of historical
development trajectories in other regions. For example, scholars working on sub-Saharan
Africa—such as Samir Amin (1972) and Walter Rodney (1972)—were strongly influenced
by dependency theory and used this frame to structure their comparative- historical
explanations of underdevelopment in the region. Postcolonial African leaders themselves
may also have been influenced by versions of dependency theory when pursuing macroeco-
nomic policy (Ahiakpor 1985). As explored in greater depth below, dependency theory was
also employed and assessed in light of successful development cases in East Asia.
Finally, it is worth noting the tight connection between the original dependency theory
work and the rise of comparative-historical studies of Latin America. When used as a
theory frame in substantive analysis, dependency theory studies typically fall within the
tradition of comparative-historical analysis associated with scholars such as Moore (1966),
Skocpol (1979), and Tilly (1992). The emphases of dependency theory on the role of colo-
nialism, class coalitions, and foreign investment and intervention are all featured in con-
temporary comparative-historical work on Latin America (e.g., Collier and Collier 1991;
Mahoney 2010; Paige 1997; Yashar 1997). Leading comparative-historical scholars of Latin
America (e.g., Collier and Collier 1991) explicitly see themselves as part of a larger effort to
explain the different paths of national development in the region—an effort that originated
with dependency theory in the 1960s.
The East Asian Newly Industrializing Countries

Sustained high economic growth with equity in the Newly Industrializing Countries (NICs)
of East Asia has attracted a great deal of attention among scholars of development over
the last three decades. Many analysts suggest that the developmental successes of South
Korea and Taiwan (and perhaps also Hong Kong and Singapore) pose serious challenges
for dependency theory. Among other things, they point out that, by the 1970s, the East
Asian NICs featured a model of export-led industrialization in which foreign investment
was often encouraged (Barrett and Chin 1987; Barrett and Whyte 1982). In addition, Taiwan
and Korea had experienced extensive colonial interference from Japan before World War II,
followed by heavy dependence on the United States in the decades after the war (Amsden
1979; Hein 1992).
Yet other scholars have argued that the East Asian miracles vindicate more than contra-
dict the dependency theory approach (e.g., Evans 1987; Gereffi 1989; Gold 1986; Koo 1987).
They insist that the best explanations of the East Asian success stories and even the crisis
of 1997 draw on ideas that are firmly rooted in the dependency theory approach. This ar-
gument is often developed by contrasting the East Asian NICs with their less successful
counterparts in Latin America (e.g., Gereffi and Wyman 1987).
One of the most contentious issues in this debate is the role of the state and the con-
tribution of government policy to the high growth. For some scholars who are skeptical
of the dependency theory approach, the export-led model of East Asia represents the tri-
umph of neoclassical economics (Balassa 1981; Little 1979; Westphal 1978). From this per-
spective, “the first wave of successful industrialization in East Asia emerged with the rapid
dismantling of government restrictions in the immediate post-war period, allowing the pri-
vate sector to operate freely under world market prices” (Akyüz et al. 1998: 5). For others,
however, the East Asian model of development always had a strong state as its agent of ac-
cumulation and thus is quite inconsistent with neoclassical tenets (e.g., Amsden 1979, 1989;
Aoki, Kim, and Okuno-Fujiwara 2006; Haggard 1990; Haggard and Moon 1983; Kohli 2004;
McGuire 1994; Wade 2003). State-centric scholars nevertheless disagree among themselves
about the extent to which East Asia’s state-led development supports dependency theory. At
issue is one’s interpretation of dependency theory and whether this theory permits state-led
development.
By the 1990s, leading development theorists in political science and sociology—and even
international organizations such as the World Bank—tended to agree that the East Asian
states were “strong” not only in their ability to actively intervene in economic development
but also in the sense that they had considerable autonomy from elite classes, especially when
compared to their Latin American counterparts (Evans 1987, 1995; Johnson 1982; Koo 1987;
McGuire 1994: 229).4 Vigorous government intervention in specific industries, especially
in labor-intensive industries like manufactures for export, lay behind the rapid growth.
Likewise, public investment in education, the use of targeted credit programs for promoting
exports and research and development, and the implementation of extensive technological
policies helped to drive economic development without exacerbating inequality (Amsden
1989; Aoaki, Kim, and Okuno-Fujiwara 2006; Koo 1987; McGuire 1994; Rodrik 1997; World
Bank 1993). In fact, scholars hold that the dismantling of previously effective developmental
states during the 1990s as well as financial deregulation were critical causes of the 1997 East
Asian financial crisis (e.g., Wade 2003).
Some prominent dependency theorists, including notably Evans (1987; 1995), find that
the East Asian success also was rooted in the relative autonomy of the state from dominant
economic classes. As in Latin America, the East Asian NICs were marked by a triple alliance
between the local industrial bourgeoisie, transnational capital, and the state. However,
whereas foreign capital was the dominant partner of this alliance in Latin America, the state
was the leading actor in the East Asian triple alliance. In East Asia, unlike Latin America,
strong states were in place before multinational corporations entered the picture, allowing
these states to dictate better the terms on which MNCs would participate in the economy.
In fact, while Latin American countries sought to deepen their industrialization in the mid-
1950s by welcoming foreign direct investment, the latter was absent in East Asia during
the crucial transition to industrialization and remained limited before the 1980s (Gereffi
1989: 515). More generally, state autonomy enabled the East Asian NICs to pursue public
policies conducive to export-oriented industrialization. Whereas the Latin American states
were often “captured” by ISI coalitions, the autonomous states of East Asia were able to
more easily move out of ISI policies when external conditions were conducive to export-
oriented growth models. The success of these export-oriented models was facilitated by
the growing markets available to the East Asian NICs—markets that could not be easily
reached by countries in the western hemisphere (Evans 1987; Koo 1987).
Moreover, the East Asian states were stronger in relation to a third actor sometimes ne-
glected by scholars working in the dependency theory tradition: local rural elites. In Korea
and Taiwan, the state was decoupled from the landlord class during the extended period of
Japanese colonization prior to 1945 (Kohli 1994). Once independent, these states engaged in
extensive land reform, which not only aided in reducing the gap between rich and poor but
also spurred economic growth inasmuch as the resulting small, owner-operated farms were
more productive (Evans 1987; Koo 1987; McGuire 1994). By contrast, in Latin America, the
persistence of traditional rural class relations forced the state to negotiate with the powerful
landlord class, a process that has hindered and distorted development in that region.
A basic conclusion that some dependency theorists draw from the East Asian NICs is
that there are different types and consequences of “dependency.” While the Latin American
NICs were highly dependent on investment from transnational corporations and banks,
their East Asian counterparts were dependent on American aid and trade for their outward-
oriented industrialization. The role of the United States was thus important in both regions,
but in quite different ways. In the case of Korea and Japan, the United States sought to pro-
tect distant and fledging allies against threats of communism emanating from the outside.
It did so by providing massive economic and military aid and promoting capitalist devel-
opment. But in Latin America, the United States saw the communist threat as emanating
from within these nearby countries, and it worked to quash that threat by building up the
military and extending high-interest loans to governments willing to support U.S. security
interests in the region.
The differential influence of the United States in these two regions is consistent with a
second core tenet of dependency theory: the role of external conditioning in shaping in-
ternal growth processes. The United States’ aid in South Korea and Taiwan was directed
toward the growth of the private sector, infrastructural development (especially education),
and laying the foundations of a free-market economy. It was accompanied by pressure for
these governments to liberalize their economies and reduce military expenditures. These
reorientations set the stage for an export-oriented strategy for industrialization in the 1960s
and early 1970s when the world economy was growing. As clearly put by Koo, “It was only
after this predominantly political integration into the world system, and after relatively
unsuccessful experimentation with import-substitutions industrialization in the 1950s,
that South Korea and Taiwan made a dynamic entry into the capitalist world economy in
the early 1960s through their adoption of the outward-looking industrialization strategy”
(1987: 168).
Overall, one’s view of the utility of dependency theory for explaining the East Asian cases
thus depends on one’s understanding of that theory and of the role of the state in East Asian
development. Dependency theory fares best if one treats it as a theory frame (rather than a
set of directly testable hypotheses) and also if one recognizes the leading role of the state in
driving economic growth in East Asia.
Globalization
It is no accident that several leading dependency theorists, such as Peter Evans and Gary
Gereffi, are today influential scholars of globalization. The emphasis dependency theory
places on the international context and transnational connections makes the analysis of
globalization a natural extension. The term “globalization” itself suggests an understanding
of international relations consistent with dependency theory: not merely a collection of at-
omistic states, but an interconnected system in which events occurring at the global level
can powerfully shape internal processes of development (Clayton 2004: 279). Just as de-
pendency theorists believed that “dependency” was an unavoidable background setting
that “conditioned” domestic processes, globalization scholars now emphasize that, “Even
if globalization does not ‘determine’ local events, there is no escaping it” (Lechner and Boli
2000: 3).
Globalization is a contested concept, much like dependency. Indeed, both dependency
and globalization have been conceptualized in so many different ways that their myriad
definitions sometimes stand in the way of scholarly communication. Nevertheless, nearly
all definitions suggest that globalization encompasses a wider range of interdependencies
than the asymmetrical economic relationships that were the focus of dependency theory
(Reyes 2001; Sklair 1999).5 For example, scholars often include under the globalization
label increased cultural, social, and political connections among states. The economic
relationships of interest concern not only traditional dependency emphases, such as trade
flows and foreign investment, but also contemporary financial investments, such as cur-
rency speculation and hedge funds. In addition, probably to a greater extent than depend-
ency theorists, globalization scholars explore interrelationships among not only states but
also localities within states, like cities (e.g., Sassen 2001).
When one looks broadly at empirical work on globalization, it is easy to see many
imprints of dependency theory beyond the concern with external conditioning. Like de-
pendency theorists, scholars of globalization are centrally concerned with the effects of ex-
ternal connections on the local state. One of the most important recent questions in the
field of development is precisely whether globalization implies the withering or retreat of
the state as we have traditionally known it (Evans 1997; Guillén 2001; O’Riain 2000; Rodrik
1997; Sassen 1996, 2008; Strange 1996). Despite the pressures and impingements of global-
ization, it is common for scholars in this tradition to argue that the state remains centrally
important in the current global economy. This conclusion may well contradict the idea
that greater dependence weakens the local state—a hypothesis that some scholars asso-
ciate with dependency theory. However, the conclusion is quite consistent with dependency
theory works that emphasize the developmental state as the late-twentieth century engine
of growth in the world system (e.g., Evans 1995; Kohli 2004).
In addition to the state, multinational corporations (now almost always conceptualized
as transnational corporations or TNCs) continue to be analyzed as prime movers in the
contemporary global system (Evans 1998, 2005; Sklair 2000; Stiglitz 2006). To highlight
the prominent role of TNCs, Marxist scholars of globalization have referred to the current
phase of the global economy as “neoliberal globalization,” “corporate globalization,” and
“neoliberal globalization dominated by corporations” (McMichael 2000). Likewise, de-
pendency theory’s concern with understanding the local bourgeoisie has been extended to
the global level. Thus, the current literature often focuses on a new transnational capitalist
class composed of TNC executives, a global state bureaucracy, and consumer elites (e.g.,
Carroll and Caron 2003; Carroll and Fennema 2002; Robinson and Harris 2000; Sklair
2001). As Robinson (2005: 5) explains, “world ruling class formation in the age of globaliza-
tion is seen as the international collusion of these national bourgeoisies and their resultant
international coalitions.”
Yet, despite its clear dependency theory lineages, globalization analysis is a distinctive
theory frame. Perhaps most basically, globalization theorists broaden the scope of devel-
opmental outcomes beyond the traditional concern with economic development. Whereas
dependency theorists viewed development mostly in terms of industrialization and the
growth of the urban sector, globalization scholars are more apt to be skeptical that these
outcomes necessarily generate human “progress.” Indeed, some globalization theorists cel-
ebrate and seek to protect the very traditional agrarian societies that dependency theorists
associated with underdevelopment. Moreover, it is now a mainstream position to stress the
value of preserving the “local” and eschew the imposition of western norms of modernity
on nonwestern societies. In this sense, many globalization theorists draw theoretical inspi-
ration from Foucault as well as Marx.
Other dependency theory emphases have been superseded by contemporary
developments. For example, dependency theorists understood the international division of
labor as fundamentally structured by the core–periphery binary. But globalization scholars
envision a less mechanical and more complicated global structure, featuring many trans-
national actors and institutions that are associated with no specific national state and can
occupy multiple and changing positions in the international arena. In addition, whereas
dependency theory had relatively little to say about civil society, even within the boundaries
of nation-states, the globalization literature is centrally concerned with new expressions
of civil society, both nationally and globally. For example, the globalization literature calls
attention to new social movements that are grounded in identity politics as well as tradi-
tional social movements such as labor organizations. Expressions of civil society that tran-
scend national boundaries are of special interest, such as transnational advocacy networks
(e.g., Keck and Sikkink 1998; Silver 2003) and other progressive movements that represent
“counter-hegemonic globalization” or “globalization from below” (De Sousa Santos and
Rodriguez-Garavito 2005; Evans 2005, 2008; Klug 2008; Silver 2003).
In sum, globalization studies depart from some dependency theory orientations even
as they grow out of that tradition, adopting many of its major theoretical concerns and
applying them to the contemporary global economy. In this way, the literature on globaliza-
tion, especially its more materialist and neo-Marxist currents, is both an application of and
an extension of dependency theory to the current era.
China and the New Global Division of Labor

In this final section, we range broadly and somewhat speculatively to consider the
challenges and opportunities that major recent developments in the world economy offer
for work in the dependency theory tradition. Let us begin by asking whether dependency
as a theory frame can inform explanations of the recent rapid growth, increased open-
ness, and industrialization via manufactured exports in China, which have positioned this
country as the second largest economy in the world in terms of gross domestic product
(GDP). Given that a definitive work on Chinese economic development has yet to be
written, we see at least two possibilities for dependency theory to help make sense of the
Chinese experience.
First, just as original works on dependency theory often traced developmental outcomes
in Latin America back to a distant colonial period, today’s scholars might explain Chinese
growth in terms of its ancient imperial past. In fact, several analysts broadly within the
dependency theory tradition have called attention to the ways in which the Chinese
economy was the largest and most sophisticated in the world before the nineteenth century
(Anderson 2010: 91–92; Frank 1998; Hobson 2004; Pomeranz 2000). For centuries, China
experienced dynamic progress via intensive agriculture, repeated innovation, long-distance
trade, population growth, and vibrant urban commercial centers. One might therefore
argue that the last 150 years of poverty and underdevelopment were simply a temporary
aberration brought on by Europe’s sudden rise on the back of colonial mineral wealth from
the Americas—wealth that China was in many ways originally best positioned to seize. On
this path-dependent view, the explanatory task would be to identify the underlying struc-
tural continuities that persisted into the current period and that allowed China to revert to
its “natural” leading position in the world economy. Such an explanation would likely have
a historical-structural form similar to many of the early works of dependency theory.
Second, an alternative mode of explanation rooted in the dependency theory tradition
might begin by comparing the Chinese model of growth to Japan, Korea, and Taiwan. A key
commonality is readily apparent: a rapidly growing economy built on manufactured exports
in which the state plays a leading role in sponsoring locally based private capital accumula-
tion and industrialization. As Rodrik argues, “Much more than comparative advantage and
free markets have been at play in shaping China’s export success. Government policies have
helped nurture domestic capabilities in consumer electronics and other advanced areas
that would most likely not have developed in their absence” (2006: 1). In addition, impor-
tant elements of “embedded autonomy” are present in China; arguably more autonomy
and less embeddedness. Thus, social ties between the Chinese Communist Party (CCP)
and overseas Chinese businesses have been a key to recent growth. At the same time, the
CCP exhibits substantial autonomy from these business groups, and it has controlled the
pace of deregulation and privatization. Moreover, China has benefited from foreign capital
investment; yet, parallel to Korea and Taiwan, it has done so “on terms and at conditions
that served the Chinese ‘national interest,’ rather than the interests of the US Treasury and
Western capital” (Arrighi 2007: 355). Furthermore, development in China is consistent with
the type of dependent development described by Evans (1979, 1985), where the need for re-
pression is big and the need for democracy is small. All of this suggests that work using the
frame of dependency theory could help make sense of China’s recent explosion of growth.
Nevertheless, the Chinese model contrasts in significant ways from the prototypical cases
of developmental states. When compared to the classic East Asian NICs, China features
greater dependence on exports, lower rates of domestic consumption, a larger public sector,
higher levels of foreign investment, lower urban wages, and higher levels of urban-rural
inequality (Hung 2009). Many of these distinctive features of the Chinese economy are
linked together, reinforcing one another. Explaining their operation offers a challenging
though exciting possibility for scholars in the dependency theory tradition. Adequate ex-
planation would require understanding how China’s external role in the global economy
as the new “workshop of the world” is linked to an unequal internal structure in which an
urban elite is privileged by a politically hegemonic party-state at the expense of vast rural
grassroots interests. In fact, scholars associated with the dependency theory tradition who
have started to examine China invariably have called attention to the relationship between
its specific growth model and its rising inequality (e.g., Arrighi 2007; Evans and Staveteig
2008; Hung 2009).
Turning now to Latin America, the recent sustained economic growth in certain coun-
tries, notably Chile and Brazil, poses its own intriguing questions from the perspective of
dependency theory. The growth in Chile has been built substantially around the export
of raw materials (e.g., copper, timber, iron) and food products (e.g., fish, fruit), mainly to
China (Barton 2009). In the case of Brazil, the export economy is more diversified and
includes heavy manufactures (e.g., automobile and airplane parts). Yet, with the rise of
the Chinese economy, Brazil has increasingly depended on primary product exports (e.g.,
iron ore, crude petroleum, soybeans, and chemical wood pulp) (Saslavsky and Rozemberg
2009). If China is the workshop of the world, Brazil and Chile—along with Argentina,
Colombia, and Peru—are now among its key raw-material suppliers (Arnson and Davidow
2011: 4–5; Jenkins 2009: Table 2).
On the one hand, the economic successes of the handful of Latin American countries
that have profited from the export boom to China seem problematic when viewed from
within the frame of dependency theory. The parallel between their contemporary situa-
tion and the situation that originally caught the attention of dependency theory scholars
is apparent: these sustained high-growth cases are increasingly dependent on exporting a
small number of primary products. Exports are also concentrated in terms of the companies
involved (Jenkins 2009: 32). Moreover, much as the United States was doing during the
1970s in Latin America, the majority of Chinese foreign direct investment in Latin America
is “resource-seeking” in commodity sectors that serve Chinese demand (Arnson and
Davidow 2011; Ellis 2009). As a result, China has become the most competitive exporter
of manufactured goods within Latin America itself, leaving local producers vulnerable to
displacement by their Chinese counterparts (Gallagher and Porzecanski 2010: 20–39). This
situation of economic exposure and vulnerability of the local manufacturing sector closely
resembles the one faced by Latin America at the time ISI was implemented.
On the other hand, a dependency theory frame could be used to explain the patterns of
economic growth of Chile and Brazil. Dependencistas would be quick to point out that Chile
and Brazil remain two of the most unequal countries in all of Latin America (United Nations
Development Program 2010: 26). Growth via primary-product exporting in these countries
has gone hand in hand with extremely high levels of inequality. These scholars might also
draw attention to foreign actors for understanding contemporary social struggles in Latin
America. Today, many conflicts between the state, landed elites, TNCs, and indigenous
peoples are over environmental issues in areas where oil, iron, gold, copper, and coal are
extracted as part of the new commodities development model (Bebbington 2012).
In addition, dependency theory scholars might note that, as Latin American countries
increasingly link themselves to Europe and China, they are simultaneously becoming
decoupled from the United States. Unlike dependence in the past, the new economic
connections to China may not entail the same kind of asymmetrical political relationship
that existed historically between the United States and Latin America, given that China, as
a prospective hegemon, is different from the United States. In fact, some scholars suggest
the emergence of a “triangular relationship” among China, the United States, and Latin
America, with potential opportunities for alliances and cooperation between China and
Latin America (Arnson and Davidow 2011; Ellis 2012; Ratliff 2009; Stallings 2008). In turn,
severing the bonds of extreme political dependence on the United States might permit more
autonomy in the formulation of national priorities and development policy within the re-
gion, eventually constituting a potential threat to U.S. political and economic interests (Ellis
2012: 5–8). Yet the larger question remains: Can China be a sustained source of demand for
Latin American commodities, and, if so, can this exporting undergird broad-based devel-
opment? The answer may dictate whether Latin America carves out a new, dynamic role in
the world economy or simply follows an older pattern of dependence under a new guise.
Finally, we can consider what China’s rise and the associated reshuffling of roles in the
world economy might mean for one of the least industrialized zones, specifically sub-
Saharan Africa. Dependency theory work on Africa has focused centrally on the negative
consequences of the slave trade and European colonialism for postcolonial development
(Amin 1972; Rodney 1972).6 Today, one major issue is whether China’s increasing invest-
ment in Africa represents a new form of neocolonialism (Rotberg 2008). Some scholars
have raised explicitly the question of whether Africa’s rich natural resources are triggering
a “second scramble,” as the wealthier nations seek to carve out new spheres of influence
on the continent (Carmody 2011). Minimally, the work of dependency theorists, such as
Cardoso and Faletto on enclave economies and Frank on colonialism in Latin America,
offers a starting point for assessing the current situation in Africa.
In addition, dependency theory suggests a historical lens for thinking about the form
of dependence that exists between Africa and China. From this historical standpoint, im-
portant parallels can be seen between contemporary China and Africa, on the one hand,
and England and its raw material suppliers during the late nineteenth century, on the other
hand. Countries that were key suppliers to England’s manufacturing economy experienced
huge influxes of new revenue. That mode of “dependence” proved highly advantageous
while the manufacturing boom lasted. Today, those countries in Africa that have been
able to export raw materials to China are likewise seeing huge revenue booms. Reliance on
markets in a rising manufacturing hegemon is a distinctive mode of dependence that allows
for substantial growth, at least in the short run.
Conclusion
Any assessment of the contributions and prospects of work in the tradition of depend-
ency theory will depend heavily on one’s understanding of the content and purposes of
that theory. On the one hand, the theory is associated—rightly or wrongly—with a series
of simple but readily testable hypotheses, such as the proposition that higher levels of for-
eign direct investment generate lower rates of economic growth. When viewed in this way,
the validity of the theory can be assessed and debated according to the results of empir-
ical tests. Likewise, to the extent that dependency theory is associated with certain policy
prescriptions, such as ISI and statist economic models, one can question its practical utility
in the real world, either in the past or in the present. The belief among some that depend-
ency theory is a failed approach stems from the conviction that its testable hypotheses are
wrong and its policy implications are misguided.
On the other hand, however, most scholars who originally formulated the dependency
theory approach viewed it as a frame to help guide the empirical investigation of concrete
situations of development and underdevelopment. They suggested that the utility of the
approach should be judged according to whether the structural relationships emphasized
in the dependency theory tradition—such as trade linkages across countries; connections
between foreign investors and local capitalists; forms of dominant class leverage within
the state; and types of alliances between multinationals, local capital, and the state—prove
useful for explaining particular development outcomes in specific cases. On this view, one
can make a strong case that dependency theory has been and continues to be an extremely
useful approach. The utility of this approach applies not only to the historical patterns of
development in Latin America, for which it was first employed, but also to cases that might
seem to challenge the tradition, such as East Asian NICs. In fact, many of the emphases of
the dependency theory tradition have been used, consciously or unconsciously, to make
sense of contemporary processes of development ranging from globalization to the rise
of China.
Already in 1985, Peter Evans projected that the dependency theory label would disappear
from scholarly work but that the orientations, concepts, and questions of this theory frame
would continue to implicitly influence substantive work. More than twenty-five years later,
one cannot help but be impressed by Evans’s prescience. Although virtually no dependency
theorists remain, work associated with this theory frame is alive and well in the field of
development.
Acknowledgments
For helpful comments, we thank Peter Evans, Kenneth Roberts, and Nicolas van de Walle.
Notes
1. For reviews of early dependency theory works, see Chilcote (1974), Girvan (1973), and
Valenzuela and Valenzuela (1978).
2. The English edition of this book was published in 1979 (Cardoso and Faletto 1979), and it
includes an important preface with a theoretical statement about historical-structuralism.
Citations in the text are to this 1979 edition.
3. For an analysis on how Prebisch’s and ECLA’s ideas spread among policy and government
circles in Latin American countries, see Sikkink (1991).
4. By 1993, the World Bank, which had been known for its free-market policy prescriptions,
suggested that a combination of market-oriented and state-led policies were behind rapid
growth in East Asia (World Bank 1993: 10).
5. Even leading dependency theorists define globalization more broadly than economic
relationships. For example, Boswell and Chase-Dunn (2000: 33–34) define it as “transna-
tional sourcing and a single interdependent global economy,” facilitated by “foreign invest-
ment, information exchange . . . world culture commercialization [and] the integration of
trade and production.”
6. Dependency theory’s impact on the study of Africa was less extensive and shorter-lived
than for Latin America. It is possible that the greater importance of ethnic cleavages and
more limited utility of traditional economic class categories in Africa explain this puzzle.
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Chapter 3
Structura l i sm
Elliott D. Green
This chapter makes a case for the structural origins of developmental politics. It argues
against the claims that the problem with politics in developing countries is “bad politicians”
and that success stories of development are due to great leaders. Such claims run throughout
much of our thinking about the politics of the developing world. To take African politics,
for example, many have claimed that individual leaders have been responsible for Africa’s
success and failures (Rotberg 2004; Schwab 2001). Thus, according to this argument, Africa’s
political problems will be solved if bad politicians are replaced by better ones. Not only
is this view common among academics, journalists, and policy-makers, but also among
Africans themselves. To take one example, when asked in a series of mass solicitations
in the early 1990s what type of person should become president, many Ugandan citizens
responded by arguing that he/she should be married, not drink, and come from a rela-
tively rich background so that he/she doesn’t get tempted by corruption (Government of
Uganda 1992). Conversely, claims also abound that various countries like Botswana have
been peaceful and prosperous because of good and wise leadership (Acemoglu, Johnson,
and Robinson 2003).
Yet I argue that this view is wrong-headed inasmuch as it fails to consider structural
reasons why leaders pursue policies that appear detrimental to their citizens. I use the word
“structuralism” in this context as the term is used in the field of international relations
(Gaddis 1992, p. 13), not to describe certain “unobservable” phenomena, but rather to de-
scribe the underlying structures of society that affect developmental politics. In this context
there are two ways of examining structural issues in developmental politics. The first is to
claim that institutions are the cause behind political decisions taken in government. For
example, Posner (2005) argues that ethnic politics in Africa are driven by the nature of the
party regime. More specifically, he claims that the decision by citizens to focus on tribal
versus linguistic identities in postcolonial Zambia has depended on whether the state is
under a one-party or a multiparty system. Thus, according to Posner (2005), ethnic politics
is not determined by the whim of individual politicians, but rather by the Zambian political
structure.
Yet we can go a level deeper than the difference between one party and multiparty po-
litical systems. In many countries the decision to change a country’s political system from
multiparty competition to one-party rule, and back again, came down to the decisions of
44 Elliott D. Green
one man, such as Zambian President Kenneth Kaunda, in this case. But what if this
decision was a consequence of even deeper structural issues that led the president to
abolish opposition parties or to legalize them? In countries such as Zambia or neigh-
boring Tanzania, the decision to turn regimes into one-party states was generally part of
a broader agenda of nation-building that also involved such policies as land nationaliza-
tion, the abolishment of federal systems and monarchies, the declaration of a national lan-
guage, and military conscription or national service—not to mention more symbolic acts
such as changing the name of countries, capital cities, and currencies (Bandyopadhyay
and Green 2013). Nation-building, or “political integration” as it was then often called,
was such an important focus for most postcolonial governments that at least one observer
claimed that it took precedence “over all other tasks, including economic development”
(Zolberg 1967, p. 461).
Nation-building varied considerably across African countries. Some like Guinea-Bissau,
Rwanda, and Togo have implemented only one policy each since independence, while both
Nigeria and Uganda have implemented nine distinct nation-building policies. As seen in
Figure 3.1, this variation is correlated with state size, as measured by either geographical
size or population, with larger states implementing more nation-building policies. (The
same result holds if nation-building is limited just to the creation of one-party states.) This
should not come as a surprise to readers of Herbst (2000), who argues that African states
have historically had problems extending their power from the capital to the periphery.
Thus nation-building policies were not necessarily the result of individual whim, but were
responses to deeper structures of African states.
It is this second deeper level of structure that I wish to analyze in the rest of this chapter.
This level is characterized not by elements that can be relatively easily altered, such as the
10 DRC
UGA NGA
Total Number of Nation-Building Policies
8 GHA TAN
LES MWI SUD ETH
6 BWA CAR MOZ
MAU BFA
SOM ZIM AGO

4 GAM MAD RSA
ZAM
BEN CHD
SWA COG ERI
SLE BDI CIV
2 DJI COM EQG GAB NAM NER GUI MAL CMR KEN
GBI TOG RWA SEN
0 MUS LIB
11 12 13 14 15 16 17 18
Log of Population in 1960
Figure 3.1 Nation-Building and Population Size in Contemporary Africa

Structuralism 45
number of legal political parties, but rather by elements that change slowly, if at all. My
focus will be on this deeper level of analysis, where structures are both difficult to change
and persist for long periods of time. I focus in particular on two different, but related struc-
tural causes, namely geography and demography, which I examine in order. I then assess
the use of structuralism to predict the short-to medium-term future, before concluding
with broader thoughts about the role of structuralism in the politics of development.
Geography
Between the two types of structuralism, geography is perhaps the most invariant. Equatorial
countries were, are, and will continue to remain in the tropics, while the same goes for ele-
vation, distance to the sea, and other such factors. This constancy is not, of course, univer-
sally true. Climate change, for instance, presents the possibility that rainfall patterns will
alter over time and affect political developments in these countries, as has already been
argued by economists such as Miguel, Satyanath, and Sergenti (2004). However, there also
exists a significant amount of research that suggests the supposed links between climate
changes (such as decreasing rainfall) and civil conflicts in Darfur and elsewhere are not
as robust as they appear (Kevane and Gray 2008).1 In any case, for the most part, we can
assume that countries’ geographies are invariant or change very slowly.
Yet the invariant nature of geography presents a major problem for any theory that uses
it as an explanation for subsequent development: If geography does not change over time,
then its impact on development should not change either, and the world today should be
a reflection of the prehistorical world. And, indeed, this is what economists and historians
such as Bloom and Sachs (1998), Clark (2007), Diamond (1999), and Galor (2011) argue,
namely that differences between countries and regions today are merely exaggerated forms
of earlier differences dating back centuries or millennia. But while such arguments make
sense on the broad aggregate level, they do not explain the substantial variations across time
that can be observed in the developing world.
More sophisticated analyses show that geography interacts with historical phenomena.
For instance, Nunn and Puga (2012) show that rugged terrain impacts modern economic
development via the historical legacy of the slave trade, whereby it allowed Africans to es-
cape the slave trade and prosper but hindered economic development elsewhere. However,
perhaps the most notable example of an economic theory that integrates geography and
colonialism comes from Acemoglu, Johnson, and Robinson (2001), who argue that the
institutions which led some former colonies toward prolonged economic growth while
others stagnated economically were themselves the result of geography. More specifically,
they claim that in areas with a lower incidence of malaria Europeans settled and devel-
oped more democratic institutions, while in regions with a higher incidence of malaria
Europeans did not settle and instead imposed more extractive institutions. Thus malaria
incidence, which is itself a product of climate and geography, explains the origins of institu-
tional variance among former European colonies. Moreover, in a second paper, Acemoglu,
Johnson, and Robinson (2002) argue that the institutional differences imposed by coloni-
alism led to a “reversal of fortunes,” in which formerly rich countries became poor and poor
countries became rich, thereby disavowing the geographic determinism mentioned above.2
46 Elliott D. Green
Finally, Easterly and Levine (2003) and Rodrik, Subramanian, and Trebbi (2004) add addi-
tional evidence that geography impacts development only indirectly via institutions.
It is clear that geographic differences have also had profound impacts on politics in the
developing world. In one famous example, Engerman and Sokoloff (1997) suggest that
differences in factor endowments, specifically as regards soil types, led to the development
of crop production with different economies of scale. Thus plantation agriculture developed
in areas suitable to coffee, cotton, rice, sugar, and tobacco production, namely the southern
United States, the Caribbean, and Brazil, while small-scale farmers were more efficient in
areas suited for grain and livestock production such as the northern United States. They
suggest that these initial climatic differences not only led to different economic systems but
generated great differences in levels of inequality, with greater economic inequalities asso-
ciated as well with greater political inequalities and subsequent lower levels of autocracy.3
Demography
A second source of structural change is demography. Like geography, demography changes

over time; unlike geography, however, its changes are more predictable. My focus will be on
what is one of the most important features of the transition to modernity, namely the dem-
ographic transition. This transition involves the movement from a society characterized as
having high fertility and mortality levels to one with low fertility and mortality levels, via a
transitory phase with high fertility and low mortality. Evidence suggests that all countries
and societies have gone or are going through this transition, and that the end point for all
societies will eventually be roughly the same. As such the demographic transition is not re-
versible in the medium-to long-term and is thus closely related to an earlier focus within
the social sciences on modernization and its consequences, a point to which I will return.
The relationship between population growth and development is often misunderstood,
primarily because there is no serious modern theory of political demography that posits a
crude Malthusian direct relationship between population growth and development. Instead,
I claim here that the relationship between the demographic transition and the politics of
development can be described in three ways: First, prior to the transition, societies were
marked by similar fertility/mortality ratios but very different levels of population density.
Second, the demographic transition did not start at similar times, which had an especially
profound impact on European imperialism in the nineteenth century. Third, and finally,
the transition has not taken the same time to reach completion, which has had important
consequences on decolonization and contemporary migration patterns. I explore the polit-
ical consequences of all three periods in turn.
Pre-demographic Transition
The first important point about demographic structuralism relates to the nature of societies
prior to the transition. In particular we can observe a strong contrast between Africa and the
Americas, which were largely very underpopulated, and South Asia and East Asia, where
population densities were much higher. The structural differences between these regions
Structuralism 47
led to profound differences in the nature of colonialism. In Africa and the pre-Colombian
Americas, low population densities corresponded to a lack of strong centralized states (with
some notable exceptions like the Aztec and Inca empires), while high-density areas in Asia
were more likely to have a strong state structure. The relationship between state history and
population density can be seen in Figure 3.2, whereby the vertical axis is the log of popu-
lation density in 1950 and the horizontal axis is the (normalized) length of time for each
country in which an extant state can be verified (Bockstette, Chanda, and Putterman 2002),
going from 0.07 in Kenya, Mauritania, and Zambia to 1.0 in China. Historians have long
discussed the chicken-and-egg question about whether ancient states contributed to higher
population densities or vice versa—with Carneiro (1970), for instance, positing that higher
densities led to state formation via competition over scarce land resources—but the point
here is simply that it was the higher density precolonial states like China, Ethiopia, Japan,
Nepal, and Thailand that were able to resist colonialism, often simply because their armies
were so large.
Moreover, we can also observe an effect of population density on state formation
among European colonies. In particular, Green (2012a) shows that, inasmuch as colonial
governments relied upon head taxes for their revenues in Africa, small colonies with low
population densities could not be self-sustaining. The result is that colonial powers created
larger states in less densely populated areas of Africa, such that the relationship between
population density in 1850 and state size today is negative and robust to a variety of controls
and subsamples. The same argument applies to the drawing of boundaries between colonies,
1.2
1.1
1.0
Log Population Density in 1950
R2 = 0.2822
0.9
0.8
0.7
0.6
0.5
0.4
0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1.0
State History
Figure 3.2 Population Density in 1950 and State History

48 Elliott D. Green
whereby borders were drawn closer to local socioeconomic conditions in areas of high den-
sity than in areas of low density (Green 2012a). The result has been that Africa inherited
a legacy of large states with artificial borders, both of which have been linked to political
unrest and low economic growth by a variety of scholars (Alesina, Easterly, and Matuszeski
2011; Englebert, Tarango, and Carter 2002).
Finally, we can typify pre-demographic transition economies as largely agrarian in na-
ture due to the fact that pre-transition mortality rates were higher in urban areas than rural
areas, so much so that they were actually higher than urban fertility levels.4 This difference
meant that urban areas had negative natural population growth rates, which they made up
through rural–urban migration, but which also meant that societies remained overwhelm-
ingly rural and agrarian in nature.5 The political consequence of a rural equilibrium was to
hinder efforts at democratization, as spelled out by Acemoglu and Robinson (2005). More
specifically, in societies where wealth is largely tied up in land and society is largely divided
by who has access to land, landlords in agrarian societies resist any moves toward democ-
ratization for fear that democratic governments would redistribute their land holdings due
to the fact that land is not a mobile asset and thus easily expropriated. Moreover, repression
and violence directed toward pro-democracy citizens has little effect on land assets and
therefore does not destroy or threaten wealth for the elite.
Early Demographic Transition

The second way in which demography has played a major role in the politics of development
is through the staggered way in which countries have entered the demographic transition.
Differences in the first stage of the demographic transition became most prominent in the
nineteenth and early twentieth centuries, when mortality decline led population growth to
shoot up in Western countries in comparison to those regions where mortality decline had
yet to start. In particular mortality began to decline around 1800 in northwestern Europe
due to improvements in preventative medicine, public health, and nutrition, leading to a
large gap in population growth between what are now developed countries and the less
developed countries by the late nineteenth century (Lee 2003, p. 178.). Thus the ratio of
inhabitants in Europe to Africa increased from a ratio of 1.5 in 1750 to 3.0 in 1900, with an
equally impressive increase in the ratio of inhabitants in the United States and Canada to
the rest of the Americas from 0.1 to 1.1 (although much of this increase came from increased
immigration). Figures 3.3 and 3.4 plot the estimated and projected relationships between
these regions from 1750 to 2050.6
The consequences of European population growth on the developing world was perhaps
most profound in the realm of colonialism. The idea that the acquisition of colonies could
solve European problems of high population density was already prominent in seventeenth
century England and lasted until the 1950s, when the Dutch government was still advocating
emigration to solve the problem of high population densities (Hoerder 2002, p. 480). Thus
one estimate concludes that more than 50 million Europeans emigrated abroad between
1815 and 1930, some 60 percent of whom went to the United States (Baines 1995, pp. 1–2).
Indeed, concerns about “overpopulation” peaked with the rise in European population
growth rates in the nineteenth century, which led many in Europe to suggest colonialism
as a solution particularly in the newly unified states of Germany and Italy (Smith, 1974,
Structuralism 49
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0
1750 1800 1850 1900 1950 2000 2050
Figure 3.3 Ratio of Population in Europe to Africa, 1750–2050
1.2
1.0
0.8
0.6
0.4
0.2
0
1750 1800 1850 1900 1950 2000 2050
Figure 3.4 Ratio of Population in North America to Latin America and the Caribbean,
1750–2050
pp. 642, 643; Tate, 1941, p. 150). Similarly, in the late nineteenth and early twentieth centuries,
various British governments—including those of Disraeli and Gladstone—suggested em-
igration, especially to the white dominions, as a means to “relieve the apparent surplus
of population in this country” (Shanahan, 1923, p. 215). Such was the European concern
over high population densities that a World Population Conference in 1927 in Geneva both
(a) focused on the redistribution of population from Europe—with special attention to Italy
and other parts of Southern and Eastern Europe—toward the colonies and (b) criticized
new immigration restrictions in Australia, the United States, and elsewhere. Nor was this
focus limited to Europe: Japan was also seen as overcrowded at the time, with one con-
ference participant noting that “we must now ask where Japan can find the new colonies
which will furnish an outlet for its surplus population,” with the Japanese acquisition of the
Philippines as one proposed mechanism (Bashford 2007, p. 190).
50 Elliott D. Green
The onset of the demographic transition also corresponded to a period of industrializa-

tion, as lower mortality rates in cities meant that factories could attract workers in numbers
previously impossible to sustain. The political consequences of this shift were of course
famously discussed by Marx, whose analysis of class conflict under capitalism was based
on his knowledge of industrialization in nineteenth-century Europe. More recently the
effects of industrialization on civil conflict have been analyzed by Gellner (2006/1983) and
Mann (2005), both of whom have emphasized the way that industrialization replaced the
vertical class stratification of agrarian societies with horizontal ethnic stratification due to
the geographically uneven nature of industrialization. While Gellner (2006/1983)’s famous
“just-so” story about the relationship between population growth,7 industrialization, na-
tionalism, and secession among the Ruritanians of the mythical state of Megalomania was
obviously written about Eastern Europe, the effects of industrialization on conflict have
played themselves out very clearly in developing countries rich in natural resources. More
specifically, the process of industrialization has driven up demand for such commodities as
oil and gas, while the creation of wealth that is produced by industrialization leads to higher
demand for rare luxury items like diamonds and other gemstones. If oil and gemstones were
equitably distributed across and within countries, then their production would not result
in strife; indeed, as noted by Kahl (2006), a local abundance of natural resources only has
negative effects on countries when the resources in question are globally scarce. However,
in reality, such resources are unequally distributed, which has led to numerous civil wars
and attempts at secession as those who live on land endowed with natural resources do not
want to share their wealth with other citizens or the national government. Just as landlords
resist democratization because they fear land redistribution, according to Acemoglu and
Robinson (2005)’s framework, so too do leaders in states rich in natural resources, which
are similarly immobile.8
Industrialization also requires the mobilization of a labor force whose rural attachments
often have to be broken violently, as has happened from the time of the enclosures in
early-modern Britain through the expropriation of indigenous land in the settler colonies
of twentieth-century Africa. Even when natural resources and labor supplies are avail-
able, they are often not in the same location, requiring large-scale labor migration from
peripheral to core industrial areas. In Gellner’s story the Ruritanians comprised one such
group of migrants to the core industrial areas of Megalomania, whereupon they discov-
ered commonalities amongst themselves and developed a new ideology of Ruritanian na-
tionalism. Recent history is strewn with real-life Ruritanians; the cases of the Ovimbundu
of Angola and Igbo of Nigeria are two of many examples whereby large-scale civil wars
broke out in part due to labor migration, the subsequent formation of ethno-national
identities among migrants, and strife between these new groups and other more domi-
nant groups.
In contrast, however, those states that either lack natural resources or whose population
or resources are equally distributed tend not to suffer from interregional inequalities. An
obvious example here is Tanzania, where a general lack of natural resources has led to a
stable postcolonial political environment in great contrast to most of Tanzania’s neighbors.
Indeed, just as most of its neighbors have fallen into civil war over the unequal distribu-
tion of natural resources and labor, Tanzania has remained remarkably stable throughout
its postcolonial history. Counterfactual discussions of what Tanzania would have looked
like had Rwanda and Burundi not been cut out from German East Africa after World War
Structuralism 51
I as a new colony as well as strong similarities in postcolonial Tanzanian policies to other
African states suggest that Tanzania’s stability has less to do with good leadership from
Julius Nyerere and others and more to do with structural factors (Green 2011).
Finally, both the early part of the demographic transition and early industrialization
have tended to correspond with a period of rising inequality. As regards the former, evi-
dence suggests that mortality decline initially causes fertility levels to rise in part due to
declining levels of disease-induced infertility. This initial increase in fertility may lead
to rising levels of inequality as fertility increases faster in lower-income families than in
upper-income families, while subsequent decreasing fertility rates will lead to declining
inequalities (Dahan and Tsiddon 1998). This model is very similar to the noted inverted
U–shaped “Kuznets” curve, whereby the initial stages of industrialization cause income
inequality to grow due to growing rural–urban inequalities and intra-urban inequalities,
but later industrialization leads to decreases in inequality as the urban working class gains
more income (Kuznets, 1955). However, the growth of inequality alongside industrialization
can also lead to pressures for democratization as the new middle classes demand political
power, which itself then leads to redistribution and decreasing inequality (Acemoglu and
Robinson 2005).
Late Demographic Transition

The late or second stage of the demographic transition corresponds to the onset of fertility
decline and continues until societies have reached a low-mortality/low-fertility equilibrium.
This process is also largely accompanied by a shift from rural-majority to urban-majority
societies that was kick-started by decreasing urban mortality levels (Dyson 2011; Fox 2012).
In particular this process has significant effects on the process of democratization, in two
ways9: First, as citizens urbanize they acquire greater collective action capabilities, both
(a) because their physical proximity to each other and to the centers of power allow them
to organize protests that threaten the government better than in rural areas and (b) because
urban citizens have greater access to education and information about government activi-
ties (Lerner, 1958).10 Second, the late demographic transition corresponds with a shift away
from the fixed assets of land toward more movable assets like factories and ultimately to the
most mobile asset of all, namely financial capital. Just as they argue that an economic pre-
dominance of land and other fixed assets leads the elite to suppress efforts at democratiza-
tion, Acemoglu and Robinson (2005) instead posit that a shift toward industrialization and
even postindustrial service and finance sectors may lead the elite to fear democratization
less, as they can transfer their assets elsewhere if and when governments attempt to expro-
priate their wealth. Moreover, as assets become more physical than natural, any repression
directed at protesters has a much higher likelihood of destroying wealth than in agrarian
societies. As expected, recent evidence testing for a relationship between urbanization and
democracy across fifty-nine developing countries has found a strong positive relationship
between the two variables (Rudra 2005).11
The process of the second half of the demographic transition did not, however, unfold
evenly across the globe. Indeed, by the late twentieth century there had been a signifi-
cant shift in population growth from the developed world to the developing world. The
cause was of course the onset of mortality decline in developing countries alongside the
52 Elliott D. Green
completion of fertility decline in the developed world. The result is that today there are
vast differences between those countries which have dropped below replacement fertility
rates and those far above it—that is, between countries with a total fertility rate (TFR) at or
below 1.8, including most countries in Western Europe plus China, Cuba, Japan, Mauritius,
and South Korea, and countries with a TFR above 5.0, mostly in Africa plus Afghanistan,
East Timor, and Yemen. As such there has been a shift in the population ratio between
Europe and Africa from over 3.0 in 1900 to less than 2.5 in 1950 and under 1.0 in 2000, with
a projected ratio less than 0.5 in 2050. Similarly, the population of Latin America and the
Caribbean overtook that of North America sometime in the late twentieth century and is
projected to be more than double the North American total by 2050. Figures 3.3 and 3.4
make these changes clear.
This difference between countries has led to three significant changes for the politics of
developing countries: First, and foremost, just as the rise in the European population ratio
corresponded to the period of European imperialism, so too did the rise of population
growth in the developing world correspond to decolonization in the mid-twentieth century.
Indeed, Grossman and Iyigun (1997) propose that this congruence of events was not coinci-
dental, such that higher population growth increased the returns to subversive, anticolonial
activities among native populations and thereby made colonial rule increasingly burden-
some for the colonial power.
A second change relates to the fact that developed countries with low fertility have neg-
ative natural population growth rates, which, if they want to avoid having their economy
shrink, leads them to encourage immigration from countries with higher fertility rates.
As Figure 3.5 indicates, Europe has been a net receiver of immigrants since the early
1970s, with Asia a net exporter of immigrants over the same time span.12 The political
consequences have similarly been obvious, with developed countries concerned about
controlling immigration from the developing world and developing countries concerned
about the effects of “brain-drain,” or the loss of much of their most productive citizens to
other countries.
International migration patterns have serious economic impacts for destination coun-
tries, which I sadly do not have space to address here. But these economic impacts are in
many ways equaled by the political impacts of immigration on the developing world. For
instance, in a noted paper, Collier and Hoeffler (2004) show that the size of immigrant
diasporas in the United States is positively correlated with the outbreak of civil war, after
controlling for GDP/capita, population size, and primary commodity exports. They argue
that this relationship is in part driven by the ability of diasporas to finance conflict while
also avoiding participating in violence itself.
On the other hand, more recent evidence suggests that emigration can have a positive
effect on subsequent democratization as measured by both Freedom House and Polity
measures, in particular via unskilled emigration (Docquier, Lodigiani, Rapoport, and Schiff
2011). Using more micro-level data, Batista and Vicente (2011) show that emigration is pos-
itively correlated with demand for political accountability in a voting experiment in Cape
Verde, a country that has one of the highest proportions in the world of its population living
abroad. In particular they find that the positive effects of emigration are stronger when
citizens migrate to countries with better governance. This result is echoed by Spilimbergo
(2009), who finds a robust positive and significant correlation between foreign students
studying in democratic countries and democratization at home. All of these results are
Structuralism 53
Net Immigration in Asia and Europe, 1950–2015

10,000
Europe
8,000
Asia
6,000
4,000
Net Immigration (in thousands)
2,000
−2,000
−4,000
−6,000
−8,000
−10,000
−12,000
5
5
5
0
99
00
00
01
01
95
96
97
97
96
98
98
99
–1
–2
–2
–2
–2
–1
–1
–1
–1
–1
–1
–1
–1
50
55
70
60
65
75
80
85
90
95
00
05
10
19
19
19
19
19
19
19
19
19
19
20
20
20
Years
Figure 3.5 Net Immigration in Asia and Europe, 1950–2010
not surprising if we recall that the same financial and human capital resources that could allow
for diasporas to support rebel movements would also allow them to support opposition polit-
ical parties and civil society organizations, although this remains a topic for further research.
They also fit into a Hirschman (1970)–style exit/voice/loyalty framework, as suggested by Moses
(2005), whereby allowing citizens to migrate abroad forces developing countries’ governments
to respond to citizens’ demands to avoid losing too many of their citizens to other countries.
Third, and finally, the late onset of the demographic transition has had differential
effects in countries depending upon their pre-transition demographies. In Africa, for in-
stance, communal land rights were common in the precolonial era and were codified along
ethnic lines in the colonial period due to the institutionalization of indirect rule. While the
ethnicization of land ownership was not particularly a problem in an era of low population
density, the onset of high population growth rates in the late twentieth century meant that
land scarcities started to become more prominent by the 1980s and 1990s across many parts
of the continent. As one scholar put it at the time,
Due to high population growth and the low carrying capacity of much of the land in Africa,
there are now far fewer empty areas into which people can move. . . . The land frontier has all
but closed. The specter of a land shortage is a dramatic development because as late as two
generations ago Africa was characterized by small concentrations of people surrounded by
large amounts of open land. (Herbst 1990, pp. 188–189)
The result has been an increase in both international and internal migration, as Africans
from higher-density areas move to lower-density areas where land is still available. Coupled
54 Elliott D. Green
with a lack of urbanization and a concomitant increased demand for rural land, the result
has been a rise in the number of clashes between so-called natives and “settlers,” as migrants
gain access to land and other resources and thereby anger native inhabitants (Green 2012b).
These “sons of the soil” conflicts have been prominent across Africa in recent years, in-
cluding the civil war in Côte d’Ivoire, election violence in Kenya, civil violence in Nigeria,
and civil conflict in western Uganda, among others (Boone 2007; Green 2007; Kahl 2006;
Kraxberger 2005).
In contrast, parts of the developing world with higher pre-transition population densities
have been more successful in managing the political consequences of population growth.
The clearest example is China, whose government has focused on both drastically reducing
fertility and managing internal migration via the hukou system. Indeed, just as high fer-
tility and migration were characteristics of precolonial Africa (Caldwell and Caldwell
1987; Kopytoff 1987), so too can we trace the origins of the hukou system to the imperial
baojia system of “population registration and mutual surveillance perfected over millennia”
(Cheng and Selden 1994, p. 645).
Structuralism and the Power of Prediction
One of the great benefits of structuralism as a mode of analysis is that it not only allows us to
see long-term relationships between the past and contemporary outcomes, but also allows
us to peer into the future. Structuralism is not, of course, the only paradigm that allows for
predictions. In particular the ability of nonstructural political science to predict the future
has improved in recent years with the development of computer models; see especially the
work of Bueno de Mesquita (1998, 2011) on such issues as politics in the European Union
and the end of the Cold War, among others. However, many scholars have been critical of
such attempts at forecasting and political predictions due to their inability to predict unu-
sual events than can significantly alter future trends (Doran 2002), also known variously as
“black swans” (Taleb 2009) and “critical junctures” (Acemoglu and Robinson 2012).
As regards geography, static geographical conditions such as distance from the equator
or elevation will obviously have little predictive power for future events. However, re-
cent years have seen numerous predictions about the future relationship between climate
change, global warming, and politics in the developing world. For example, there is evi-
dence that higher temperatures and subsequent declines in crop yields are correlated with
the outbreak of civil war, at least in Africa (Burke, Miguel, Satyanath, Dykema, and Lobell
2009). The link between crop yields and conflict could be driven by either of two potential
mechanisms—a decrease in the opportunity costs of joining rebel armies or a decline in
tax revenues, which decreases state capacity to suppress rebellions (cf. Miguel et al. 2004).
Thus, if climate change brings higher temperatures over the next few years or decades, then
Africa should see an increasing risk of civil war over this time frame. However, the relation-
ship between variables like temperature and rainfall and outcomes like civil war remains
controversial: Buhaug (2010), for instance, suggests that Burke et al. (2009)’s results are
not robust to different definitions of civil war, while Gleditsch, Buhaug, and Theisen (2011)
in general suggest that the relationship between conflict and climate change events like
drought, rising temperature, rainfall, and sea levels is inconclusive.
Structuralism 55
As regards demography, previously Thomas Malthus and others thought that un-
predictable events such as famines similarly altered demographic trends inasmuch as
famines were “the last, the most dreadful resource of nature” used to combat overpopu-
lation. Yet the past two centuries have shown that modern demographic trends are not
subject to nonlinear “black swan” events.13 To continue with the example of famines,
in the Great Leap Forward in China poor harvests and government policies led to the
estimated deaths of some 20 to 30 million people between 1958 and 1961 in perhaps
the most deadly famine in world history. Yet, in contrast to Malthus’s prediction that
famines would check population growth, by the end of the 1960s population growth
figures recovered to their pre-famine trend (Chang and Wen 1997). Indeed, evidence
from other famines suggests that returning to previous demographic trends is the norm
inasmuch as people regularly delay marriages and childbirths until the famine is over
(Dyson and O’Grada 2002).14
Moreover, not only do demographic trends maintain their progression in the face of
unpredictable events, but these trends are very simple and thus easy to identify. In partic-
ular there are three demographic trends that are of major consequence to the politics of
development: population growth, population aging, and urbanization. Population growth
and urbanization are essentially monotonic as well—that is, they only go in one direction.15
(Median age generally goes upward, but declined in many countries in the twentieth cen-
tury due to higher declines in child mortality than old-age mortality.) Previously, I covered
the political consequences of high population growth in detail; now I focus on the other two
trends and their implications for future political developments.
In the first case the median age of the world population has been rising since 1970, which
is only set to continue in the future: Goldstone (2010) predicts that the populations of many
countries in Europe and North America will age rapidly relative to the rest of the world,
rising from 20 percent of the population over age 60 today to over 30 percent by 2050. This
increase will be even sharper in China and South Korea, where the population aged 60 years
and older is today less than 15 percent but by 2050 will be over 30 percent in China and over
40 percent in South Korea. Thus aging developing countries like China, Iran, Thailand, and
Vietnam may all have median ages over 45 by 2050 (United Nations 2010)—older than con-
temporary Japan, currently the oldest country in the world. This trend will have a negative
effect on economies, both in terms of a shrinking labor force and thus—unless governments
find a way to increase output per worker—a decrease in economic growth, as well as rising
medical costs for the elderly.
The political consequences of population aging are several. First, as suggested by Haas
(2007), declining economic growth per capita and increasing budgetary shares allocated
to the elderly in the form of medical care and pensions could mean less money for other
items such as defense, which would have domestic and geopolitical implications in the case
of China. Second, given the past correlation between increasing median age and democ-
ratization (Dyson 2013), one major political consequence could be greater pressures for
democratization in aging autocracies in the coming decades. Farther into the future one
could see similar effects in parts of Africa that have until recently only seen declining me-
dian ages over the past few decades, which are nonetheless predicted to start increasing at
the present time.16
The second trend is urbanization, which is proceeding across all parts of the devel-
oping world due to lower mortality rates. Urbanization historically has had strong links
56 Elliott D. Green
with violence and revolution, as Goldstone (1991) showed as regards early-modern Eurasia.
Indeed, more recently Varshney (2001) has shown that rural India, despite housing a ma-
jority of citizens, was host to only 3.6 percent of all deaths in communal violence between
1950 and 1995.
However, there is a good amount of scholarship that has either problematized these
findings or found much more positive impacts of urbanization. As regards the former, re-
cent evidence has suggested that there is no statistical correlation between urbanization
and political violence (Buhaug and Urdal 2013). As for the latter, not only has urbanization
resulted in greater democratization along lines discussed above, but recent work by Green
(2013) provides a variety of evidence that urbanization is highly correlated with ethnic ho-
mogenization, whereby rural–urban migrants identify with broader ethnic identities in
cities than they do in rural areas.
Of course, the political consequences of ethnic homogenization are potentially mixed
depending on which literature one believes. On the one hand, if there is a linear relation-
ship between ethnic diversity and conflict then urbanization should bring lower levels of
civil violence (Easterly 2001); indeed, in Botswana, which has had the highest rate of ur-
banization of any country in the world since 1950, “the urban experience . . . contributed
to the creation of a unifying national identity on the part of Botswana’s citizens” (Solway
2004, p. 132). However, if the relationship is instead nonlinear and ethnic polarization is in-
stead correlated with war and civil unrest (Collier and Hoeffler 2004; Montalvo and Reynal-
Querol 2005), then the influence of urbanization may depend upon the prior level of ethnic
diversity.
Conclusions
In this chapter I have shown that geographic and demographic structural factors have
played a major role in the politics of developing countries and should continue to play a
significant role for some time to come. While discussing the role of geography, I largely con-
centrated on demographic factors, both in terms of historical evidence prior to the dem-
ographic transition and during the early and late phases of the transition. I also examined
the way in which a more structural view of development allows for predictions of the near-
to medium-term future, especially as regards population growth, population aging, and
urbanization.
I conclude with two further thoughts: First, a lingering question exists as to why geo-
graphical predictions are so hotly debated and controversial while demographic predictions
are taken less seriously. Part of the reason lies in the nature of the debate, which in the case
of climate change has taken place in popular mass media while demographic debates have
been more prevalent in academic journals. Another reason is that dire predictions of the
effects of climate change are actually more comparable to the Malthusian fears of overpop-
ulation popularized by Ehrlich (1968) a few decades ago. More specifically, unlike the more
complex political demography analyses noted above, geographic predictions have mostly
tried to theorize a simple direct link between climate change and political outcomes that
can easily be summarized in the popular media. Thus, for instance, no respectable social
scientist claims today that population growth or urbanization has a direct impact on civil
Structuralism 57
war occurrence in the way that Burke et al. (2009) suggest that higher temperatures will
lead directly to more civil war. But an analysis of these differences remains outside the
bounds of my discussion.
Second, and finally, the role of structuralism as a mode of analysis has become more
popular in the political science of development lately, but only slightly. On the one hand,
not only has the degree to which economic and political phenomena persist across time be-
come an important topic within the study of economic development (Nunn 2009), but the
role of slow-moving trends in determining contemporary political and economic outcomes
have become prominent as well, especially since the publication of Acemoglu et al. (2001).
On the other hand, however, much of this work has been focused on geographic factors,
while those that focus on demographic structuralism generally focus only on narrow issues
and therefore fail to discuss the broader relationship between the demographic transition
and the politics of development. Certainly one problem here is the dominance of an ahis-
torical variety of rational choice scholarship that fails to take broader historical context
into account, with insights from the “analytical Marxist” school as well as the “analytical
narrative” approach to explaining historical change largely failing to have an impact on
contemporary political science. Another problem is the dismissal of modernization theory
and a lack of engagement with its focus on nonreversible phenomena such as urbanization,
fertility and mortality decline, and population aging, which in part is linked to a failure
among many rational-choice scholars to read few works that date back more than a decade
or two.17 And a final, more general problem is an increased focus on micro-level scholar-
ship for reasons of research robustness, a problem that is greatly advanced in development
economics but which has begun to afflict political science as well (Rodrik 2008). Yet none
of the topics discussed in this chapter are inherently antithetical to rational-choice schol-
arship, and there are no barriers to reconstituting a theory of macro-level modernization
along micro-level rational-choice lines. Certainly such a research agenda could prove to be
quite fruitful in the future.
Notes
1. Also see Sen (1981) for a notable critique of the role of geography and climate in the crea-
tion of famines.
2. See Albouy (2012) for a critique of Acemoglu et al. (2001); see Bandyopadhyay and
Green (2012) and Przeworski (2004) for a critique of Acemoglu et al. (2002). But also see
Bhattacharyya (2009) for further evidence behind the role of malaria in long-run African
development.
3. See as well Przeworski (2006) for a model linking inequality to autocracy, and Nunn (2008)
for a critique of the Engerman and Sokoloff hypothesis.
4. Detailed urban and rural data on fertility and mortality for pre-transition societies is very
rare, but Dyson (2011) nonetheless shows higher urban mortality rates than fertility rates
for Sweden until the 1840s and for Sri Lanka until the 1920s.
5. No recorded society prior to the demographic transition ever had more than a third of
its population living in urban areas except for the early-modern Netherlands, which had
35 percent of its population living in towns with 5,000 or more inhabitants in 1600, 39 per-
cent in 1700, and 34 percent in 1800 (Lynch 2003, p. 30).
6. The ratio of population in Europe to population in Asia also peaks around 1900.
58 Elliott D. Green
7. Gellner (2006/1983, p. 58) explicitly links a “population explosion” and uneven industri-
alization in his model, a fact missed by many of his readers.
8. The exception here is, of course, those countries where natural resources are not located
on land but are instead offshore, which could help to explain the relatively limp and
nonviolent nature of Scottish nationalism as well as the (up to now) benign effects of the
discovery of oil off the coast of Ghana.
9. There are other mechanisms, of course, linking urbanization to democratization. Lipset,
(1959), for instance, suggested that urbanization contributes to democratization as part of
the broader process of social modernization.
10. Also see Bates (1981) on how urban citizens in postcolonial Africa were able to exercise
control over government policies along these lines.
11. However, not all scholars of democratization find a positive correlation between urban-
ization and democracy. Barro (1999), for instance, finds a negative relationship instead.
Many have noted that the high levels of correlation between urbanization and GDP/
capita makes any assessment of the relationship between democracy and urbanization
very difficult to assess (Midlarsky 1992).
12. The differences are even starker if we exclude the Soviet areas of Eastern Europe and
Central Asia, where immigration was highly restricted until the 1990s.
13. In contrast, however, premodern demographic “black swan” events could set countries
onto new equilibriums; for instance, the Bubonic Plague in fourteenth-century Europe
arguably led to the development of capitalism in Western Europe and the entrenchment
of serfdom in Eastern Europe (Acemoglu & Robinson 2012; Brenner 1976).
14. The one notable exception in this regard is the Irish Potato Famine of 1848–1851, which
led to a long-term decline in the Irish population due to out-migration. It is notable,
however, that the Irish famine is generally regarded as the most deadly famine in human
history in terms of deaths as a percentage of the total population (Sen 1999, p. 170). The
famine also coincided with the advent of fertility decline in Ireland as part of the dem-
ographic transition, which would have meant declining population growth even in ab-
sence of the famine.
15. This fact might at first appear odd, for instance, in light of the de-urbanization enforced
by the Khmer Rouge in Cambodia in the 1970s or more recent examples in Tajikistan and
Zambia. However, Cambodia overtook its urbanization level of 1970 by the year 2000,
and in Tajikistan and Zambia de-urbanization was only relative rather than absolute as
urban population growth merely fell behind rural population growth.
16. Thus Uganda’s median population, for instance, declined from 18.2 years in 1950 to a low
of 15.6 years in 2005 and has been growing since, with lows for Afghanistan, Angola, Chad,
the Democratic Republic of Congo, Ethiopia, Guinea, and Sierra Leone, among others,
also between 2000 and 2005 (United Nations 2010). According to U.N. projections, the
last country in Africa—and the world—whose median age will stop declining is Zambia,
which is predicted to bottom out at 15.9 years in 2025.
17. See Acemoglu and Robinson (2005) for a refreshing exception in this regard.
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Chapter 4
P olitical Dev e l op me nt
Robert H. Bates
Lodged within comparative politics, the field of political development encompasses the
study of nations that, for the better part, are new, non-Western, and poor. Most had once
been incorporated into the empires belonging to European states and became independent
upon their collapse. The majority of these nations reside in Asia, the Middle East, Africa,
and Latin America. And while the economies of an increasing number are now growing,
taken together, they comprise a major portion of the poorer nations of the world.
In reviewing the trajectory traced by scholarship in this field, I adopt the conceit fash-
ioned by Geddes (2003). As sandcastles on a beach are undermined by the tides, she once
wrote, so too are scholarly paradigms undermined by events. Thus will I associate the birth
of the modernization school with the collapse of European empires during World War II;
the triumph of Leninist theories with the war in Vietnam; and the rise of neoclassical po-
litical economy with the growth of the newly industrialized countries (NICs) and the fall
of the Soviet Union. I conclude with a brief sketch of two approaches that find their origins
elsewhere: the study of political geography and study of the historical determinants of con-
temporary politics.
The End of Empire
Political development gained recognition as a subfield of political science in the 1960s.

The works of Daniel Lerner (1956), Gabriel Almond and James Coleman (1960), and Karl
Deutsch (1961), among others, heralded its arrival. Focusing on the emergence of seem-
ingly charismatic leaders, the rise of nationalism, and the political emergence of the masses
in a portion of the world where, until recently, they had remained inert, these scholars
forged what became known as “modernization theory.” As these societies became modern
and their people subject to social mobilization—that is, as they became more urbanized,
better educated, wealthier, and more attuned to the mass media—their people became more
“available” for political mobilization, it was argued. Urbanization, education, literacy, pros-
perity, and the rise of the mass media generated conditions under which politicians could
forge mass movements sufficiently powerful to drive the French from Lebanon, the Dutch
from Indonesia, and the British from the Indian subcontinent.
Political Development 65
Further characterizing the character of politics in the developing nations, these scholars
noted that political activity concentrated in the cities, while political apathy suffused the
villages. The urban, educated population nested, moreover, within a substructure of “tradi-
tional” institutions: headmen and chiefs (Apter 1964), peddlers and princes (Geertz 1963),
and tribes and ethnic groups (Coleman and Rosberg 1964). In the words of an influential
work of the time, these “new states” lodged within “old societies” (Apter 1963). In the minds
of many who studied them, the tension between tradition and modernity clouded the po-
litical future of the developing world.
Others were less cautious: modernization would surely trace the same path as it had in
the West, they presumed. To forecast the future of these polities, they therefore revisited the
classic studies of Europe’s development, whether the works of Durkheim (1933) and Weber
(1968) or Maine (1961) and Toennies (1957). Today’s social mobilization, they argued, was
but a prelude to tomorrow’s political democratization; as modernization progresses, the
polities of the developing world would come to resemble those in the West.1
From Modernization Theory

to Political Economy
The subfield of development soon became embroiled in controversy. Within its ranks, an
increasing number of scholars encountered evidence that failed to accord with the claims
of the modernization theorists.
Researchers found “old societies” to be surprisingly modern. Many were led by urban-
based educateds; media-savvy clerics, as in the Middle East; or street-smart tribalists, as in
Africa (Melson and Wolpe 1970). Nor were the villagers they encountered the docile, ap-
athetic, and uninformed figures depicted of Lerner’s Balgat (Lerner 1956). As reported by
Popkin (1979) and Scott (1976), those in South Asia proved to be rational decision makers
and canny tacticians; like their counterparts in Russia, China, Mexico, and Algeria (Wolf
1969), they indeed appeared able to organize “the revolutionary class of our time” (Moore
1966). As more scholars ventured into the field, they thus encountered reasons to doubt
the distinction between traditional and modern that constituted so important a premise of
this field.
Nor did they find reason to equate modernization with progress. As persuasively argued
by Samuel Huntington (1968), the politicization of rural, poor, and illiterate societies was
as likely to lead to political conflict as to political harmony; and charismatic figures and
mass parties proved more likely to create authoritarian than democratic regimes. Lending
credibility to Huntington’s argument was the seizure of power by repressive, military
governments in the most “modern” nations in Latin America: Argentina, Brazil, and Chile.
It was Vietnam that marked the eclipse of modernization theory, however. There all
the discordant facts go together: Social mobilization engendered political violence; au-
thoritarian politics, rather than bourgeois civility, held sway; and peasants were political
militants rather than rural bumpkins. The framework of modernization theory thus failed
to fit the realities in Vietnam, and scholars began to search for an alternative. They found it
in Leninist political economy.2
66 Robert H. Bates
By Leninist theory, I mean a form of political economy that views development

as the rise of capitalism and underdevelopment as the result of international, rather
than domestic, forces. According to Leninist theory, nations in the less developed
world were poor and conflict ridden, not because “old societies” cohabited with “new
states,” but rather because the advanced industrial economies checked their develop-
ment. To account for patterns of development, Leninist theorists declared, scholars
must focus not just on nations but also upon their location in the global economy. In
particular, they must look at the impact of international markets, in which patterns
of unequal exchange enabled corporations, banks, and consumers in the developed
North to extract surplus from producers in the South. For those transfixed by events
in Vietnam and revolutionary politics, the radical nature of politics in the developing
world became readily intelligible; it followed as a corollary (Lenin 1970; Palma 1978;
Wallerstein 1979).
New Directions in Political Economy
As had modernization theory, Leninist political economy soon faced a critical challenge,
which was of sufficient magnitude to undermine its hegemony. The challenge originated
in Asia, where Japan, Korea, Singapore, and Taiwan penetrated markets that the advanced
industrial nations had long dominated: markets for chemicals, for steel, for chemicals, and
for automobiles. Deeply enmeshed in global markets these nations might be, but they expe-
rienced neither immiseration nor underdevelopment as a consequence. As articulated most
clearly by its critics from the Left (e.g., Warren 1973), faith in Leninist political economy
crumbled in the face of the rise of these nations.
Leninist political economy may have been wrong; but international trade clearly and
profoundly shaped the political and economic structures of states, and it was important to
trace the causal paths linking international markets to domestic politics. Rogowski (1989)
and Frieden (1991) were among the first to do so; applying neoclassical trade theory, they
limned the alliances and conflicts that arise between classes, sectors, and industries in re-
sponse to international markets. Leninist theories attributed political radicalism in the de-
veloping world to immiseration; however, in many instances, nations in the less developed
world were becoming more prosperous. Focusing on peasant rebellions—a core theme in
the Leninist literature—Popkin (1979) and Bates (1976, 1987) also appealed to neoclassical
reasoning and were thereby able to account for the rise of radical politics in the midst of
economic development. Lastly, Leninist theory implied that the axis of exploitation ran be-
tween foreigners and local nationals, with the former limiting the prosperity of the latter.
Those who marshaled neoclassical logics acknowledged the importance of economic ine-
quality and the significance of exploitation; but they argued that their origins lay in signif-
icant part within the developing world itself. In large part, they contended, it arose from
the ability of political elites to capture the state and employ governments to design and to
implement policies that benefited the few at the expense of the many. Using neoclassical
tools—theories of regulation, rent seeking, and distributive politics—they put the “polit-
ical” back into “political economy.”
The rise of neoclassical forms of political economy represented not only an effort to replace
the failed framework of Leninist reasoning, however, but also a response to new patterns
of divergence in the global economy. Even while Asia grew in the 1970s through 1980s,
Africa retrogressed. In Africa, moreover, inequality rose, as political elites amassed fortunes
even while the citizenry of their nations declined further into poverty. When Africa’s po-
litical elites continued to blame external forces for the continent’s economic collapse, their
protestations served only to discredit further such arguments and class-analytic Marxists
then joined with neoclassical political economists in rejecting Leninist arguments (Bates
1991). Variation in the economic performance of the two continents reaffirmed the impor-
tance of internal determinants of development and, more specifically, the economic impor-
tance of politics.
With the fall of the Soviet Union, external events once again impacted upon the field.
For with the fall of communism came the rise of democracy, not only in Eastern Europe
and the former Soviet Union but also throughout the developing world. The resurgence of
democracy gave rise to three major streams of scholarly enquiry: research into the collapse
of authoritarianism, the rise of democracy, and the spread of civic violence. It would appear
obvious that “the collapse of authoritarianism” and “the rise of democracy” refer to the
same phenomenon; but the product of the two approaches diverged in important ways.
Scholars in Latin America focused on the demise of dictators and military regimes; it
was the erosion of authoritarianism that drew their attention (O’Donnell and Schmitter
1986). In Africa, by contrast, the mobilization of democratic forces gained pride of place,
as scholars studied the origins and growth of the democracy movement and the campaigns
and elections that marked their rise to power (Bratton and van de Walle 1997). No matter
how they framed the transition, however, students of politics in the developing world found
it both desirable and necessary to revisit the literature on parties and elections in the ad-
vanced industrial democracies. Those who mastered the tools and theories developed in the
North rapidly won recognition for the insights they could offer, be it on the decline of the
PRI in Mexico (Magaloni 2006), voting patterns on Argentina (Lupu and Stokes 2009), or
political attitudes in post-authoritarian Africa (Bratton and van de Walle 1997).
Civil War
Not only democracy, but also conflict, marked the fall of communism. Civic violence spread
through many of the regions of the former Soviet Union; in Africa, it broke out where
dictators fought to check the resurgence of democracy; and in all regions of the world,
conflicts that once would have been terminated for fear of drawing in the leading powers,
now remained unchecked and so could generate greater violence. Many who studied the
developing world therefore turned to the study of civil conflict.
Initially, most focused on factors that inspired insurgencies, crudely dividing them be-
tween “greed” and “grievance” (Collier and Hoeffler 1998). Within the first category fell the
pursuit of wealth through plunder, particularly of primary products (Ross 1999; Klare 2002).
Some wrote of the “criminalization” of politics, as traffickers, mafiosi, and warlords preyed
upon Africa’s resources (Reno 1998; Meuller 2004). Those deemed grievance-driven were
68 Robert H. Bates
portrayed as more high minded and in pursuit not of wealth or power per se, but of their
more equitable distribution. Other scholars focused on political opportunities rather than
private motivations, noting that insurgencies tended to arise in “weak states” and in favor-
able geographic settings (e.g., mountainous terrain), both of which reduced the likelihood
of reprisals (Fearon and Laitin 2003). Still others looked at the impact of exogenous shocks,
which—it could be presumed—would both impose economic losses and generate political
grievances: recessions (Deaton and Miller 1995), food price shocks (Arezki and Bruckner
2011; Carter and Bates 2011), and droughts (Dell, Jones, and Olken 2008). Important too
were studies of the role of ethnic diversity (Fearon and Latin 1996), particularly in Africa.
Among the causes of political violence, it also became clear, was democratization (Snyder
and Mansfield 2000; Hegre et al. 2001; Bates 2008). More specifically, it was the loss of
power that democratization entailed. The years in which civil violence intensified were
those in which the impulse of democratization strengthened. Precariously positioned
autocrats—it was stressed—fearing reprisals should they lose power, violently resisted the
transition to democracy. And once democratic governance was achieved, should one party
use the power of the state to repress its rival, or to redistribute income from other citizens
to its supporters, then it too had reason to fear loss of power—and reason to violently resist
being driven from the state house (Padro-i-Miguel 2006).
Cultural Politics
Once modernization theory was displaced from the core of development studies, forms
of political economy thus inscribed the agenda for the field, only themselves to give way
to studies of democratization and conflict. More recently still, scholars have turned to the
study of culture, impelled there by the political resurgence of Islam. In Clash of Civilizations?
Huntington (1993) stressed the importance of values rather than interests; rather than
studying markets, he dwelt on faiths; and rather than studying political parties, he analyzed
religions. Following the fall of communism, he asserted, the motive force of politics lay in
cultures and belief systems.
Among the students of cultural politics, those who focused on ethnicity appear to have
made the most progress. As adumbrated by Deutsch (1966), to consign ethnicity to the
realm of tradition was an error; the formation of ethnic groups is better viewed, rather,
as a product of development (Anderson et al. 1967). But do ethnic groups, in turn, pro-
mote development? Insofar as they produce human capital and nourish private invest-
ment, they render citizens more productive and promote economic growth (Bates and
Yackolev 2002). But insofar as ethnic diversity renders the formation of public goods
more costly, ethnicity inhibits economic growth (Alesina et al. 1999; Miguel and Gugerty
2005; Habyarimana et al. 2007). And while ethnic diversity cannot be linked to a greater
likelihood of civil wars (Fearon and Laitin 2003), ethnic wars have been found to be more
intense and to last longer than others (Fearon 2002). Through the use of quantitative
methods, research into ethnicity has thus produced a nuanced and cumulative body of
knowledge, making it perhaps the most productive item on the agenda spawned by the
interest in cultural politics.
Other Sources of Influence
Changes in the world about them has thus influenced both the topics addressed by students
of political development and the manner in which they approach them. Influential too have
been other fields of study. Most influential, perhaps, has been the study of economic history.
The Nobel prize accorded to Douglass North revived an interest in the role of institutions,
a theme that was rapidly incorporated into the study of development. Indicative is recent
research into the impact of democratic reforms in Africa (Stasavage 2005; Ndulu et al. 2008;
Bates and Block 2011) and the role of the state in Asia (Campos and Root 1996; Campos
2001). The new institutional economics also introduced new methodologies. Factors lodged
deep in the past, it intimated, can be treated as exogenous, thus providing instruments for
identifying the causal impact of contemporary variables. Thus Acemoglu et al. (2001b) used
European migration to identify the impact of political institutions on economic growth,
while La Porta et al. (1999) used colonial origins to identify the impact of legal systems.
In addition, under the impact of economic historians, some scholars have shifted their
attention from the study of countries that are poor to the development of those that are
presently wealthy. Rather than exploring variation in the contemporary cross-section of
nations, they explore variation over time. Much of this work is qualitative, of course (e.g.,
Levi 1981, 1988, 1997; Skocpol 1979; and Moore 1966). Also important are the quantitative
studies of Acemoglu et al. (2001a, 2001b). who apply the tools of cliometrics to the rise of
the West and the creation of the developing world.
Ironically, perhaps, at least until recently, development economics has influenced the study
of political development less than has economic history. A possible reason is that while de-
velopment economists study public policy, they have rarely studied politics; and while they
focus on the impact of policies, they have been loath to inquire into their origins.3 Thus, while
little shaping the intellectual agenda of those who study political development, recent work
in development economics has strongly affected the methods they employ. The experimental
and quasi-experimental methods pioneered by Miguel and Kramer (2004) and championed
by Banerjee (2007) and others have been taken up by political scientists and applied to the
study of ethnicity (Habyarimana et al. 2007), political accountability (Bjorkman and Svensson
2009), vote buying (Wantchekon 2003), and candidate selection (Ichino and Nathan 2012).
Advances in geography are also shaping the study of development. Using technologies
pioneered in this field, those who study development can apply quantitative methods
not only to cross-national but also to within-nation variation. Pooling data on income
differences, as taken from household surveys, and voting intentions, as taken from surveys
of public opinion, for example, Posner and Simon (2002) were able to measure the im-
pact of economic conditions on voting. Buhaug and Rod (2006) have employed geographic
information while revisiting the impact of ethnic diversity and natural resources on civil
conflict.
Increasing amounts of data are now tagged with geographic information: data on public
services, crime, and violence come to mind. So too are data on crop yields, rainfall, and
temperature. With the rapid spread of cell-phone technology in the developing world, the
quantity of data will only rise. And with it will come increasing opportunities for the anal-
ysis of within-country variation on politics.
70 Robert H. Bates
Notes
1. Most frequently cited in support of this argument was the work of Lipset (1959), who
captured the statistical relationship between the indicators of modernization and democ-
racy in a global cross-section of countries.
2. Throughout, I use the phrase “Leninist theory” rather than “dependency theory,” if only
because the latter comes in so many forms (Palma 1978). In doing so, I draw—of course—
from Lenin (1970), Imperialism: The Highest Stage of Capitalism, rather than from Lenin
(1977), The Development of Capitalism in Russia, which flatly contradicts each of the
former’s most relevant arguments.
3. The most notable exception is Hirschman (1958, 1970, 1997).
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Chapter 5
The Washi ng ton

C onsensu s and t h e New
P olitical Ec onomy of
Ec onomic Re form
Kevin M. Morrison
Economic reform has been the subject of one of the most important literatures on the pol-
itics of developing countries in the last thirty years.1 Beginning in the early 1980s, this body
of work took a comparative approach to understanding why some countries progressed
further in market-oriented reform than others. As Joel Hellman (1998, p. 206) wrote in a
seminal article, the “central paradox” that this literature sought to address was: “If reforms
ultimately make all or a majority of a country’s citizens better off, why are they so politically
contentious, especially in democratic systems?”
Hellman’s phrasing was revealing. Most of the major works in this literature shared a
common assumption that these market-oriented “reforms ultimately make all or a ma-
jority of a country’s citizens better off.” In fact, one of the principal approaches in the liter-
ature was to liken market-oriented reform implementation to a public good, in the sense
that, as Stephan Haggard and Robert Kaufman (1995, p. 157) said, “The costs of reform tend
to be concentrated, while benefits are diffused.” As Hector Schamis (1999, pp. 236–237)
discussed, this approach was taken by both economists and political scientists: “In much
of the discipline of economics a liberal economic order is treated as a public good. . . .
A wealth of research has addressed [these liberal-oriented reforms] . . . under the heading
‘the politics of economic adjustment.’2 Scholars in this research paradigm, for the most
part political scientists, have provided a rather straightforward answer [for why reforms
are so difficult]. Paradoxically, however, and despite their greater sensitivity to political
factors, their explanation does not depart significantly from propositions rooted in the ne-
oclassical [market-oriented] paradigm.” That explanation, generally building on Mancur
Olson’s (1965, 1982) path-breaking work on public goods, was that interest groups that
would “lose” from reform were better able to solve collective action problems than the
“winners,” and could therefore prevent such policies from being implemented for the
betterment of society.
74 Kevin M. Morrison
These scholars’ focus on the effects of interest groups led many of them to examine the
kinds of domestic institutional conditions under which reforms might proceed more rap-
idly. In particular, studies focused on which institutions were able to block the negative in-
fluence of interest groups on the policy-making process. These institutions tended to fall at
the extremes of the distribution of possible arrangements—either benevolent dictators who
could stand firm against interest groups or very democratic institutions that could diminish
the power of these groups (e.g., Haggard 1988; Hellman 1998). In other words, the literature
predicted that countries with these institutional conditions would be better at producing
public goods in general, and market-oriented reforms in particular.
However, serious questions about the benefits of market reforms—of what was called
the “Washington Consensus”—were raised even as these works were being written. Doubts
rose initially based on the East Asian Miracle, continued through the crises around the
world in the 1990s, and became stronger as the growth results of many “reformed” coun-
tries disappointed. These experiences spawned important works questioning the benefits of
orthodox policies (e.g., Johnson 1982; Amsden 1989; Gereffi and Wyman 1990; Wade 1990);
however, for whatever reason, the literature about the determinants of market-oriented
policy reform rarely incorporated this skepticism. In fact, even relatively recent studies of
such reform continue mostly to take the benefits of orthodox policies for granted (e.g.,
Nielson 2003; Ehrlich 2007).
As scholars begin to assess the lessons of the recent global economic crisis (e.g., Spence
and Leipziger 2010), this literature on economic reform, which has relied so heavily on the
merits of market-orientation, seems worthy of revisiting. The argument of this chapter is
that disagreements over the benefits of Washington Consensus policies have become signifi-
cant enough that assuming they are public goods can no longer be a viable research strategy.
Strikingly, even the World Bank’s Commission on Growth and Development (2008, pp. 2–
3), which includes the father of economic growth theory, Robert Solow, concluded that “no
generic formula exists” for growth, “orthodoxies apply only so far,” and that governments
should “pursue an experimental approach to the implementation of economic policy.”
Skepticism about orthodox policies has clearly entered the mainstream.
Most importantly for the purposes here, the disagreements have significant implications
for the literature itself. Clearly, future theories of reform can no longer ignore disagreements
over the effects of orthodox policies. However, the implications are important even for ex-
isting scholarship. If, as several works suggest, the policies that lead to economic growth
are instead heterodox—if, in other words, heterodox policies are the real public goods—
then the predictions of much of the existing literature change dramatically. For example,
instead of being associated with market-oriented reform (as discussed previously in this
chapter), benevolent dictators and strong democracies should be associated with heter-
odox policies.
The literature on economic reform is important enough—and the implications of these
disagreements sufficiently significant—that understanding the nature of these debates
about economic policy deserves attention. This chapter first examines the areas of agree-
ment and disagreement about growth strategies, focusing on why many scholars have come
to doubt whether market-oriented reforms are indeed public goods. The chapter then turns
to the lessons for scholars interested in economic reform, examining what can be gleaned
from the existing reform literature and what research directions these debates regarding
economic policy suggest. A brief final section concludes.
The Washington Consensus and the New Political Economy 75
The Debate about Development Strategy
The literature on economic reform arose during the ascendancy of market-liberalizing

policies famously summarized by John Williamson (1990) as the “Washington Consensus.”
While the 1950s, 1960s, and 1970s had been characterized by active state involvement in
economies, often supported by international development institutions like the World Bank,
by the late 1970s there was growing criticism from both the left and the right of the results
of this strategy (e.g., Ayres 1975). Weakened by these critiques, the state-intervention par-
adigm was brought to its knees by a series of international crises, including the two oil
shocks in the 1970s, the Paul Volcker interest-rate shock, the collapse of commodity prices,
and the Latin American debt crisis.
Following this upheaval, establishment economists agreed that the best way for coun-
tries to develop was to liberalize their markets. Williamson’s original formulation was a list
of ten policies on which he believed there was a fair amount of consensus in Washington
at the time—that is, a consensus among the U.S. Treasury, the International Monetary
Fund (IMF), the World Bank, and mainstream economists. These included imposing fiscal
and monetary discipline; reordering public expenditure priorities toward pro-growth
and pro-poor expenditures; creating tax systems with broad bases and marginal rates;
liberalizing interest rates and prices; ensuring a competitive exchange rate; liberalizing
trade; liberalizing inward foreign direct investment; privatizing state-owned enterprises;
deregulating industries to ease barriers to entry and exit; and ensuring property rights. To
the extent that the state-oriented industrialization of the previous decades had reflected a
faith in the ability to govern economies, the Washington Consensus reflected a shift toward
a greater faith in the power of markets.
This view of the world still has many proponents, representing one side of the present
debate about development strategy. Supporters point to econometric studies demonstrating
the positive effects of Washington Consensus policies, such as free trade (e.g., Frankel and
Romer 1999), as well as case studies linking such policies to economic performance (Ndulu
et al. 2007). Even Dani Rodrik, (2007, p. 22) generally viewed as critical of the Washington
Consensus, notes, “The [Washington Consensus] reasoning is utterly plausible, which
underscores the point that the consensus is far from silly: it is the result of systematic
thinking about the multiple, often complementary reforms needed to establish property
rights, put market incentives to work, and maintain macroeconomic stability.”
So then, what is the problem? The starting point for most critiques of the Washington
Consensus is that countries that have largely adhered to its tenets have not done as well ec-
onomically as some other countries. The policies of the high-performing East Asian coun-
tries generally looked quite different than the Washington Consensus, using directed credit,
trade protection, export subsidization, and tax incentives, along with highly heterodox
arrangements in areas of corporate governance, financial markets, business-government
relations, and public ownership. China, for example, protected property rights, employed
market incentives, and achieved macroeconomic stability through means quite different
than those in the consensus. In the township and village enterprises that proved central to
Chinese economic growth, property rights were assigned not to individuals or the central
government, but rather to local communities (Qian 2003). And market incentives were
used in agriculture in a novel way that allowed farmers who had met their obligations under
the state-order system to sell their surplus at market-determined prices (Lau, Qian, and
Roland 2000). Meanwhile, the region that made the most determined attempt to adopt the
Washington Consensus—Latin America—benefited comparatively little: “Countries such
as Mexico, Argentina, Brazil, Colombia, Bolivia, and Peru did more liberalization, deregu-
lation, and privatization in the course of a few years than East Asian countries have done in
four decades . . ., [yet] Latin America’s growth rate has remained a fraction of its pre-1980
level” (Rodrik 2007, p. 20).
The point is not so much that policies of the Washington Consensus do not ever work,
as it is that other combinations of policies might work better under certain conditions.
More importantly, those conditions are likely to be quite widespread. As Joseph Stiglitz
(2008, p, 42) writes:
The intellectual foundations of the Washington Consensus had been badly eroded even be-
fore its doctrines became widely accepted. The fundamental theorems of welfare economics
provided the rigorous interpretation of Adam Smith’s invisible hand, the conditions under
which and the sense in which markets lead to efficient outcomes. Under these theorems,
it turned out, markets were efficient only if capital markets were impossibly perfect—at
least in the sense that there be no missing risk or intertemporal markets. There could be no
externalities (no problems of air or water pollution), no public goods, no issues of learning,
and no advances in technology that were the results either of learning or expenditures on
R&D. Greenwald and Stiglitz [1986] went further and showed that there also could not be
any imperfections of information, changes in the information structure, or asymmetries of
information. These problems are serious in any economy, but are at the heart of development.
If the assumptions of the original models do not hold, other policies may work better. For
example, Thomas Hellman et al. (1997) have shown that, in the context of asymmetric
information and suboptimal savings, creating a moderate level of rents for banks can
improve both the quality and level of financial intermediation in comparison to finan-
cial liberalization. Rodrik (1995) has argued that in the presence of scale economies and
inter-industry linkages, firms face a coordination problem in producing socially profitable
investments—a problem that can be solved by a coordinating industrial policy. And Bruce
Greenwald and Stiglitz (2006) have shown that if technological spillovers within countries
and across industries are important for growth (Arrow 1962a, 1962b; Romer 1986), then
there is an argument for protecting infant economies (as opposed to just infant industries)
with trade barriers.
In sum, while the Washington Consensus approach retains its supporters, scholars have
offered both theoretical and empirical reasons to doubt whether these policies are public
goods, always best for developing countries striving for economic growth. As Rodrik (2007,
pp. 44–48) notes, the massive literature on the causes of economic underdevelopment can
generally be classified into works that focus on government failures and those that focus
on market failures. Broadly speaking, the formative experience of the former camp is the
“failure” of import substitution industrialization (ISI) policies in the 1960s and 1970s. The
latter camp argues that ISI was not as much of a failure as its critics say (e.g., Rodrik 1999a).
For this latter group, the formative experiences are the East Asian Miracle and the “failure”
of Washington Consensus policies in the past two decades. As the citations above indicate,
however, many scholars remain unconvinced about the failure of the Consensus.
It is interesting in this context to consider how the region one studies can influence the
side of the debate on which one falls. Africa is a continent whose population-weighted av-
erage annual growth rate was effectively zero from 1960 to 2000 (Collier and O’Connell
2007). In other words, if an African country were growing at all during this period, it was
doing better than average. In the rest of the developing world, the per capita growth rate was
the highest ever seen, at 3.63 percentage points (Collier and O’Connell 2007). As the saying
goes, when you find yourself in a hole, the first thing to do is stop digging: It is perhaps not
surprising that many scholars of Africa have focused on asking, “What went wrong?” For
example, a recent major study of African economic performance by Benno Ndulu et al.
(2007) draws positive attention to the finding that countries with Washington Consensus–
style policies have a 44 percent probability of sustained growth and only about a 20 percent
probability of growth collapse. In other regions of the world, it might seem odd to char-
acterize as “good” a policy environment within which one in five countries experiences
a growth collapse, and more than half the countries do not experience sustained growth.
Scholars of other regions, in contrast, seem to focus on the countries that have grown rap-
idly, asking, “What went right?” The Ndulu et al. (2007) study is a reflection of the mistrust
that many scholars have of governments’ ability and willingness to intervene successfully in
markets. Other studies reflect the belief of other scholars that government intervention has
been fundamental to the economic success stories of recent decades.
To return to the issue that motivates this chapter, the key question for scholars of eco-
nomic reform is whether these divisions have become significant enough that researchers
can no longer plausibly assume for the purposes of theory-building that certain policies
have the properties of public goods. Such matters are always ones of judgment, but it
seems reasonable to think that a tipping point was the publication of The Growth Report
by the World Bank’s Commission on Growth and Development (2008). This commission
was chaired by the Nobel Prize–winning economist Michael Spence and included another
Nobel Prize winner (Robert Solow) and nineteen senior policymakers from around the
world.3 Proclaimed by the World Bank to be “the most complete analysis to date of the
ingredients that, if used in the right country-specific recipe, can deliver growth and help
lift populations out of poverty,” the report was far more nuanced than previous World Bank
reports. As the commission itself wrote:
The report . . . does not provide a formula for policy makers to apply—no generic formula
exists. Each country has specific characteristics and historical experiences that must be re-
flected in its growth strategy [p. 2]. . . . Wedded to the goal of high growth, governments
should be pragmatic in their pursuit of it. Orthodoxies apply only so far. . . . At this stage, our
models and predictive devices are, in important respects, incomplete [p. 3]. . . . It seems to us
that the correct response to uncertainty is not paralysis but experiment. Governments should
not do nothing, out of a fear of failure. They should test policies, and be quick to learn from
failure. If they suffer a misstep, they should try something else, not plunge ahead or retreat
to the shore [p. 31].
This “experimental” approach is not particularly notable on its own merits. It has shown
up in other recent recommendations for policy in developing countries (Serra and Stiglitz
2008), but neither the Growth Report nor other works substantiate the benefits of the
approach with theory or empirics. In fact, the experimental approach may be fashionable
because no one can really argue forcefully against it. It is essentially a loosely formed and
unsubstantiated hypothesis: Experimenting with policies will lead eventually to better eco-

nomic growth. Indeed, as a hypothesis, it might potentially be sharpened and tested—there
is some interesting preliminary work, for example, suggesting that countries with better
ability to adjust to changing external conditions perform better over the long run (Rodrik
1999b).
But for the purposes here, there is one main point arising from the World Bank’s advo-
cacy of the experimental approach: The days of a clear mainstream consensus about eco-
nomic policy are over.
The Implications for Theories of

Economic Reform
As discussed at the beginning of this chapter, the literature on economic reform has largely
taken for granted that countries should move in a market-oriented direction. The central
paradox of the literature has been: “If [market-oriented] reforms ultimately make all or a
majority of a country’s citizens better off, why are they so politically contentious, especially
in democratic systems?” (Hellman 1998, p. 206). As evidenced in the previous section, how-
ever, there are now significant and important disagreements among economists, regarding
the direction policies in developing countries should take. If it is not clear that market-
oriented reforms make all or a majority of a country’s citizens better off, what can we say
about the existing literature?
In thinking about the implications of the current climate within economics, it is useful
to keep in mind that upheavals in the dominant economic paradigm have happened be-
fore. As mentioned above, the period from the 1940s to the early 1970s was dominated
by state-oriented development, following the market catastrophes of the 1930s. The rel-
atively successful experience of the Soviet Union and other Eastern European countries
seemed to indicate that the statist model was best for spurring economic development,
and the World Bank was a major supporter of this approach, heavily financing state in-
dustry and infrastructure throughout the period. It might therefore be interesting to see
how scholars studying reform during that period changed their approach with the onset of
the Washington Consensus.
Unfortunately, however, the politics of reform were not a major focus of Western scholars
during those earlier decades. Reflecting the era, the postwar period saw academics far more
interested in the determinants of poor countries’ democratization and stability than their
economic development (e.g., Lipset 1959). Whereas today’s scholars might have expected to
see several studies on the determinants of success in implementing “import substitution”
policies during these years, a search for that phrase in the American Political Science Review
from 1944 to 1980 yields just three research articles (Ayres 1975; Nowak 1977; Cameron 1978).
Nevertheless, in line with this expectation, political scientists interested in economic
reform during these decades did tend to focus not on market-oriented reform, but
rather reform in the opposite direction: “policy decisions on economic matters in which
the Government has decided to intervene” (Milne 1952, p. 406). A prominent example
is David Cameron’s (1978, p. 1243) examination of which countries had “become more
influential as providers of social services and income supplements, producers of goods,

managers of the economy, and investors of capital.” The dominance of the interventionist
ideology of the time was such that the countries in Cameron’s study were not the typical
import-substitution countries that usually come to mind, but rather advanced industrial
countries.
It is a sign of the quickness with which paradigms can change that within twenty years
of Cameron’s study, Joel Hellman (1998) saw no need to specify the meaning of “reform” in
either the title or the text of his article mentioned above, “The Politics of Partial Reform.”
His idea of “partial reform” referred to an implicit ideal of a “fully” reformed economy, and
he assumed it was unnecessary to clarify that he was talking about market-oriented reform.
Hellman was not alone in making this assumption.4 As Adam Przeworski (1991, p. 158)
noted in the early 1990s, “The very term ‘reform’ has in the last few years become synony-
mous with a transition from an administered to a market economy. Twenty years ago this
term conjured up distribution of land to peasants in Latin America or tinkering with the
planning system in Eastern Europe.”
More surprising than the speed with which scholars’ focus turned was the depth of their
conviction regarding the benefits of market-oriented policies. Echoing the quotation above
from Haggard and Kaufman, Timothy Frye (2007, p. 946) writes that “conventional wisdom
on the politics of economic reform . . . emphasized that [market-oriented] reforms produced
concentrated costs on specific groups in the short run and dispersed benefits for society in
the long run.” Despite the fact that state-oriented development had been in fashion only one
or two decades previously, these new theories of economic reform did not incorporate the
possibility of change or flexibility in recommended policies. Scholars seemed uninterested
in developing a theory of economic reform that could account for both the implementation
(partial or not) of Washington Consensus policies and the implementation (partial or not)
of policies with higher degrees of government involvement in the economy. This is likely a
function of the fact that the literature on economic reform took off during the period of the
Washington Consensus. With the decline of the consensus, there is now an opening—and
a need—to develop a more flexible theoretical framework.
How might such a framework look? In Figure 5.1, I offer a diagram of how one might
think of the process that produces changes in policy. Though simple, this figure is able
to accommodate much of the existing literature on policy reform, and it is useful for
highlighting how that literature might provide a foundation for future work. Moving from
left to right, the diagram begins with whether or not a given leader’s preferences are or-
thodox or heterodox. Assuming for the sake of simplicity that a leader will push hard in her
preferred policy direction, the extent of policy change in that direction is determined by
how much resistance the leader faces in establishing her ideal policy. It is on this “conflict”
phase that most existing work on the political economy of reform has focused. This research
has generally centered either on (a) how differing preferences in society generate conflict
that hinders reform, or (b) how institutions can alleviate that conflict.
With regard to how differing preferences in society generate conflict that hinders re-
form, the existing literature has indicated that the structure of relevant social and political
clashes can take a number of forms, any one of which can block policy reform in a given
issue area even if the government is committed to change. Joan Nelson (1992), for example,
enumerated many of the groups affected in different ways by market-oriented reform. The
divisions include informal versus formal sector workers; public versus private employees;
Extent of orthodox
Orthodox Political Conflict
policy shift
Leader's policy
preferences
Extent of heterodox
Heterodox Political Conflict
policy shift
Figure 5.1 A Simple Model of Policy Change
subsistence farmers versus commercial agricultural laborers; and the lowest classes versus
urban middle sectors versus upper middle class and elites.
However, the reform literature focused on institutions has illustrated that the mere ex-
istence of these social divisions does not mean that they will actually become manifest. The
bulk of this work has focused on the ways that political institutions—such as regime type,
executive-legislative relations, and the nature of the party system—do or do not enable
interest groups to resist reform (e.g., Haggard 2000). In addition, a smaller body of work
has argued that institutions can facilitate understanding and acceptance of reform (e.g.,
Banerjee 2000). In some ways, the frontier of this literature exactly parallels that set out
by Rodrik (2007) with regard to institutions and growth—we need to understand better
how the function of institutions maps into their form. That is, as Barbara Geddes (1994,
p. 211) wrote many years ago: “Political institutions that can be expected to contribute to
successful liberalization in one country with a particular distribution of interests would not
be expected to have the same effects in a country with a different distribution of interests.”
Unfortunately, however, little work has shed light on these complementarities. As Helen
Milner (1999, p. 103) wrote: “Theories that incorporate both preferences and institutions
seem most valuable, since we know that both matter. Very few studies, however, bring to-
gether theories of preference formation and institutional influence.” Some exceptions exist
(e.g., Mansfield and Busch 1995; Gilligan 1997; Milner 1997), but this remains an important
area for future work.
More fundamentally, given the waning of the Washington Consensus, the literature on
economic reform must evolve to account for the likelihood that market-oriented policies
are not public goods, and that well-intentioned leaders may choose heterodox policies. In
simple terms, the existing literature can be characterized as having only focused on the top
half of Figure 5.1—where leaders have orthodox preferences—with little to say about what
might happen in the bottom half.5 It is unclear, however, that political conflict occurs in
similar ways when the reform initiative is heterodox. And even more fundamentally, if it
cannot be assumed that a leader’s preference should be orthodox, understanding a leader’s
preferences about policy becomes critical to understanding the direction in which reform
will go (Bunce 1980; Goldstein and Keohane 1993; Jones and Olken 2005).
With regard to this last point about what determines a leader’s preferences, some scholars
have examined the role of external forces, such as the World Bank and IMF and the overall
dominance of orthodox development ideas (Skidmore 1977; Remmer 1986; Nelson 1993;
Chwieroth 2007). Others have emphasized how leaders are influenced by their core constit-
uency groups (Murillo 2005; Pepinsky 2008). Still others have emphasized internal factors,
such as the confidence a leader has in his or her economic team (Przeworski 1991), the com-
position of that team (Geddes 1994), or even the ideology and beliefs of the leaders (van
de Walle 2001; Murillo 2002). In general, a leader’s preferences are probably determined
by some combination of the nature of that leader’s supporters and what policies the leader
thinks will benefit them most. However, we are far from understanding in a systematic way
how this link is made. Over fifteen years ago, Milner (1999, pp. 100–101) wrote in her review
of theories of trade policy reform: “Our models of . . . preferences [of policy makers] seem
the most underspecified and post hoc. There are few theories about the conditions under
which policy makers will abandon ideas that produce bad results and what ideas they will
adopt in their stead.”
Fortunately, as the discussion regarding development policy has moved to topics of exper-
imentation and learning, scholars have been taking increasingly sophisticated approaches
to the topic of leaders’ preferences, specifically how leaders learn from their own experi-
ence and that of others (e.g., Simmons and Elkins 2004; Weyland 2005; Meseguer 2009;
Callander 2011). By thinking more seriously about how leaders’ preferences and opinions
about policies change, this literature is likely to evolve and provide an important founda-
tion for the new political economy of reform. However, as Covadonga Meseguer (2006) has
noted, there has probably been too much unproductive debate in this new literature about
whether countries (i.e., leaders) are bounded or rational learners, and there exist far too few
empirical studies in relation to theoretical studies using the learning approach. In addition,
most existing empirical studies on policy change, like the rest of the literature, have tended
to focus on market-oriented reform.6
One notable exception to this focus on market-oriented reform is the budding liter-
ature attempting to explain the “turn to the left” in Latin America. Though not focused
so much on learning, per se, the scholars in this debate have attempted to explain why
policy preferences have changed in a region where (as mentioned above) adherence to the
Washington Consensus was higher than in any other region of the world. Alexandre Debs
and Gretchen Helmke (2010), for example, develop a model in which policies are deter-
mined by parties, who are elected to office by voters whose preferences respond to changing
levels of inequality. Karen Remmer (2012) also focuses on voter preferences and argues that
improving economic conditions raises the willingness to pay for more government inter-
vention to address social problems. In contrast to Remmer, other accounts emphasize the
perceived failure of orthodox policies as a reason for voters’ new preference for left parties
(e.g., Kaufman 2007).
One of the remarkable aspects of this new literature on heterodox reform is the appar-
ently perceived irrelevance of all of the literature on Washington Consensus–style reform.
None of the works cited in the previous paragraph—nor others in the literature of which
I am aware—cite a single major work from the literature on neoliberal policy reform. It is
as if all of this work on the role of institutions in market-oriented policy reform can tell us
nothing about policy reform toward the left. Interestingly, instead of a focus of institutions,
the literature on the leftist policies in Latin America has almost exclusively focused on
preferences.7 Indeed, the assumed preferences of leaders are exactly the opposite of those
assumed by scholars of economic reform. The following statement by Kurt Weyland (2009,
p. 147) would have seemed exactly backward in the literature on neoliberal reform twelve
years ago: “The right cautiously wants to preserve existing structures, whereas the left boldly
seeks structural transformations.”
The next step in the research agenda on the political economy of reform is therefore
to begin to bring these two camps of literature—on leaders’ preferences and conflict over
reform—together in a more synthetic way, so that we understand the way they interact with
one another. The demise of the Washington Consensus has revealed a major shortcoming
in much of the work on reform that assumed Washington Consensus policies had the
properties of public goods. However, that work may still hold important lessons for those
scholars working on leaders’ preferences and the effects of learning about policy. A better
comprehension of economic reform will only occur when an understanding of why leaders
choose the policies they do is combined with an understanding of the conflict potential
reforms generate.
Conclusion
In the mid-1970s, just before the ideological swing began that would result in the Washington
Consensus, Robert Ayres (1975) published an article in the American Political Science Review
entitled “Development Policy and the Possibility of a ‘Livable’ Future for Latin America.” It is
an interesting article to revisit in today’s context, as Ayres catalogs the “legacy of problems”
that state-oriented development strategies produced, focusing on problems with growth
rates, employment, and income distribution. In several places, it seems one could substitute
“Washington Consensus” and have a recent article cataloging the failures of the more recent
paradigm. The article is also notable because Ayres—a proponent of focusing on issues of
income distribution over growth—cites several of the most prominent proponents of state-
led development as being similarly disappointed with the results, calling for such things as
“a new type of development in Latin America” (Prebisch 1971, p. 48), a “new development
strategy” (Sunkel 1972, p. 218), and “imaginative use of other policy tools” (Diaz-Alejandro
1972, p. 242). Ayres (1975, p. 507) notes, “What is interesting, however, is that [none of these
authors] . . . is at all precise about what the ‘new type of development’ or ‘the new develop-
mental strategy’ or the ‘imaginative policy tools’ might be.”
The parallel is clear between that time of rethinking development strategy and the current
one. What is unclear is whether the Washington Consensus will be replaced by some new
consensus (as happened with state-led industrialization) or whether experimentation will
continue for years or decades, with wide variation in the directions that policy reforms
take. The argument of this chapter has been that theories of policy reform should be able
to account for reform under either of these scenarios. Future theories of reform should
be judged not on how well they predict and explain market-oriented reform, but rather
on how well they predict and explain all kinds of policy reform. From this perspective, it
seems unlikely that assuming one kind of reform has the properties of a public good will
be productive.
This chapter has argued for the benefits of a more synthetic approach to the study of
reform, incorporating not only the existing work on how social conflict and institutions
interact with one another to hinder or enable reform, but also analyses of how governments
form preferences about which policies they want to enact. More work is needed not only
theorizing about the causal mechanisms underlying these different aspects of the reform
process, but also their interaction. This theoretical and empirical undertaking will no doubt
be challenging, but the enterprise should leave us with a far richer—and more accurate—
understanding of how the process of policy reform actually works.
Notes
A version of this chapter appeared as “When Public Goods Go Bad: The Implications of the
End of the Washington Consensus for the Study of Economic Reform,” Comparative Politics
44 (October 2011): 105–122. I am grateful to Christopher Anderson, Valerie Bunce, Marcela
González Rivas, Thomas Pepinsky, Karen Remmer, Kenneth Roberts, Nicolas van de Walle,
anonymous reviewers, the editors of Comparative Politics, and especially Mary and Tom
Morrison.
1. Useful reviews of this large literature include Haggard and Webb (1993), Rodrik (1996), and
Milner (1999).
2. Here Schamis cites Nelson (1989, 1990) and Haggard and Kaufman (1992, 1995). Other im-
portant works in this tradition are included in Williamson (1994) and Sturzenneger and
Tommasi (1998).
3. Commissioners included Montek Sing Ahluwalia from India, Kemal Derviş from Turkey,
Pedro-Pablo Kuczynski from Peru, Trevor Manuel from South Africa, Ngozi N. Okonjo-
Iweala from Nigeria, Robert Rubin from the United States, Ernesto Zedillo from Mexico,
and Zhou Xiaochuan from China.
4. See, for example, the works in Krueger (2000).
5. From a research design perspective, it makes sense that scholars have not appreciated the
importance of leaders’ preferences. The literature has essentially selected on the dependent
variable, by only studying market-oriented reform. As such, the causal effect of a variable
like leader’s preference, which would determine the direction of reform in my approach,
would be attenuated and seem less important to scholars (see, e.g., King, Keohane, and
Verba 1994, pp. 129–132).
6. An important exception is Meseguer (2009).
7. An important exception is Flores-Macias (2010).
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Chapter 6
Penury Tr a p s a nd
Prosperit y Ta l e s
Why Some Countries Escape Poverty While
Others Do Not
M. Steven Fish
The contemporary world continues to face daunting problems of privation. Every four
seconds a child dies from starvation or poverty-related illness. Seven percent of humanity
is living with malaria, and 15 percent lacks adequate access to water. Socioeconomic devel-
opment remains one of most urgent challenges of our time.
The greatest ally of socioeconomic development is economic growth. To be sure, growth
without development is possible. For example, Equatorial Guinea has seen its income per
capita skyrocket since beginning large-scale oil production over the past decade, but infant
mortality and other indicators of well-being have hardly budged. Still, expanding GDP per
capita is the surest way to improve human welfare. When a country’s economy enjoys brisk,
sustained growth, its indicators of human welfare usually improve. When it stagnates or
contracts, people suffer.1
Over the past half-century, some poor countries have remained impoverished while
others have authored daring escapes from destitution. What determines who overcomes
poverty? This chapter takes stock of what we have learned.
Causes of Poverty and Wealth: Plausible

but Inadequate Explanations
Culture
Some scholars hold that culture shapes economic performance.2 According to this view,
people’s values, attitudes, and beliefs affect their likelihood of engaging in behaviors that
spur growth. Thrift, steadfastness, discipline, and a mentality that embraces innovation
Penury Traps and Prosperity Tales 89
are said to spur growth; the more broadly such traits are found in a given society, the
better its prospects.
Cultural explanations appeal to common sense, but they have not fared well in light of re-
cent experience. While some cultures may support growth, a problem arises when we attempt
to specify which traditions are most likely to generate the right values, attitudes, and beliefs.
Many analysts point to Confucian culture to explain the spectacular economic growth seen
in East Asia in recent decades.3 But during the 1950s and 1960s, failures of development in
East Asia were equally attributed to Confucian culture. Confucianism’s supposed spirit of hi-
erarchy, collectivism, and social immobility appeared to check growth. As Taiwan and South
Korea took off in the 1960s and 1970s and China followed in the 1980s, however, Confucianism
seemed to abet rather than hinder growth. Instead of speaking of how Confucianism fostered
hierarchy and subordination, observers began to say that Confucianism promoted discipline.
Rather than refer to Confucianism’s tendency to promote collectivism and discourage indi-
vidual initiative, observers referred to the tradition’s emphasis on teamwork and self-sacrifice.
In other words, the very same traits that were earlier used to explain stagnation were now
adduced to explain growth. The spin put on the traits was just reversed.
Cultural explanations have performed poorly in South Asia as well. India’s listless
economy was once regarded as a product of Hindu culture. Hinduism’s supposed fatalism
and other-worldliness, along with the rigidities of the caste system, appeared to doom India
to perpetual penury. The term “Hindu growth rate” was coined in the 1970s to depict the
link between India’s predominant religious tradition and its chronically low rates of growth
in GDP per capita, which averaged just over 1 percent per year during the 1950s through
1980s. Yet after India took off, averaging growth of 7 percent per annum between 1991 and
2011, the notion that Hinduism consigns India to lethargy began to look peculiar. Without
denying the centrality of Hinduism to Indian culture or the caste system’s potential for
retarding economic growth, one may readily see that Hinduism does not rule out superb
economic performance.
Given that East Asia and South Asia are home to nearly half of humanity, theoretical
approaches that do poorly in these regions may be said to lack analytic bite. That is not to
say that cultural explanations for economic-developmental outcomes invariably lack utility.
Timur Kuran’s work on the link between Islam and underdevelopment, for example, may
illuminate important issues.4 Still, cultural explanations have not provided a sure route to
explaining economic performance.
Political Regime
Explanations that focus on political regime provide another appealing but ultimately un-
satisfying approach. One common assumption is that democracy has its virtues, but
promoting growth is not one of them. The idea that democracy exacts an economic price is
widespread.5 Autocrats are happy to encourage such thinking.
The empirical evidence provides little support for this idea. Chile under Augusto
Pinochet, who presided over a harsh military-backed regime during 1973–1990, is often
adduced to illustrate the advantages of authoritarianism. When Pinochet seized power in
1973, the Chilean economy was indeed in dire shape, and it subsequently improved. Yet
performance during Pinochet’s tenure was not as impressive as many observers think it
90 M. Steven Fish
was. Growth averaged just under 4 percent per year. In the two decades since the return to
democracy, growth averaged about 7 percent per year.6 Thus, in the Chile over the past four
decades, the economy has performed badly under democracy (1971–1973), reasonably well
under dictatorship (1973–1990), and very well under democracy (1990–present).
Many major countries have experienced a broad range of economic performance under
a single political regime. The early postwar period’s greatest economic success story, Japan,
posted growth rates that averaged over 8 percent per year during the 1950s through 1970s. Over
the past two decades, however, Japan has endured the industrialized world’s most intractable
recession. Japan has been a democracy since the 1950s; it has experienced both expansion and
torpor under the same political regime. Italy, arguably Europe’s biggest postwar success story,
followed a roughly similar pattern. It grew rapidly during the first several postwar decades,
but lost its edge in the 1990s and fell into a slump from which it has not recovered. Like the
Japanese, the Italians have lived under the same political regime through good times and bad.
The same may be said of the Chinese, though in China the regime is authoritarian. Under
the authoritarianism of the 1950s, 1960s, and 1970s, China’s economy grew by an average
of 2 percent per year. During the subsequent three decades, under the same regime, China
authored the most impressive story of economic expansion in world history, averaging
growth rates of 10 percent per year.
India has also experienced both dismal and prodigious economic performance under the
same political regime. With the exception of a short interregnum of emergency rule during
the mid-1970s, India has been a democracy since achieving independence in 1947. During
the first two-thirds of its life as an independent nation, the Indian economy went nowhere.
Over the subsequent two decades, India has realized growth rates that are, among major
countries, exceeded only by those of China.
Cross-national studies reinforce conclusions suggested by these anecdotes. The effects
of political regime on economic performance have not been obvious, direct, or constant
through time.7
Why do dictatorships fare no better than democracies? According to the logic of au-
thoritarian advantage, governments under authoritarian regimes are better at managing the
economy because they are more decisive and less hamstrung by popular pressure.
The reality often defies from such optimism. While some dictators may use their sov-
ereignty to pursue difficult but fruitful reforms, others engage in predation that harms
the economy. For every Park Chung-hee, the relatively clean-handed dictator of South
Korea during the 1960s and 1970s, one finds a Mobutu Sese Seko, the pilfering potentate of
Zaire (now the Democratic Republic of Congo). Even regimes that are run by upstanding
dictators often turn crooked. Park was succeeded by Chun Doo-hwan and then Roh Tae-
woo, each of whom was as grasping as Park was clean. Indonesia’s dictator during 1965–
1997, Suharto, presided over a quarter-century of growth, but then lost his ability to restrain
his appetite for lucre. By the early 1990s, prodigious proportions of national income flowed
into Suharto’s pockets and those of his kin, leaving the Indonesian economy in a tailspin by
the time the dictator was pushed out in 1997.
In short, freedom from public accountability can cut both ways. It can liberate rulers to
make hard decisions that aid growth, but it can also enable them to enrich themselves at the
expense of growth.
The inadequacy of culture and political regime as explanations for economic perfor-
mance leaves open the possibility that growth depends vitally on public policy. In fact,
public policy is the key determinant of growth. Some policy strategies have produced pro-
tracted privation, while others have enabled people to prosper.
Policy Options
In the contemporary world, countries stake their fortunes on one (or some combination)
of four potential drivers of growth: economic statism, the export of natural resources, the
inflow of foreign aid, or market-nurturing policy. Only the fourth produces robust growth.
The other three may yield some gains, but none has forged a basis for sustained expansion
over the past half-century.
Economic Statism
Economic statism refers to policies that favor very extensive state intervention in the
economy. It is found in countries with Soviet-type command economies, as well as in coun-
tries that have what Benno Ndulu and colleagues call “control regimes,” in which statism
prevails but may be less comprehensive than in Soviet-type economies.8 As the term is used
here, economic statism refers to a policy strategy in which market mechanisms are largely
or wholly supplanted by state officials’ directives and in which rates of state ownership of
productive facilities are very high.
It is important to distinguish between economic statism and mere state involvement in
the economy. In all economies, including the most market-oriented, the state performs
myriad indispensable functions. Economic statism does not refer to state involvement of
any type or degree—if it did, every country in the modern world could be said to pursue
a strategy of economic statism. What is more, economic statism does not refer to the ex-
istence of coherent, authoritative agencies of administration and coercion. Indeed, such
agencies are often crucial assets for rapid economic growth. In some cases of successful
development, including Taiwan and South Korea in the 1960s, 1970s, and 1980s, “devel-
opmental states” played an important role. They invested heavily in education and health,
built infrastructure, and nurtured targeted enterprises and sectors. In such countries, how-
ever, rulers did not regard state control as an end in itself or a permanent condition. They
embraced competition and spirited participation in the global market. They used the state
to stimulate, structure, and harness market forces.9
In statist strategies, rulers use the state to resist, suppress, or supplant market forces.
In pure cases of economic statism, the state assumes ownership of all or almost all firms,
sets wages and prices, and establishes itself as the sole creditor. It also walls the domestic
economy off from the world by erecting trade barriers that shield domestic producers
from foreign competition and prevent domestic producers from selling abroad except
under special circumstances. Soviet-type command economies exemplify this pure form
of statism. Examples are the Soviet Union between the late 1920s and the late 1980s, the
countries of Eastern Europe between the late 1940s and the late 1980s, China during the
period of Mao Zedong’s rule between the early 1950s and the late 1970s, Vietnam from the
1970s to the late 1980s, Cuba from the early 1960s to the present, and North Korea from
92 M. Steven Fish
the early 1950s to the present. In these cases, which exemplify what is commonly referred
to as state socialism, economic statism is viewed as a key to social justice as well as to ec-
onomic growth.
In less thoroughgoing forms of statism, the state allows some space for private eco-
nomic activity but still maintains ownership of much of the economy and enforces an ex-
tensive regulatory regime that makes private actors highly dependent on state officials for
the permits, permissions, and licenses needed to do business. India between the late 1940s
and the late 1980s provides an example. Many cases are also found in Africa, though some
African countries have abandoned statist strategies over the past several decades.
Economic statism has often been regarded as the touchstone of a successful development
policy. Centralizing decision-making and coordination on investment and production and
substituting directives issued by government officials in the capital city for the vagaries of
market signals were widely regarded, both in postcolonial lands and among advisers from
the West, as crucial to any rational growth strategy.
Economic statism produced gains in some countries at certain junctures. For example,
industrial output expanded rapidly in the USSR between the 1930s and 1960s and in North
Korea in the 1950s and 1960s.
By the beginning of the last quarter of the twentieth century, however, statism had run out
of steam. Economic growth ground to a halt in the USSR in the mid-1970s. Economic statism
never yielded fruit in China, which experienced low rates of growth throughout the en-
tirety of Mao’s rule. Nor did it succeed in India. India’s founding prime minister, Jawaharlal
Nehru, touted the centrality of the state in economic development, though he pursued
a softer version of statism than did Mao and the rulers of the USSR. Statism was widely
pursued in early postcolonial Africa under the banner of “African socialism” by leaders such
as Tanzania’s Julius Nyerere, Ghana’s Kwame Nkrumah, and Guinea’s Sékou Touré. In the
Middle East, statism defined the economic strategies of Arab nationalists such as Egypt’s
Gamal Abdel Nasser and Syria’s Hafez al-Assad. In Africa and the Middle East, statism gen-
erally yielded negligible results, as it did in Mao-era China and Nehru-era India. The only
country in Africa to experience economic takeoff in the early decades after decolonization
was Botswana, and it was one of the few whose postcolonial leaders never embraced statism.
While the state played an active role in promoting development in Botswana, it consistently
did so by pursuing market-nurturing rather than market-defying policies. It rejected models
of African socialism that predominated elsewhere. It concentrated on developing infrastruc-
ture, education, and health-care facilities—as well as on bolstering the emergence of com-
petitive enterprises, both private and parastatal. Like their counterparts in Taiwan and South
Korea, Botswana’s leaders promoted an activist state, but they stuck with capitalism. They
eschewed efforts to replace market signals with political directives.10
Where statism has been sustained even after it has become manifestly dysfunctional, as
in the Brezhnev-era Soviet Union or North Korea to the present day, the result has been
grossly inefficient industries, chronic shortages of basic consumers goods, moribund agri-
culture, stunted service sectors, and, in some cases, recurrent famine.
Reliance on Natural Resources

Relying on profits from the extraction of natural resources is the second strategy available
to governments. Wealth found in the ground—be it in the form of oil and gas or precious
metals and stones—would appear to provide a powerful weapon for development. Some
countries with populations that are miniscule relative to revenues from oil exports have
attained high levels of GDP per capita. These countries, which are mostly located in the
Persian Gulf region, reap such high hydrocarbons revenues per capita that they have been
able to establish “rentier states” that provide plentiful social services.
Still, when we survey the universe of countries that have relied on hydrocarbons to fi-
nance their development in recent decades, we find a dearth of success. The group of devel-
oping countries with populations over ten million people in which oil revenues consistently
account for two-thirds or more of export income is made up of Algeria, Angola, Iran, Iraq,
Nigeria, Russia, Saudi Arabia, Sudan, Venezuela, and Yemen. Over the past four decades,
no country in this set has achieved growth rates of 5 percent or higher over a period lasting
as long as a decade.
Why does resource abundance fail to catalyze growth? One reason is that oil and other
extractive industries create only a relatively modest number of jobs. These industries do
not forge the wide escape hatches from poverty that booming manufacturing sectors, with
their demand for low-wage, low-skilled labor, do. Relatedly, reliance on oil and other ex-
tractive industries does not require governments to ensure universal schooling and literacy.
In an oil-based economy, the government can invite a large multinational company from
a rich country to do most of the work, using only a small, highly skilled group of local
workers. Oil exports may provide governments with fabulous revenues, but they can also
make governments lazy because they enable higher earning without the need to ensure
widespread schooling and health for workforces. What is more, wealth drawn from the ex-
port of natural resources is subject to wide fluctuations in world prices that are beyond the
control of domestic actors; an abundance of revenue from oil and minerals may even harm
other sectors of the economy. Resource abundance can also have grim political effects. It
often corrupts public administration, which in turn retards development. Countries that
are rich in natural resources also have higher rates of civil conflict.11
Reliance on Foreign Aid
Reliance on foreign assistance has also proven to be a hollow hope.12 Aid began life with a
good reputation, owing to the success of the Marshall Plan. The program, under which the
United States transferred $13 billion to Europe between 1948 and 1952 in order to resurrect
war-ravaged economies, was widely credited with kick-starting Europe’s recovery. Many
governments and scholars thereafter believed that aid to poor countries would have simi-
larly auspicious effects.
But there proved to be a difference between rebuilding and building from scratch.
Marshall Plan aid, most of which went to Great Britain, France, and Germany, was used
to rebuild infrastructure and factories in countries that had already undergone industrial-
ization. They already had educated, skilled, largely urban populations. Using aid to induce
industrialization has proven much less successful. In contrast with Marshall Plan assis-
tance, aid to poor countries has often degenerated into an open-ended commitment that
has yielded paltry progress.
Flow of aid for the purpose of development began in earnest in the 1950s and 1960s, when
rich countries and international lending institutions began offering loans at concessional
rates to countries undergoing decolonization. At first, funds flowed to large-scale industrial
94 M. Steven Fish
projects. During the 1970s, the scope and flow of aid grew, and many programs shifted from
what now seemed like an unrealistic dream of swift industrialization to the more modest
goal of mitigating poverty. Aid was increasingly directed to the provision of food, health
services, and schooling.
During the 1980s there was another shift in the ideas that informed the provision of
aid. Most aid-dependent countries were failing to develop rapidly enough even to pay off
their low-interest loans, much less pay off the loans and invest in self-sustaining growth.
Furthermore, the core assumptions of statism were coming under question. It was be-
coming clear that state dominance of the economy in Africa and South Asia was not
yielding high growth rates. The command economies of the Soviet Union faltered, and
China abandoned Maoism in favor of allowing much greater scope for private economic
activity. Taiwan, Singapore, Hong Kong, and South Korea sprinted ahead by relying on
policies that encouraged entrepreneurship and competitiveness in world markets. Thus,
as conditions for granting aid, some donors began insisting that governments reduce their
deficits and allow markets to work more freely. Such programs took on the name “structural
adjustment.”
Yet aid-reliance continued to fail as a development strategy. Even as governments
tightened their belts and privatized some enterprises, aid failed to spark development,
and debt burdens mounted. The problem was political: Aid money was easy to steal, and
officials often stole it.
In the 1990s, as donors realized that aid was fueling corruption rather than spurring
growth, they shifted from pushing structural adjustment to encouraging better govern-
ance, which in practice meant democratization and improved public administration. Many
hoped that making rulers more accountable to their people and would reduce the theft of
aid funds. The emphasis on governance remains to this day.
By 2010, over $2 trillion in development assistance had been transferred from rich to
poor countries since the 1950s. Africa received roughly half of the total. In some coun-
tries foreign aid now finances most government operations and accounts for a substantial
portion of GDP.
Foreign assistance may have eased suffering in some cases, but nowhere has it has
generated rapid, sustainable growth. Most empirical investigations find no link between
aid and economic performance. Some have found that aid can make a marginal positive
difference in countries that are already pursuing sound economic policies. But those studies
also find that most aid recipients do not pursue sound development policies, either be-
fore they obtain aid or as a consequence of the aid they receive. They further show that
donors’ patterns of giving are guided by their pursuit of strategic self-interest more than
by a desire to promote development. The literature also attests to the difficulties that even
development-minded donors face. Aid resources, after all, are fungible. Rulers in recipient
countries often have little difficulty diverting aid from development programs to themselves
and powerful political allies.13
Reliance on Market-Nurturing Reform
The fourth strategy governments can pursue is to encourage market forces. Policies that
create a favorable climate for private investment and that expose producers to the pressures
and the opportunities of participation in the world economy are central to this strategy. In
every case of rapid, sustained economic growth over the past half-century, governments
have followed this approach. The state continues to play a substantial role in market-oriented
strategies; however, it focuses on fostering conditions that bolster private economic activity
and eschews trying to run and own everything itself.
Starting at a very low level of economic development is no impediment to pursuing a
market-oriented strategy. Some argue that poor countries must rely on economic statism,
natural resources, or aid in order to reach a certain level of development, after which they
can shift to the market. But the evidence shows that even very poor countries can pursue
market-oriented policies, and that until they do so they are likely to remain poor.
China was destitute at the time that it shifted to the market in 1978. Its GDP per capita in 1960
was $850; in 1978, it was just a bit higher, standing at $1,070. In 2009, it reached $7,430. China was
mired in penury at the time that it initiated its market-nurturing reforms, but its poverty did not
prevent the reforms from yielding results. Its earlier strategy of hard statism had consigned it to
privation; but once it launched its reforms, its poverty was no obstacle to progress.
How Market-Oriented Strategies Work
The China Story
Observers differ over whether China represents a case of cautious “gradualism” or rad-
ical reform.14 Indeed, China defies easy classification. On the one hand, the reforms were
introduced in phases, and the state has maintained a large presence in some sectors. On
the other hand, the reforms marked a spectacular break with the past when they were
introduced, and their cumulative effects have amounted to a fundamental reorientation of
economic policy.
However one assesses the rapidity and comprehensiveness of China’s reforms, there is little
question about the reforms’ direction and depth. The government went from stigmatizing
private entrepreneurship to encouraging it. It moved from pursuing autarky to embracing
global capitalism. It shifted from resisting and countering market forces to working with
and for them. By the turn of the century, China’s economy was as “capitalist” and as far
from “socialism” as that of any other East Asian—and for that matter, European—economy.
The Chinese experience illuminates how a market-nurturing strategy can work.15 Mao
Zedong regarded economic gain on the part of the peasant masses as a loss for the state
and an affront to his own statist model. Deng Xiaoping, who came to power in 1978, two
years after Mao’s death, reversed Maoist thinking. Deng regarded gains for the peasants as
desirable in themselves and also as an engine of economic development. Under Deng’s new
strategy, entrepreneurial behavior was encouraged rather than punished. Peasants who had
been moved onto state-run collective farms were granted leases on plots of land and allowed
to return to family farming. In 1981 and 1982, the government introduced the Household
Responsibility System, which dissolved the marketing monopoly held by the state-run rural
supply cooperatives and allowed peasants to sell their own produce. In 1983 the govern-
ment endorsed the entry of private actors into long-distance trade between different rural
96 M. Steven Fish
areas and between rural and urban areas. In 1984, the government authorized rural dwellers
to operate stores and service centers in cities. The formation of the Township and Village
Enterprises (TVEs) facilitated entrepreneurship. By 1985, China had twelve million TVEs,
80 percent of which were privately run and owned. Many of the manufacturing concerns
that now clobber all global competitors were born as small enterprises in China’s rural areas
and small towns—some of which are now major cities—in the early 1980s.
The results were as remarkable as the reforms. During 1978–1984, annual growth in agri-
cultural output rose from 2 percent to 8 percent. When the reforms started in 1978, China
grew rice and grain and little else; the collective farms that Mao created were geared toward
production of these crops. But when the peasants were allowed to start marketing their pro-
duce, they began growing vegetables and raising livestock. By 1984 China was adding the
equivalent of California’s entire annual vegetable industry every two years. Rural incomes
rose sharply and food prices fell by half.
In the mid-and late 1980s the central government began vesting local and provincial
officials with the power to experiment with new ways of impelling growth. Top leaders also
created an incentive system in which officials’ career prospects came to depend on growth
rates in the territories they administered. As a result, officials became eager to do anything
that induced growth, including encouraging business start-ups, fostering dynamic trading
networks, and boosting the efficiency of production.
After the government crushed the Tiananmen Square protests in 1989, some observers
expected Deng and his colleagues to retreat to statism, but they did not. In 1991–1992, they
launched an effort to privatize state-owned enterprises (SOEs). While the reforms of the
1980s were mainly about clearing the way for new business entry in the countryside, those
of the 1990s were about encouraging business in the cities and privatizing large industrial
enterprises. Jiang Zemin and Zhu Rongji, Deng’s successors and the top leaders from the
mid-1990s to the early years of the twentieth century, recognized that the SOEs had become
a damper on development. Between 2000 and 2005 the number of SOEs was halved. Tax
revenue generated by private firms grew at 40 percent per year, over six times the growth in
the contribution of the SOEs.
Jiang’s and Zhu’s successors, Hu Jintao and Wen Jiabao, decelerated privatization and
pursued what some observers characterize as populist policies, including directing more
investment to slower-growing inland provinces. Still, Hu and Wen did not alter the fun-
damentally market-oriented trajectory of policy. By 2010 the private sector’s share of GDP
stood at over 60 percent, a higher level than in some of the advanced industrialized coun-
tries of Europe.
Nowhere is the liberal character of the reforms clearer than in the realm of foreign ec-
onomic policy. Between the beginning of the reforms and 2010, China’s overall tariff rate
fell from 60 percent to 15 percent. Trade increased from 10 percent to 65 percent of GDP.
By 2005, the average tariff that China imposed on industrial products was 9 percent, which
may be compared with 31 percent in Argentina and 27 percent in Brazil. The policies of
openness have forced companies in China to produce at a high level of efficiency. Low tariffs
also enable producers in China freely to import the machinery and other goods they need
to build better factories and produce higher quality finished products. China’s trading part-
ners have reciprocated, allowing Chinese goods into their own markets. As China opened
up its markets to goods from abroad, it also invited foreign direct investment (FDI), which
now runs at over $100 billion per year. China’s economic policies produced an economy
that is deeply integrated into the world. China has joined Taiwan, South Korea, Singapore,
and Japan as a central actor in the global economy.
Even more important than what China has done for the global economy is what integra-
tion into the global economy has done for China. During China’s three decades of statism,
growth of income per capita averaged 2 percent per year, and forty million people perished
from hunger and hunger-related disease. Since China shifted to an outward-looking,
market-oriented strategy in 1978, per capita income has grown by 10 percent per year, a
third of a billion people have moved from indigence to middle-class status, and infant mor-
tality has fallen by two-thirds.
Are China and the smaller East Asian tigers “typical”? In some sense the question is
trivial, since the experience of countries whose populations account for nearly one-quarter
of humanity need not be typical in order to be vital.
Still, the question may be asked, and the answer, in broad outline, is yes. The experi-
ence of India, the world’s second-largest country, in some respects resembles that of China
and the smaller tigers. Liberalization in India has not advanced as far as in China, and
poverty-reduction has not been as spectacular. The sluggishness of reform on labor market
regulation and the slow growth of investment in infrastructure and education have kept
India from spawning the explosive growth of low-wage, low-skill manufacturing jobs that
occurred in China. But India, like China, experienced turnaround after moving from a
statist to a market-oriented strategy. Since the onset of its reforms at the beginning of the
1990s, the Indian economy, relying largely on a vibrant service sector, has moved from
torpor to takeoff. Other major economies have also experienced sustained expansion
following movement from statism to the market. Vietnam did so following its doi moi (ren-
ovation) reforms of the late 1980s. In Indonesia, the movement toward the market occurred
after the fall of Sukarno and the ascension to power of Suharto in the mid-1960s. Annual
growth rates averaged nearly 7 percent between the mid-1960s and the early 1990s, and ex-
pansion has continued under the democratic regime that replaced Suharto’s autocracy in
the late 1990s. In Thailand, GDP per capita tripled during the last quarter of the previous
century, and growth picked up particularly rapidly following the country’s shift to export-
oriented manufacturing in the mid-1980s. Neighbors that did not break decisively with
statism, most notably Burma, failed to achieve rapid, sustained growth.16
Lessons of the Chinese Experience

China highlights lessons about what is and is not necessary to undertake market-nurturing
reforms. One thing that is not necessary is elite unity. Elites in China were divided on
policy; and, after the Tiananmen Square uprising in 1989, opponents of destatization again
attempted to take charge of policy. But the ascendency of Deng’s faction was sufficient to
propel the reforms.
The second non-necessity for the launching of reforms is sophisticated institutions.
There was little institutional infrastructure for a market economy when Deng initiated his
reforms in 1978. The same may be said of Vietnam at the time of its doi moi in 1986, of Korea
at the onset of Park’s reforms in the early 1960s, and indeed of most countries that have
moved from state control to market orientation over the past half-century. Many scholars
claim that getting the institutions right is the crucial requisite of economic success.17 The
98 M. Steven Fish
vogue of “institutions” among scholars has become so pronounced that readers could be
forgiven for assuming that China, Vietnam, and South Korea must have harbored under-
ground networks of efficient bureaucracies run by armies of astute technocrats guided by
sophisticated regulations at the time these countries launched their reforms. In fact, no
such things existed. China’s rulers, like those of South Korea before them and Vietnam and
India after them, learned by doing. Deng knew that he wanted China to escape poverty and
that hard statism did not work, but he could not rely upon sophisticated rules, agencies, and
personnel during the early years of the reforms. China has undertaken institutional reforms
and innovations, and in recent years has produced a cadre of savvy technocrats. But these
desiderata emerged only after the turn to the market took place. The institutions emerged
from the reforms and their fruits, not vice versa.
While China carried out its reforms without a unified political elite or sophisticated
institutions, some things were present that were important to propelling strategic change.
Rulers’ priorities were especially significant. Deng and his colleagues put growth first, and
they were willing to take political risks to achieve it. The proof of their priorities was their
policy of rewarding subordinates for producing growth as well as demonstrating loyalty.
All rulers wish to stay in power and avoid recalcitrance on the part of their subordinates.
But there is a difference between leaders who expect loyalty but are willing also to prioritize
their subordinates’ ability to make the economy crackle, and leaders who are so focused on
their own political security that they always prioritize their subordinates’ loyalty and ability
to deliver support and restrain opponents. The latter type of rulers predominates in the
world, under democratic and nondemocratic regimes alike.
In China, ability to promote growth has been a key criterion for evaluating the performance
of ministerial, provincial and local officials, who acquired a powerful incentive to encourage
entrepreneurship and a disincentive to steal public funds and prey on private economic actors.
Indeed, in nondemocracies in which career fortunes depend solely or almost solely on per-
sonal ties, as is usually the case, corruption is often sufficiently high to stifle economic growth.
As long as an official promotes the ruler’s security in power, he or she is normally allowed to
engage in theft and predation, regardless of the ruler’s rhetorical commitment to probity and
growth. But in post-Mao China, where even loyal officials are pushed aside if they do not nur-
ture rapid economic growth, officials have a personal interest in refraining from large-scale
larceny. Corrupt practices slow the expansion of infrastructure and discourage investment,
thereby undermining growth and the official’s own political career.
Relatedly, the top rulers have proven capable of restraining their own appetites for imme-
diate material gain. Leaders have had not only to allow the people to prosper and to priori-
tize appointment of officials who promoted prosperity, but also to restrain themselves from
killing the geese that lay the golden eggs. They have had to allow private actors to flourish
without confiscating their wealth or forcing them into “partnerships” with themselves while
they quashed competitors. The Chinese way differs what is found in many other devel-
oping countries, including those of the former Soviet Union, Africa, and the Middle East,
where those who generate wealth typically feel that they must hide their earnings, send
them abroad, or slide a large portion of them under the table to grasping rulers. Corruption
is prevalent in China. But the authorities usually do not slaughter golden egg–laying geese.
Instead, officials encourage the geese to lay more golden eggs, perhaps snatch an egg or two
for themselves, hatch a new golden goose, and then go into business for themselves and
start laying their own golden eggs alongside the other blessed geese.
Chinese rulers’ penchant for prioritizing growth has produced circumstances that are
conducive to investment. China’s level of public rectitude is not stellar, but it exceeds
that of many other developing countries. In Transparency International’s most recent
“Corruption Perceptions Index,” China ranks in the 59th percentile for overall probity
among the 182 countries surveyed. By comparison, Iran falls in the 34th percentile, Russia
and Nigeria receive identical scores and rank in the 21st percentile, and Venezuela places
in the 5th percentile.18
What Shapes Policy Choices?
Why Pursue Failed Policies?

Given the manifest advantages of a market-oriented strategy and the lack of developmental
and institutional prerequisites for pursuing it, why do more countries not choose it? Four
matters are of particular importance.
The first is aversion to political risk. Deng’s strategy required that the rulers’ personnel
decisions be driven not only by short-term political considerations but also by a real ded-
ication to economic growth. Rulers must be willing to balance their hunger for loyalty
with their desire for talent. They must relinquish control over some sources of income
that enable them buy political loyalty. They must tolerate the risks that accompany sus-
tained economic growth, including the rise of a richer—and more articulate and politically
assertive—citizenry.
The second is greed. Predatory officials generally favor economic statism over market-
nurturing policies. It is easier for officials to purloin assets that are under their direct con-
trol than those that are held by a range of actors who may be more or less autonomous.
Furthermore, elaborate, intrusive regulatory regimes create abundant opportunities for
officials to extract bribes.
The third obstacle is laziness. Indulging lassitude is particularly tempting for elites who
preside over economies that receive large inflows of foreign aid or oil rents. Even leaders
who recognize the economic disadvantages of reliance on natural resources usually cannot
break the addiction. Russia’s rulers, for example, often sound like smart, stern economists.
Putin regularly bemoans Russia’s hydrocarbons dependence and insists that economic di-
versification is crucial to his country’s development.19 But on his watch, the proportion of
GDP accounted for by oil and gas production has only grown. Making a virtue of what he
may have come to regard as necessity—as well as an altogether comfortable situation—
Putin now touts Russia as an “energy superpower” rather than striving seriously to mitigate
Russia’s dependence on hydrocarbons. Aid has the same indolence-inducing effects as an
abundance of natural resources. It provides rulers with a river of cash that does not have to
be extracted from the people in the form of taxes.
The fourth barrier is the enduring intellectual and ideological appeal of statism. Many
scholars remain suspicious of the market. Some are enamored of Karl Polanyi’s account of
the emergence of capitalism, which treats the state as both the true creator of the market
and the guardian of society against the effects of the market.20 Even in the face of numerous
100 M. Steven Fish
cases of developmental takeoff following economic destatization, many scholars continue

to regard successful development as the product of ministerial heroism and developmental
failure as the result of enforcing “Washington Consensus” thinking by neoliberal ideologues
and highhanded international lending institutions.21
Such analysts often seem to view developing countries’ problems through the lens of the
recent behavior or experience of the advanced industrialized countries of the West. Scholars
who deplore Western arrogance tend to regard Western policy recommendations, which may
include calls for liberalization, as crude, insensitive “cookie cutter” approaches or as efforts to
assert neocolonial domination. The domestic experiences of some Western countries, more-
over, which have indeed included dubious deregulation of financial sectors, leading to ru-
inous risk-taking, are seen as proof of deregulation’s folly and the perils of the market.
Scholars who resent rich-country imperiousness may be correct to argue that the inter-
national lending agencies and Western governments have often advocated inappropriate
policies. Structural adjustment is often especially reviled. But blaming economic distress on
liberalization demanded by creditors is to confuse cause and effect of the crises that beset
many developing countries in the 1970s, 1980s, and 1990s; it is to blame the treatment for
the onset of the disease. In fact, countries adopted, or were required as a condition of aid to
adopt, liberalizing policies as a result of the bankruptcy that followed decades of economic
statism. By the time rulers of countries with command economies and control regimes
adopted policies designed to reduce government spending and allow more scope for private
actors, they were already in trouble as a result of past policies. Furthermore, analysts who see
the deregulatory blunders of some Western countries as grounds for opposing movement
toward the market in developing countries often conflate disparate circumstances. The ad-
visability of stricter government oversight over derivatives trading in the United States and
the United Kingdom does not demonstrate the desirability of government control of finan-
cial sectors in Cameroon, Nigeria, Belarus, and Uzbekistan. In the latter group of coun-
tries, greedy CEOs, haughty fund managers, and predacious derivatives traders are not the
problem; greedy presidents, haughty ministers, and predacious customs inspectors are.
Liberalizing financial sectors, lowering barriers to business entry, scrapping export-licensing
regimes, and privatizing certain enterprises may be as urgently needed in some developing
countries as these policies may be unnecessary or ill-advised in North America.
How, then, do advocates of economic statism deal with China and the other successful
cases of rapid development? The answer: largely by mischaracterizing them. Advocates of
statism grapple with China’s undeniable success by treating its economic reforms as a shift
within the statist paradigm rather than as a decisive move from statism to a market orien-
tation.22 They underplay the radicalism of pivoting from full Maoism to the market. They
minimize the centrality of private entrepreneurship and emphasize the enduring mainte-
nance of state sway over this or that sector or limitations on this or that act of liberalization.
In short, they focus on select details while overlooking the big picture. In characterizing
India—where, like China, sustained growth followed in the wake of decisive liberalization—
market-skeptics also engage in selective and fanciful treatment of facts. For example, Dani
Rodrik and Arvind Subramanian deny the liberalization of the early 1990s a central role
in the Indian growth story, and claim to solve the “mystery” of India’s dramatic shift from
stagnation to growth in the 1990s in terms of a “productivity surge” that antedated liberal-
ization by a decade and the tapping of manufacturing capacity that had been built up over
previous decades.23
Many scholars refrain from such acrobatics and do recognize the centrality of the
shift from inward- looking statism to outward- directed capitalism in developmental
breakthroughs.24 Still, the enduring faith in statism found in prominent academic writings
continues to arm rulers who oppose liberalization with a host of intellectual justifications.
Why Pursue Good Policies?

Given the charms of bad policies, why do some leaders pursue good ones? The origins of
pro-growth policies are the subject of a large literature. Many works focus on history and
geography. But proximate, nonstructural factors might be important as well. From our dis-
cussion above, several insights emerge.
Good policies are much more likely when leaders prioritize rapid economic expansion.
As Deng illustrated, there is no substitute for a ruler’s greed for growth. Neither full con-
sensus among elites nor sophisticated institutions are necessary to launch market-nurturing
policies, but having someone at the top who really sees economic expansion as glorious is
a precious asset.
Experience with the consequences of bad policies may stoke longing for good ones. Three
decades of famine-inducing misadventures during the 1950s, 1960s, and 1970s left many
Chinese eager to scrap hard statism. India’s experience with the effects of statism from the
1950s through 1980s created a taste for the change among many Indians.
The demonstrated bankruptcy of bad policies can encourage good policies, the una-
vailability of bad policy options can do so as well. Countries that lack an abundance of
hydrocarbons cannot rely on oil-based strategies. Geography and geology enable Russia
and Azerbaijan to pin their hopes on hydrocarbons but present Poland and Georgia with
no such temptations. As in other walks of life, the absence of alluring liquid intoxicants does
not ensure virtuous behavior, but it does foreclose one route to debauchery.
None of the major economic success stories of the past half-century was authored by
a country that had an oil option. One of the few factors that China, Japan, South Korea,
Taiwan, Singapore, and India share is their common dearth of oil. These countries never
had the opportunity to pursue oil-based development strategies.
Why does the failure of oil-reliance not have the same effect that the failure of statist eco-
nomic policies sometimes does? Experiencing failure can create pressure for a shifting away
from statism, as in China and India. But oil-based economies in the contemporary world
rarely undergo thoroughgoing reform. One reason may be that even though oil wealth fails
to spur robust development, it does generate a flow of cash that elites can tap to sustain high
levels of personal consumption and finance coercive agencies that maintain them in power.
While Putin and his oligarchs may wish in the abstract that Russia would achieve Chinese-
style growth, in practice it is very easy for them to kick back and enjoy the hydrocarbons
harvest—roughly a billion dollars per day, year after year. In countries pursuing failed
policies that do not have oil, even governing elites may not do very well. In Mao-era China
and pre-1990s India, power holders lived much better than those they ruled, but they did
not know the bounty possessed by Saudi princes or Putin’s favorites. Their relative discom-
fort might have made them more willing to innovate.
Absence of access to large-scale aid, like lack of access to oil rents, can be a blessing for
development. A strategy of aid-dependence was never an option for China or India, whose
102 M. Steven Fish
massive populations meant that even substantial aid from abroad would never be enough
to make a dent in their underdevelopment. Yet aid addiction, once incurred, may not be
the death sentence that oil dependence is, since the former may be easier to break than
the latter. Aid, after all, does not flow in volumes that enable substantial sections of ruling
elites to become fabulously wealthy. Oil wealth does. The roughly $1 billion in aid Zambia
receives each year may be enough to help fatten some wallets in Lusaka, but Angola’s oil
exports generate that much revenue every week. One can imagine that aid funds might in-
crease Zambian officials’ satisfaction with the status quo, but one can also see some Zambian
leaders being less than fulfilled by current conditions. It is difficult to imagine Angola’s
rulers ever finding the current state of affairs unfulfilling, no matter how bad conditions
might be for those who do not wield power.
Summary
Who can break the grip of destitution? Anyone can. Who runs the best chance of doing
so? Anyone who adopts good economic policies. The experience of the past half-century
shows that neither political regime nor culture is determinative. Explosive, poverty-
eradicating growth has occurred in democracies and dictatorships alike. It has also taken
place in multiple regions and across a broad range of cultural spheres: Confucian East
Asia, Hindu South Asia, Christian southern Africa, and Muslim Southeast Asia have all
been the sites of sustained, penury-busting growth. What is more, neither deep poverty
nor the lack of sophisticated, growth-supporting institutions has prevented sustained de-
velopmental breakthroughs.
What has been crucial is economic policy, and good policies can emerge anywhere.
Development’s prospects depend on rulers’ willingness to tolerate political risk and resist
the temptations of easy reliance on oil and aid. It also depends on rulers’ powers of intel-
lectual discernment. It hinges especially on whether rulers embrace the counsel of analysts
who tout embracing the market or instead heed the calls of those who continue, in the face
of evidence to the contrary, to insist that the market is, or should be, the handmaiden of
the state.
Notes
1. David Dollar and Aart Kraay, “Growth Is Good for the Poor,” Journal of Economic Growth
7.3 (September 2002): 195–225.
2. David S. Landes, The Wealth and Poverty of Nations: Why Some Are So Rich and Some So
Poor (New York: Norton, 1999); and Lawrence E. Harrison, Underdevelopment Is a State of
Mind: The Latin American Case (Lanham, MD: Rowman & Littlefield, 2000).
3. For example, Francis Fukuyama, “China and East Asian Democracy: The Patterns of
History,” Journal of Democracy 23.1 (January 2012): 14–26; and Richard H. Franke, Geert
Hofstede, and Michael H. Bond, “Cultural Roots of Economic Performance: A Research
Note,” Strategic Management Journal 12, special issue (Summer 1991): 165–171.
4. Timur Kuran, The Long Divergence: How Islamic Law Held Back the Middle East (Princeton,
NJ: Princeton University Press, 2010).
5. Samuel Huntington, Political Order in Changing Societies (New Haven, CN: Yale University
Press, 1968); Charles R. Beitz, “Democracy in Developing Societies,” in Freedom in the
World, ed. Raymond Gastil (New York: Freedom House, 1982), pp. 145–166; and Vaman
Rao, “Democracy and Economic Development,” Studies in Comparative International
Development 19.4 (December 1984): 67–81.
6. United Nations Development Programme, Human Development Report, various years,
online at http://hdr.undp.org; Manuel R. Agosin, “Trade and Growth in Chile,” CEPAL
Review 68 (August 1999): 79–100; and Kurt Weyland, “ ‘Growth with Equity’ in Chile’s
New Democracy?” Latin American Research Review 32.1 (1997): 37–67.
7. John Gerring, Philip Bond, William T. Barndt, and Carola Moreno, “Democracy and
Growth: A Historical Perspective,” World Politics 57.3 (April 2005): 323–364; and Yi Feng,
“Democracy, Political Stability, and Economic Growth,” British Journal of Political Science
27.3 (July 1997): 391–418.
8. Benno J. Ndulu et al., eds., The Political Economy of Growth in Africa, 1960–2000, 2 vols.
(New York: Cambridge University Press, 2009); and Robert H. Bates, When Things Fell
Apart: State Failure in Late-Century Africa (New York: Cambridge University Press, 2008).
9. Atul Kohli, State-Directed Development: Political Power and Industrialization in the
Global Periphery (New York: Cambridge University Press, 2004); Robert Wade,
Economic Theory and the Role of Government in East Asian Industrialization (Princeton,
NJ: Princeton University Press, 2003); Alice H. Amsden, Asia’s Next Giant: South Korea
and Late Industrialization (New York: Oxford University Press, 1992); Stephan Haggard,
Pathways from the Periphery: The Politics of Growth in the Newly Industrializing
Countries (Ithaca, NY: Cornell University Press, 1990); Anne O. Krueger and Takatoshi
Ito, eds., Growth Theories in Light of the East Asian Experience (Chicago: University of
Chicago Press, 1995); Sea-Jin Chang, ed., Business Groups in East Asia: Financial Crisis,
Restructuring, and New Growth (Oxford: Oxford University Press, 2006); and Bela
Balassa, “The Lessons of East Asian Development: An Overview,” Economic Development
and Cultural Change 36.3 (April 1988): 273–290.
10. J. Clark Leith, Why Botswana Prospered (Montreal: McGill-Queen’s University Press, 2005).
11. Michael L. Ross, The Oil Curse: How Petroleum Wealth Shapes the Development of Nations
(Princeton, NJ: Princeton University Press, 2012).
12. This section draws on, among other accounts, Nicolas van de Walle, African Economies
and the Politics of Permanent Crisis, 1979–1999 (New York: Cambridge University Press,
2001); Dambisa Moyo, Dead Aid: Why Aid Is Not Working and How There Is a Better
Way for Africa (New York: Farrar, Straus, and Giroux, 2009); Carol Lancaster, Foreign
Aid: Diplomacy, Development, and Domestic Politics (Chicago: University of Chicago
Press, 2006); and William Easterly, The White Man’s Burden: Why the West’s Efforts to Aid
the Rest Have Done So Much Ill and So Little Good (New York: Penguin, 2007).
13. A. Craig Burnside and David Dollar, “Aid, Policies, and Growth,” American Economic
Review 90.4 (September 2000): 847–868; and Paul Collier and David Dollar, “Aid
Allocation and Poverty Reduction,” European Economic Review 46.8 (September
2002): 1475–1500.
14. For opposing viewpoints, compare Yasheng Huang, Capitalism with Chinese Characteri
stics: Entrepreneurship and the State (New York: Cambridge University Press, 2010); and
Joseph E. Stiglitz, Globalization and Its Discontents (New York: Norton, 2003).
15. This section draws on, among other accounts, Bruce J. Dickson, Wealth into
Power: The Communist Party’s Embrace of China’s Private Sector (New York: Cambridge
104 M. Steven Fish
University Press, 2008); Susan L. Shirk, The Political Logic of Economic Reform in
China (Berkeley: University of California Press, 1993); Ezra F. Vogel, Deng Xiaoping
and the Transformation of China (Cambridge, MA: Harvard University Press, 2011);
Justin Yifu Lin, The Quest for Prosperity: How Developing Economies Can Take Off
(Princeton, NJ: Princeton University Press, 2012); and Barry J. Naughton, The Chinese
Economy: Transition and Growth (Cambridge, MA: MIT Press, 2006).
16. Arvind Panagariya, India: The Emerging Giant (New York: Oxford University Press,
2010); Wing Thye Woo, Stephen Parker, and Jeffrey D. Sachs, eds. Economies in
Transition: Comparing Asia and Europe (Cambridge, MA: MIT Press, 1997); Hal Hill, The
Indonesian Economy (Singapore: Cambridge University Press, 2000); and Chris Baker
and Pasuk Phongpaichit, A History of Thailand (Cambridge: Cambridge University
Press, 2009).
17. For example, Gérard Roland, Transition Economics: Politics, Markets, and
Firms (Cambridge, MA: MIT Press, 2000); Dani Rodrik, One Economics, Many
Recipes: Globalization, Institutions, and Economic Growth (Princeton, NJ: Princeton
University Press, 2008); and Dani Rodrik, ed., In Search of Prosperity (Princeton,
NJ: Princeton University Press, 2003).
18. Corruption Perceptions Index 2011, online at http://www.transparency.org/policy_re-
search/surveys_indices/cpi.
19. “Russia Must Speed up Economic Diversification—Putin,” RIA Novosti, October 17, 2011,
online at http://en.rian.ru/business/20111017/167768858.html.
20. Karl Polanyi, The Great Transformation (Boston: Beacon, 1944).
21. For example, Stiglitz, Globalization and Its Discontents; Peter B. Evans, Embedded
Autonomy: States and Industrial Transformation (Princeton, NJ: Princeton University
Press, 1995); Adam Przeworski, Democracy and the Market: Political and Economic
Reforms in Eastern Europe and Latin America (New York: Cambridge University Press,
1991); David Harvey, A Brief History of Neoliberalism (New York: Oxford University
Press, 2007); Peter Kingstone, The Political Economy of Latin America: Reflections on
Neoliberalism and Development (London: Routledge, 2011); and Gérard Duménil and
Dominique Lévy, The Crisis of Neoliberalism (Cambridge, MA: Harvard University
Press, 2011).
22. For example, Stiglitz, Globalization and Its Discontents.
23. Dani Rodrik and Arvind Subramanian, “From ‘Hindu Growth’ to Productivity Surge: The
Mystery of the Indian Growth Turnaround,” IMF Working Paper, March 2004, online at
http://www.piie.com/publications/papers/subramanian0304imf.pdf.
24. For example, Anne O. Krueger, Struggling with Success: Challenges Facing the International
Economy (Hackensack, NJ: World Scientific Publishing Company, 2012); Takatoshi Ito
and Chin Hee Hahn, eds., The Rise of China and Structural Changes in Korea and Asia
(London: Edward Elgar, 2010); and Jagdish N. Bhagwati and Charles W. Calomiris, eds.,
Sustaining India’s Growth Miracle (New York: Columbia University Press, 2008).
Pa rt I I
D OM E ST IC FAC TOR S
Chapter 7
Cultu re, P ol i t i c s ,
and Devel opme nt
Michael Woolcock
During the last twenty years a remarkable transformation has unfolded regarding the
way in which culture is understood by scholars and practitioners of development. As re-
cently as the early 1990s, discussions tended to oscillate around three views: (a) culture
was either irrelevant to development (in the sense of being unactionable by prevailing
policy instruments) or derivative of more fundamental underlying economic and polit-
ical structures; (b) a “problem” to be overcome by the adoption—forcibly, if necessary—
of modern technologies and sensibilities (i.e., culture was a key repository of debilitating
vestiges of “backward traditions”); (c) or a reified behavioral phenomenon aggregating to
shape the wealth and poverty of nations (e.g., as manifest in claims about the collective
virtues and vices of “Asian values” in explaining the rise of East Asia and the stagnation
of India). These three views and their legacies have far from disappeared, but today social
scientists from a range of disciplinary backgrounds are deploying approaches that are at once
more theoretically nuanced, more empirically grounded, and (as it happens) more useful in
terms of both understanding development processes and constructively contributing to de-
velopment strategies. While there is hardly a new consensus, there is broad agreement that
culture is more fruitfully understood as context-specific sources of identity, aspiration, and
meaning, and as repertoires (i.e., an array of normative behavioral and political “tools”) that
members of particular groups deploy to construct, navigate, and make sense of their world.
While much remains to be learned, these advances in theory and practice with regard to
understanding culture constitute one of the most tangible and fruitful areas of inquiry in
contemporary development research. Equally important have been the ways in which (and
diverse sources from which) these changes have emerged. This chapter seeks to provide a
general overview of these transformations, the evidence on which they rest, their broader
implications for engaging with the politics, policy, and practice of development. It does
so with a particular focus on “ethnicity,” an issue that resides at the intersection of cul-
ture, politics, and development in both the popular and scholarly imagination, but which
has also been at the epicenter of recent theoretical and empirical research documenting
the conditions under which culture becomes politically salient and is deployed as part of
broader behavioral repertoires of identity and meaning. As such, I argue that culture does
108 Michael Woolcock
not merely comprise yet another set of “variables” that “matter” and which thus need to be
“taken into account” when seeking to better understand and respond to the idiosyncrasies
of particular times, places, and circumstances; rather, more powerfully, it refers to our on-
going, historically contingent ways of making sense of the world, of discerning our place
within it vis-à-vis other people and other groups, and of crafting specific strategies for sur-
vival and mobility. So understood, culture can be both an object of inquiry and an episte-
mological lens through which to examine some of the most important (but vexing) aspects
of the human condition.
The chapter is structured around four sections. The first section reviews the ways in
which culture has been understood over the last sixty years (roughly corresponding to the
period associated with the emergence of “development” as a scholarly subject, political project,
and professional field). The second section briefly surveys some of the most recent schol-
arship on culture as it pertains to politics and development, arguing that a qualitatively
new approach is now gaining ascendance, with correspondingly significant implications
for theory, research, and policy. The third section focuses on the subject of “ethnicity,” a
long-standing and deeply contentious issue that demonstrates both the limitations of past
approaches and the utility of emerging ones. The fourth section concludes with a discussion
of the implications of these analyses for development policy and practice, concluding with
a call to appreciate and further analyze the distinctive kinds of phenomena to which culture
draws attention.
Goodbye to All That? Three Traditions

of Culture and Their Discontents
A discussion of recent contributions to the culture, politics, and development is best under-
stood by first considering three views that prevailed over the course of the late twentieth cen-
tury: how they rose to prominence and then (for the most part) declined (cf. Moore 1997).
Students of an earlier generation encountered rather contradictory views when pondering
the relationship between culture, politics, and development. For many observers of devel-
opment processes, and certainly for members of the dominant discipline in development
(namely, economics), culture—or, more accurately, “culture”—was at best epiphenomenal,
a product of more fundamental underlying material or behavioral processes. Whether from
the political left (Marxists focusing on class and inequality) or right (neoclassical researchers
studying markets and market failures), economists could appreciate the existence of diverse
tastes, preferences, and aspirations around the world—clearly seen in obviously different
styles of music, dress, food, language, and religion—and yet regard them as being of little
consequence in shaping more primal structural forces driving economic development; far
more likely, they presumed, the causal arrow went in the opposite direction. Moreover,
since any rendering of “culture” was inherently difficult to measure and model, and gave
rise to responses that mapped awkwardly if at all onto policy instruments, it was readily
consigned to the intellectual and status periphery: At best it was a residual explanatory cate-
gory of third-order significance; at worse, upon even hearing the word “culture” in scholarly
circles, economists were likely to join playwright Hanns Johst in “reaching for their gun.”1
Culture, Politics, and Development 109
Not all social scientists held such dismissive views, however. At the other end of the
enthusiasm scale, culture came to prominence in two different strands of work in develop-
ment, one focused on “micro” issues—families, groups, and communities—and the other on
more “macro” concerns—broad changes within and between societies.2 At the micro level,
perhaps the most durable rendering of culture in the mid-twentieth century was the work
of Oscar Lewis (1959), whose detailed study of five marginalized communities in Mexico led
him to argue that such communities were characterized by a “culture of poverty,” namely
self-reinforcing and multi-generational cycles of disadvantage in which certain behaviors
(teen pregnancy, school truancy) and attitudes (tardiness, profligacy) conspired to reduce
the likelihood that the poor could or would escape their unfortunate circumstances.3 Since
its first appearance, variations on this expression has been appropriated by critics of the
welfare state (e.g., Murray 1994)—as were earlier manifestations by Thomas Malthus and
other critics of the English Poor Laws more than two hundred years ago—to popularize the
notion that poverty is primarily a function of, indeed caused by, “dysfunctional” individual
attitudes and behaviors, which are only perpetuated and consolidated by redistributive
transfers (“handouts”) from the state.4 As we shall see, the most recent scholarship on these
issues has sought to articulate ways of incorporating cultural sensibilities into more widely
shared understandings of “poverty traps” in which structures and agency jointly contribute
to the making and breaking of reinforcing cycles of disadvantage.
The more “macro” wing of the “cultural explanations” school of political development
emerged in the 1960s and 1970s as part of the broader corpus of influential ideas known as
modernization theory, particularly as manifest in the classic work of Almond and Verba
(1963) and Inkeles (1975). Modernization theories linked culture to an array of different
“values” (e.g., gender norms, reproductive rights, individualism) associated with secular
transitions from “traditional” to “modern” (and perhaps “postmodern”) society, a line of re-
search continued in the work of Ronald Inglehart (e.g., Inglehart 1997; Inglehart and Welzel
2005) and others interrogating longitudinal data compiled by the World Values Survey. The
core thesis of modernization theory was that transitions in economic, political, and social
life occurred sequentially and predictably (if not always at the same pace); as countries
become more “modern,” these transitions would yield incremental institutional and behav-
ioral convergence. In its time, modernization theory derived its intellectual force from the
fact that both the political left and right ascribed to this teleology; Marxists merely assumed
that history’s arc would inexorably reveal that there was another destination further down
the line from capitalism (namely, communism).
In this space, culture gained its policy salience because it was regarded as either a bell-
wether or a laggard indicator: Taking the pulse of a country’s “cultural values” through
large-scale surveys could provide a guide as to how far along the modernization track that
country (and its various constituent social groups) had come. Even as it was recognized that
cultural change itself was likely to follow a “lumpy” trajectory, with “beliefs” and “attitudes”
often out of sync with prevailing institutions or revealing potentially sharp divisions be-
tween groups (whether defined demographically or geographically), a focus on cultural
values (e.g., views regarding the status of minority groups or women) was regarded as a
window on whether and how these groups were navigating their journey to modernity.
From this perspective, the modernization process remains everywhere (and perhaps in-
tractably) incomplete; wealthy countries, no less than developing countries, continue to
wrestle with these dynamics, as the deep contention accompanying issues such as gay rights
(e.g., to marriage and participation in professional sports), immigration, and church–state

separation amply demonstrates.
The most popular and widely cited5 works of the “cultural explanations” school came
at the end of the twentieth century. Explicitly invoking the mantle of Max Weber’s classic
thesis linking the Protestant ethic to the emergent “spirit” of capitalism in the aftermath of
the Reformation, three books in particular—Samuel Huntington’s (1996) infamous Clash
of Civilizations, David Landes’s (1999) The Wealth and Poverty of Nations, and Lawrence
Harrison and Huntington’s (2001) edited volume Culture Matters—sought to argue that
similar processes were at work today. For these authors, the driving force was not just a
specific behavioral mechanism of the kind identified by Weber (wherein pervasive anxiety
about one’s uncertain fate in the afterlife was seen to have unwittingly put in motion, in the
present life, a virtuous cycle of thrift, diligence, self-restraint, and investment6), but also an
entire assemblage of attitudes, “values,” and dispositions residing at the national, even re-
gional, level. In these works, culture was now elevated to the status of an independent actor
(i.e., a bona fide independent variable), shaping a country’s, even an entire civilization’s, de-
velopment prospects.7 This simplistic thesis was eagerly embraced by populist pundits, who
readily connected it to earlier claims about the role of “Asian values” in explaining the rise
of the East Asian “miracle” economies (South Korea, Taiwan, Singapore) and laments that
the “Hindu rate of growth” accounted for the (then) sluggish performance of India.
Echoes of all three of these perspectives endure;8 however, where once—whether by de-
sign or default—they constituted the epicenter of debate about the role of culture and devel-
opment, they now (in the second decade of the twenty-first century) seem far removed from
it, at least in what currently constitutes the “cutting edge” of scholarship on poverty, politics,
and development. It is perhaps too soon to offer a compelling explanation of how and why
the influence of all three approaches receded and were replaced by a new one (discussed in
the next section), but at least two plausible factors can be cited: First, the earlier perspectives
reflected the sensibilities of an age that has passed. Modernization theory, ostensibly a
product of the Cold War but a descendent of ideas informing (and justifying) nineteenth
and early twentieth century colonialism, long ago lost its scholarly traction; many now
readily appreciate “modernization” as an ongoing historical fact and process without nec-
essarily buying into the singular ideological and teleological assumptions of moderniza-
tion theory and the policy imperatives to which it gave rise (Woolcock 2009). Similarly,
discussions about cross-national shifts in “values” and “beliefs,” while notionally impor-
tant to document, obscure the more vibrant and salient ways in which the politics of these
dynamics play out across multiple subnational units and between different social groups
(themselves often a fluid category). More practically, beyond a certain point, reifying cul-
ture to the status of an independent variable at the national (let alone “civilizational”) level
proved to be neither intellectually interesting nor in any way useful for policy purposes
(Rao and Walton 2004); at best it might generate an opening for a more serious conver-
sation about culture, but at worst it could reinforce unhelpful stereotypes and undermine
the space for agency (e.g., political leadership, civic deliberation, individual and collective
choice) and for opportunities to identify how, where, and by whom hybrid identities and
institutions were being forged, as they have been in the past (see Bayly 2004).
The second factor shaping the demise of these older perspectives was the emergence of
a serious rival grounded in a richer and more nuanced vein of theory and evidence. In the
early 2000s, for whatever reason—perhaps because of their frustration with the prevailing
tone and terms of debate—sociologists, historians, and anthropologists not only reengaged
with culture and development, producing a string of insightful and compelling works, but
also began actively contributing to policy deliberations. Equally importantly for develop-
ment policy purposes, some economists also launched a minor revolution of their own,
revisiting some of the first principles of their discipline (e.g., rationality, self-interest, utility
maximization as human universals) via micro-behavioral experimental research in different
contextual settings (Henrich et al. 2004 being the most famous, but see also Henrich et al.
2010). For their part, a new generation of political scientists began to explore cultural phe-
nomena in more methodologically and theoretically sophisticated ways. It is to a discussion
of this emerging literature that we now turn.
Taking Context Seriously: Recent

Interdisciplinary Contributions
Cultural anthropology has long sought to focus cultural analyses on the role of symbols
and meaning, but it was the classic article of Swidler (1986) that both refined this approach
and brought it into the mainstream of social and political theory, from whence it began to
be fruitfully applied to poverty research and development policy in the 1990s.9 Swidler’s
central argument was that “[c]‌ulture influences action not by providing the ultimate
values toward which action is oriented, but by shaping a repertoire or ‘tool kit’ of habits,
skills, and styles from which people construct ‘strategies of action’ ” (p. 273); moreover,
she sought to show that culture’s causal role in shaping social life varied according to the
extent to which a particular historical moment was culturally “settled” or in a period
of flux. The notion of culture as a repertoire provided a novel analytical entry point for
examining how social structures, group norms (particularly as it pertained to sources
of status, honor, and meaning), and individual choices conjoined to generate patterns
of behavior,10 some of which were remarkably consistent across time and space and
yet also often highly variable within demographic groups (“Asians,” “African Americans,”
“Armenians”) heretofore deemed to be the more “natural” or “primary” locus of cultural
dispositions. Such groups may indeed be repositories of culture in the popular sense
(Davis 2009), but the conceptual innovation pioneered by Swidler was to understand
culture as a mechanisms-based phenomenon rooted in shared capacities to create and
exchange symbols as part of broader processes of meaning, strategic behavior, and inter/
intragroup differentiation (Wadeen 2002). Indeed, it can be argued that groups of any
kind cannot act collectively unless and until such fundamental issues are resolved (see
Gauri et al. 2013).
As we shall see, an explosion of research on ethnicity—an issue made politically sa-
lient in the early 1990s with the end of communism and the descent of many postsocialist
states into violence popularly construed to be grounded in and driven by long-standing
“ethnic” grievance—and communal conflict helped to both exemplify and consolidate
this new approach to culture in mainstream social science. Beyond the research on eth-
nicity, however, a rich heritage of qualitative inquiry, especially of urban poverty, was also
revived. Encapsulated in important contributions by (among others) Michele Lamont
(2000) and Mario Small (2004), this work explored the ways in which particular so-
cial groups deployed group-specific narratives and narrative styles to regulate group
boundaries—that is, to determine who is and is not granted membership in a given
group, and thus who is subject to what social rules (norms, expectations) regarding
how status, shame, honor, and prestige is determined.11 An oft-cited example of these
processes in action is the persistently high rates of teen pregnancy in poor, inner-city
African American communities: Where unemployment is rampant and where future ec-
onomic prospects, especially for young men, are bleak, young women acquire status and
attention as mothers—indeed, their rite of passage to adulthood becomes marked not by
graduation from high school or college but by child-bearing.12 Similar dynamics can be
seen in the mechanisms by which “durable inequalities” (Tilly 1999) persist across gener-
ations for particular social groups; in poor communities in the developing world, struc-
tured economic expectations and social identities coalesce to undermine what Appadurai
(2004) calls “the capacity to aspire,” the capacity to imagine an alternative life course and
to believe that “someone like me” can reasonably pursue it.
Related work in quantitative social science has been conducted in the United States
on what Claude Steele calls “stereotype threat” (see Steele and Aronson 1995). In this
research, two groups of randomly selected students from minority racial backgrounds
are asked to perform a standardized test: One group is given no particular indication of
what the test is for, while the other is told that it is a test of the intelligence of minority
groups. In short, the only difference between the groups is that, in the latter, minority
status is made public and thus politically salient. Students in the latter group, it turns
out, typically perform worse on these tests than their identical peers in the “non-salient”
group, leading Steele to conclude that particular social markers matter, but only in social
contexts where they are made to matter. Related research by economist Karla Hoff and
her colleagues (see Hoff and Pandey 2006; Hoff et al. 2011) find similar results on caste in
India: Young students asked to complete a simple maze perform poorly (compared to an
otherwise identical group) when asked merely to publically identify themselves to their
peers before completing the test; stating their name conveys their caste status to the group
and thereby renders it salient as a social marker, with the students from the lower castes
proceeding to exhibit cognitive performance consistent with broader societal perceptions
of their inferior social status.
The collective upshot of this research is deep confirmation of the interplay of macro-,
meso-, and micro-processes in shaping individual and collective behavior; in particular,
this highlights the distinctive role that culture—as repertoires, narratives, and symbolic
tools—plays in connecting this behavior. Far from celebrating or deploring “culture” as
a reified group characteristic, or dismissing it as an ethereal manifestation of more fun-
damental economic processes or interests, in this contemporary rendering, culture is
afforded a distinctive and central role in shaping the processes by which life is constructed,
navigated, and interpreted. It now draws its theoretical and empirical strength from across
the social sciences; while much remains to be learned and a shared consensus on all
aspects (inherently) remains elusive, it is not unreasonable to assert that, over the last
twenty-five years, a veritable paradigm shift has taken place at the leading edge of research
on culture, politics, and development, and is now steadily consolidating itself as a fruitful
basis for careful policy deliberations. Nowhere is this shift more evident than in the field
of ethnicity.13
Rethinking Culture, Politics, and

Development in Action: The Case
of “Ethnicity”
In both the popular and scholarly imagination, perhaps the most frequent manifestation
of culture in discussions of politics and development is via the channel of ethnicity—
specifically (what is often construed as) ethnic conflict. Arguments with seemingly intu-
itive appeal—for example, that more “ethnically diverse” (i.e., culturally heterogeneous)
populations will struggle to build broad and durable political coalitions and thus be less
likely to enjoy economic prosperity—have long characterized development policy debates,
but in recent years the advent of increasingly sophisticated data sets have enabled such
propositions to be formally tested and refined. An early (and now “classic”) paper in the
economics literature by Easterly and Levine (1997), for example, has garnered over 4,000
citations in the scholarly literature, but the field as a whole—despite expanding consider-
ably across disciplinary lines and units of analysis (Brubaker 2009)—remains inherently
contentious. Understanding the nature and extent of this scholarly contention can help to
illuminate some of the corresponding challenges associated with applying this collective
knowledge to development policy in regions such as Eastern Europe and Central Asia,
where these issues have powerful political resonance and (thus) enduring consequences for
development in general and for poverty reduction in particular (see Dudwick et al. 2003).
Efforts to interpret and respond in constructive ways to debates on the relationship be-
tween ethnic diversity, political dynamics, and development outcomes face two perennial
types of problems: measurement and theory. The measurement problems are relatively
straightforward if the underlying assumption is that ethnicity and race are essentially fixed
and coherent demographic categories. To be sure, there are likely to be legitimate concerns
at the margins about how exactly to classify individuals with (say) a multiracial heritage,
how to compile data sets that are sufficiently comprehensive to adequately capture ethnic
groups (however defined) who are geographically dispersed and small in number, and
how to aggregate or compare seemingly similar categories (e.g., “Jewish”14) across contexts.
For the most part, however, these problems are familiar ones to survey researchers and an
array of technical strategies exists for dealing with them; appropriate qualifiers will thus
accompany the conclusions from such analyses. If their advice and recommendations are
heeded, researchers may be granted more extensive resources, and in due course more pre-
cise estimates and finer-grained analyses will emerge. Such advances are to be welcomed
and encouraged.
For a different group of social scientists, however, the key issue constraining policy options
when engaging ethnic diversity is less methodological than theoretical (or, more precisely,
ontological—What exactly is ethnicity, and for whom?). Specifically, these scholars hold that
ethnicity is not necessarily a fixed demographic category readily measureable via household
surveys, but a fluid social construct, one whose political salience varies considerably across
time, space, and units of analysis, one that is eminently amenable to manipulation and mo-
bilization by social movements, civic leaders, and “ethnic entrepreneurs” (i.e., those who ex-
ploit salient ethnic markers for their own political advancement). In the scholarly literature
this distinction (and ensuing debate) is usually referred to as one between “primordialists”
versus “constructivists” (e.g., see Wimmer 2008). Varshney’s (2001) study of communal vi-
olence in India represents an interesting (but rare) hybrid: He examined why certain urban
areas with demographically similar ratios of Hindus and Muslims varied so widely in their
propensity for violence, arguing that the key difference was their degree of joint member-
ship in local civic organizations. In areas where both Hindus and Muslims were members
of the same business groups, for example, they knew each other at a personal level and were
thus less amenable to inflammatory invective by partisan communal leaders and better
placed to anticipate (potential) and quickly resolve (actual) grievances.15
In methodological terms, “constructivists” are more likely to regard ethnicity as a de-
pendent (not independent) variable—that is, a category that is a product of prevailing po-
litical processes rather than a determinant of them (see Jung 2008). The important work
of Nicholas Dirks (2001), for example, on caste in India—popularly presumed to be an
enduring, immutable, and defining feature of the subcontinent—shows that caste became
politically salient in India only after the British began conducting national censuses that
required respondents to be placed into fixed demographic categories (i.e., into “boxes,” de-
termined by the British themselves). What had once been relatively fluid and politically
neutral thereby became, through modern instruments of “population management,” rel-
atively fixed and, in turn, a basis for political mobilization (and, concomitantly, social
exclusion and control) (Scott 1998). A related thesis is posed in Anthony Marx’s (1998)
comparative analysis of the political salience of being “black” in South Africa, the United
States, and Brazil: He argues that the highly variable status of “blackness” as a basis for po-
litical mobilization in these three countries is a product of the nature and extent to which
the state itself is (or became) a site of political contestation around race.16
The dynamics of ethnicity in Eastern Europe provide a good example. It is a truism
that, over the last twenty-five years, no region has experienced more tumultuous social,
economic, and political transformation that Eastern Europe and Central Asia. As has been
the case with virtually every such transformation in earlier historical periods, and with
the “Arab Spring” today, the demise of the Soviet Union generated all manner of serious
contention: It fundamentally altered, among many other things, relations between social
groups (and with the state), expectations of job prospects and social security (health care,
pensions, etc.), and sources of authority, identity, and power.
A distinctive feature of the post-Soviet experience was the political vacuum generated
by the demise of a powerful central state that had, some seventy years earlier, in nu-
merous instances created (by decree or brutal force) political entities—for the purposes
of “management” and control—where none had previously existed. In 1917 in what is now
Turkmenistan, for example, Edgar (2004, pp. 1–2) writes that there was no state, only a
“seminomadic people”:
[T]‌he Turkmen were fragmented into genealogically defined groups that spoke different
dialects, were often at war with each other, and were ruled by at least five different states.
The Turkmen population, overwhelmingly illiterate, was scattered over a huge and largely
inaccessible expanse of arid terrain. Although these Turkmen groups claimed a common an-
cestry, they possessed no clearly bounded territory, no common political institutions, no uni-
form language, and no mass culture of print and education—in short, none of the trappings
of modern statehood.
Where some have seen the Soviet Union as the “breaker” of nations, Edgar (2004) per-
suasively argues that it was instead—or at least in cases like Turkmenistan—a “maker” of
nations. In any event, the key issue for present purposes is the importance of understanding
the conditions under which “states” were formed during, and reformed following, the Soviet
experience. The implication is that contention is too readily construed as “ethnic” (and by
extension “cultural”) in nature or origin when it must first be examined in its historical and
political context.
Thus, rather than studying the “demographics” of difference, these researchers examine
what might be called the “dynamics” of difference; the key empirical question then becomes
identifying the conditions under which particular aspects of people’s identities can be
mobilized for large-scale collective action (whether for constructive or harmful purposes)
(Habyarimana et al. 2007).17 Whereas these approaches differ methodologically (whether
quantitative or qualitative) only in terms of measurement, sampling, and inference, they
differ theoretically upon more durable and discrete distinctions—which is to say, they are
embedded, respectively, within traditions that are only partially amenable to reconciliation
through more and better “evidence.” It is very important to understand these theoretical
foundations, however, not only because any methodological choice is inherently embedded
(knowingly or unknowingly, explicitly or implicitly) within a theory, but because the logic of
these different theories gives rise to different diagnoses (of “the problem”) and thus different
policy prescriptions (proposed “solutions”).18 So understood, even something as destruc-
tive as war becomes less axiomatically the “result” of certain demographic configurations
of “ethnic diversity,” and more a process that can “cause” (or even create) certain forms of
social identity, such as “ethnicity,” and render politically (perhaps even militarily) salient
social cleavages that were once neutral or irrelevant. As McGovern (2011, p. 352) astutely
notes, numerous studies of the political anthropology of Africa demonstrate
that war tends to polarize identity and that even where there was a high degree of
intercommunal cooperation and intermarriage, once wars begin, identities like ethnicity,
religion, race, and nationality become salient as cycles of revenge, resentment, and demon-
ization develop path-dependent rationales. But what of the poor multiethnic countries that
don’t experience war? What of Mali, Senegal, and Ghana? What of those countries in be-
tween, India or Guinea, that experience interethnic clashes, but manage them in such a way
that they do not jump to the level of a more general conflagration? . . . [A]‌nthropologists and
political scientists have shown that there are infinitely many ways to construct competitive
difference, from villages to clans to caste, just as every definition of enmity implies a related
definition of alliance. In many African settings, ethnicity is epiphenomenal to the political
dynamics that offer the conditions of possibility for its instrumentalization.
It is these dynamics, and their idiosyncratic manifestation in particular countries, that need
to be explained for the purposes of inferring development policy and practice.19 Careful
micro-level studies of the conditions under which “ethnicity” is and is not able to be
mobilized for the purposes of violence (e.g., Varshney 2002; Posner 2004; Kalyvas 2006),
as McGovern (2011, p. 350) also notes, “suggests that participants in violent politics are op-
erating according to rational and irrational choice models at once. Such ‘irrational choice’
models must account for the presence and significance of actors’ desires for respect, honor,
adulation, and revenge.” This is the important sense in which contemporary theories of cul-
ture are gaining traction in debates about politics and development. They are at once able
to provide an informed (even devastating) critique of culture and ethnicity understood as

a discrete, static demographic phenomenon amenable to aggregate statistical analysis, and
yet also able to provide a detailed empirical platform on which alternative theories, rigorous
measures, and actionable policy recommendations might be discerned. Such commitments
to engaging with the idiosyncrasies of local contexts—and drawing on the large body of
theory that inspires it—is, to quote McGovern (2011, p. 353) again,
neither a luxury nor the result of a kind of methodological altruism to be extended by the
soft-hearted. It is, in purely positivist terms, the epistemological due diligence work required
before one can talk meaningfully about other people’s intentions, motivations, or desires. The
risk in foregoing it is not simply that one might miss some of the local color of individual
“cases.” It is one of misrecognition. Analysis based on such misrecognition may mistake
symptoms for causes, or two formally similar situations as being comparable despite their
different etiologies. To extend the medical metaphor one step further, misdiagnosis is unfor-
tunate, but a flawed prescription based on such a misrecognition can be deadly.
Even if, as is most likely, these contrasting approaches are ultimately complements rather
than substitutes, there is no disputing that, over the last twenty years, theories emanating
from the (non-economic) social sciences connecting culture, politics, and development
have themselves attained a distinct identity and growing self-confidence; it remains to be
seen whether they are able to secure comparable influence shaping popular sentiments and,
more importantly, policy debates in countries where such debates are most consequential.
Conclusion
The concept of culture is, and will forever be, contested, not only in the sense that it infa-
mously has hundreds of different definitions (and counting), but also that greater clarity
will only emerge through deliberation rather than empirical refinement. But culture is no
less important or useful for its necessarily contentious status; indeed, as with other “inher-
ently contested concepts” (Gallie 1956; Collier et al. 2006) such as power and class, it does
much of its intellectual work precisely through the quality of the deliberation it inspires.20
Beyond definitional debates, any rendering must be understood in the context of a broader
theory, and it is at this level that genuine innovations have transpired over the last two
decades. As this chapter has hopefully demonstrated, today’s leading social and political
theorists of culture and development represent a fourth distinctive perspective vis-à-vis
their predecessors, one that seeks to provide an empirically grounded, mechanisms-based
account of how symbols, frames, and narratives are deployed as part of a broader repertoire
of cultural “tools” connecting structure and agency.21
A central virtue of this approach is less in the broad policy prescriptions to which it gives
rise than in the emphasis it places on engaging with, if not always fully understanding, the
idiosyncrasies of local contexts (Barron et al. 2011). Beyond familiar development bromides
that “history and context matter,” which are too often honored only in the breach, deep
knowledge of contextual realities enables careful intracountry comparisons to be made,
which can be a basis for identifying “positive outliers”—that is, places where vernacular
solutions to otherwise divisive conflict has emerged. For example, if otherwise similar areas
(demographically, economically, geographically) nonetheless have significantly different

levels of “ethnic conflict,” it would surely be good to know how it is that residents of the
“low-conflict” communities have managed to attain and sustain this welcome outcome.
Moreover, identifying and disseminating successful indigenous responses—as opposed to
advocating the adoption of “best-practice solutions” as determined by external “experts”—
can imbue them with a powerful source of legitimacy. Forging detailed scholarly and ex-
periential knowledge of local contexts is also important for discerning the generalizability
(or “external validity”) of claims regarding the efficacy of policy interventions, especially
those overtly engaging with social, legal, and governance issues in the least-developed
countries (see Woolcock 2013). In short, the policy aspiration of analysts studying culture,
politics, and development should not be to derive broad prescriptions—indeed, to offer
such prescriptions would be something of a contradiction in terms—but rather to make
intensive and extensive commitments to engaging with local contexts.
Whether in the domains of theory, research, policy, or practice, important advances have
been made in recent years in our understanding of how culture, politics, and development
interact. It is to be hoped that these gains will be consolidated, refined, and enhanced in the
years to come, on the basis of an ever-widening array of contributors. Finally, it bears re-
peating that culture is not merely an object of analysis, around which the contentious debates
accompanying its definitions and metrics will eventually yield in the face of more brain
power, expanded research budgets, or larger data sets; culture is one of the defining features
of what it means to be human—as such, its central aspects must likely remain not only “in-
herently contentious,” but forever elusive. Cultural analyses of politics and development
should help us to appreciate the distinctive kinds of collective human phenomena to which
culture draws attention and to strive to carefully, humbly and incrementally illuminate them.
Notes
1. Variations on this line have been used in many contexts, but as written it appears to have
been first deployed in Schlageter, a play by Hanns Johst first performed in Germany in the
1930s. (This unfortunate historical fact has clearly not diminished its value as a one-line
witticism.)
2. For present purposes, I do not discuss the intellectual or scholarly underpinnings informing
the work of agencies such as UNESCO, whose work focuses on preserving a country’s “cul-
tural heritage” (understood to be ancient or historically significant artifacts, buildings, sa-
cred sites, or artistic endeavors). On the significance of cultural heritage for development,
see the contributions in Bandelj and Wherry (2011).
3. For a specific critique of the “culture of poverty” thesis, see Goode and Eames (1996) and
Mohan (2011).
4. Needless to say, this line of argument has had its vehement critics along the way. Szreter
(2007), for example, drawing on a range of careful studies in recent years by economic
and social historians, argues that the presence of the Poor Laws (and associated civic
innovations, such as widespread identity registration) freed up capital and labor from its
feudal bounds and ensured that the risks of experimentation (in the realms of technology,
ideas, or challenges to elite authority) did not include unmitigated destitution. The ad-
vent of these new and distinctive arrangements, he maintains, at least partially explains
how Britain, an economically backward country in 1500 vis-à-vis other European powers
(especially the Dutch) when the Poor Laws were first introduced, embarked—albeit
unwittingly—on a catch-up process so durably successful that it positioned Britain to
launch what we now call the Industrial Revolution. For a related argument by economic
historians, see Greif and Iyigun (2013).
5. As of this writing, according to Google Scholar, Huntington (1996) has over 13,000
citations, Landes (1999) has nearly 4,000 citations, and Harrison and Huntington (2001)
has more than 1,000 citations. These are high counts by any estimation, but especially so
for works on culture and development.
6. The Protestant Ethic was one of Weber’s first scholarly efforts, but as Richard Swedberg has
astutely noted, its underlying thesis was not one that Weber himself seemed to warmly
embrace as his writing matured; Weber rarely cited it in his more voluminous works
(Economy and Society, General Economic History), written in his later years.
7. It is not readily apparent whether the classical modernization theorists regarded culture
as a singularly endogenous or exogenous variable, at least as those terms are understood
by contemporary methodologists. Modernization theorists clearly held cultural values
and dispositions to be key drivers (both direct and indirect) of national development, and
as such regarded them as deeply constitutive of a given society; yet in measuring these
characteristics via large-scale surveys, they also used the findings to argue that a “back-
ward” society’s prevailing cultural values and dispositions could and should change if it
were to “catch up.” So understood, culture is at once endogenous to society yet at least
to some extent “semiautonomous” in that it can be consciously and intentionally altered
or inexorably subject to homogenizing forces as the logic of modernization and devel-
opment takes hold. As we shall see, today’s leading scholars of culture seek to retain an
autonomous space for the analysis of issues construed to be “cultural,” but in so doing re-
gard culture itself as an array of historically contingent and politically constructed “tools”
by which particular groups define, sustain, and explain themselves vis-à-vis others; or-
ganize and perpetuate themselves internally; and provide coherent bases for enabling
meaning to be derived from events.
8. Witness, for example, the wide array of emotive responses elicited by Yale law professor
Amy Chua’s (2011) popular book Battle Hymn of the Tiger Mother, in which the public
debate centered on the virtues and vices of the “Asian values” allegedly driving Asian
parents’ seemingly intense child-rearing practices, not least among Asians now living in
the West.
9. Swidler’s work, in turn, extended the earlier and contemporaneous (and even more
broadly influential) work of French social theorist Pierre Bourdieu. The writings of Loic
Wacquant (e.g., Bourdieu and Wacquant 1992) and of Viviana Zelizer (e.g., Zelizer 2010)
have also been influential in this regard.
10. It proved especially useful for explaining behaviors such as teen pregnancy, gang violence,
and common-pool resource management, which were problematic for standard rational-
choice models focused on the self-interested, utility-maximizing individual agent.
11. Small, Harding, and Lamont (2010) provide an excellent summary of this evolving lit-
erature. See also Rao (2008) on the role of “symbolic public goods,” such as community
associations and norms of civic participation in India and Indonesia, as important cul-
tural expressions enabling collective action.
12. See Patterson (2006) for a discussion of the comparable historical and cultural processes
shaping the behavior of young men in many poor African American communities in the
United States, and Hall and Lamont (2009) on how cultural processes generate differen-
tial health outcomes.
13. One could also conduct a similar analysis of religion—see, for example, Swidler’s (2010,
2013) fascinating recent work on the changing nature of chieftaincy in Africa—though
for present purposes (analytically and in terms of space constraints), ethnicity makes for
a clearer case of how today’s leading scholars study the intersection of culture, politics,
and development.
14. Some Jews understand this label to be primarily an ethnic designation, others a religious
one, still others a national one; some hold all three or some combination thereof. This
creates obvious cross-context concerns when researchers or policy-makers seek to know
how many “Jewish” people there actually are in a broader regional (or global) space, and
it complicates discussions of what it “means” to be Jewish. Important distinctions can also
be literally “lost in translation”; Benovil (2012), for examples, notes that “[t]‌he English
word ‘Russians’ is not an exact translation of the original meaning. In Russian, there are
two words: ‘russkiye,’ meaning ethnic Russians, and ‘rossiyane,’ meaning Russians as citi-
zens of Russia. Both are translated as ‘Russians’ into English.”
15. See Jha (2007) for a related historical argument on the propensity for communal vio-
lence in coasting trading ports in colonial India. A “constructionist” approach to un-
derstanding ethnicity is not only a staple of contemporary Western (Anglophone)
scholarship; according to Benovil (2012), it has also become a hallmark of the most re-
cent Russian literature, which argues in the main that the “borders of communities are
changing and flexible, which makes an ethnic community based on existing relations,
not based on existing objective characteristics.” Historically, however, Soviet literature
adopted a strongly primordialist approach (Tishkov 1997). The early Russian literature
in particular often used the socio-biological term “ethnos” (which sought to classify
ethnicities in ways analogous to zoological categories), though scholars today use it more
to convey the sense that the bases of any given group’s composition changes over time.
16. See the related work of Baiocchi and Corrado (2010). Mamood Mamdani (1996) makes
a similar historical argument for the processes by which “subjects” became “citizens” in
late colonial Africa, as does Weber (1976) for the processes by which “peasants” became
unified into “Frenchman” in late nineteenth-/e arly twentieth-century France.
17. Needless to say, this juxtaposition—between the demographics and the dynamics of
difference—is perhaps overly simplified (indeed, students of ethnicity seem to revel in
creating ever-finer distinctions when locating themselves in the theoretical landscape),
but for present purposes it is a fruitful one for elucidating the key differences between
(most) economists and (many) other social scientists studying ethnicity.
18. Put differently: To argue that “we don’t need theory” is itself a theoretical proposition.
19. See also the similar arguments for assessing the significance of “culture” for development
policy and practice outlined in Rao and Walton (2004).
20. Woolcock (2010) makes a similar argument for understanding the debates accompanying
“social capital.”
21. In this spirit, see the entire corpus of insightful work comprising Goodin and Tilly’s
(2008) Oxford Handbook of Contextual Political Analysis.
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University Press.
Chapter 8
Religion, P ol i t i c s ,
and Ec onomi c
Devel opme nt
Synergies and Disconnects
Katherine Marshall
The political roles and impact of religious institutions and ideas and their links to the
processes of social change and development can raise hackles. The topic opens a Pandora’s
box of complex practical and ethical issues. But these questions lead us to the heart of the
institutions and ethics of development.
In 1998, James D. Wolfensohn, then president of the World Bank, surprised his board and
managers with a new initiative: a dialogue about development with leaders of the world’s
major faith traditions1. The initiative was part of a deepening engagement with civil society
at many levels and was linked to efforts to take far more into account cultural dimensions
of development and the perspectives of a widening range of disciplines. The dialogue’s goals
seemed worthy and quite anodyne: to enhance the appreciation of faith leaders for devel-
opment strategies and on-the-ground work, involve them more directly in the effort, and
learn from their experience.
To Wolfensohn’s considerable surprise, the World Bank’s board of directors, representing
184 countries at the time, greeted his outreach to religious leaders with a maelstrom of
doubts. The questions that surfaced in ensuing discussions in the World Bank centered on
both perceptions and realities of the political dimensions of both development and religion.
Engaging with religion, it was argued, was a political statement and initiative. The topic had
special sensitivity for a multilateral development organization where politics was labeled
at the time (partly tongue in cheek) the “P” word. A nonpolitical, “objective,” and techno-
cratic approach was the ideal and the norm. However, the ensuing debates and practical
experience offer an unusual window into the broader issues involved. Negative reactions
to engaging religion in development work reflected to a degree an unease about working
more closely with civil society institutions, but they were more vehement and included a
wider, distinctive litany of concerns. These centered on the perception that state and social
relationships with religious institutions was a highly political matter, dangerous to bring
into the traditionally technocratic world of development.
124 Katherine Marshall
Interactions among secular and religious actors that have unfolded over the ensuing fif-
teen years highlight three themes that are this chapter’s central focus:
(a) The unexpected uproar that greeted outreach to religious bodies within a multilat-
eral institution and its political constituencies shone an illuminating light on com-
plex and changing contemporary relationships among secular and faith-motivated
institutions and ideas at many levels of international relations and national politics.
(b) Mainstream academic and policy approaches to international development as they
evolved after World War II took remarkably little account of the complex intellec-
tual and practical engagement of a vast body of religious actors that were active in
many of the same sectors and places, notwithstanding its pertinence for development
challenges. This major blind spot obscures important social and political dynamics
that are deeply embedded aspects of development realities and work.
(c) Interactions and partnerships among development and faith actors, exemplary of the
complex challenges involved in bridging disciplines and cultures, are part and parcel
of the political dynamics of social change that are the essence of development work.
This chapter focuses on the transnational dimensions of religious interactions with de-
velopment institutions and thinking. A parallel story can be told for each nation, shaped by
its history and political dynamics; a central message is that these stories should be an inte-
gral part of understanding development approaches and work. To highlight a few examples
of how religion is intertwined in the politics of national development: the Philippines is
witnessing heated debates about the proper role of the Catholic Church in national and
local politics, notably around reproductive health; in Guatemala, tensions among Catholic,
evangelical, and Mayan traditions are critical elements in the peace-building challenge
following decades of civil war that exacerbated inequalities among communities; in
Kenya, religious actors are important players in matters of constitutional reform, transi-
tional justice, and action to curb corruption; Morocco (like other Maghrebian countries)
is witnessing active debates about the very ends of development in the light of differing
conceptions of the role that Islam should play affecting, among other issues, understandings
of how women and men should relate; and in post–Khmer Rouge Cambodia, the revival of
Buddhist institutions affects perceptions and tensions around values for development and
the implications of pluralism in a dynamic society. The chapter includes some examples of
country-level issues, but its focus is on how religion is perceived as a force in international
relations and thus in the broader politics of development.
An essential backdrop to the discussion is an appreciation that the political dimensions of
religious and development politics take very different forms in different parts of the world
as they play out from the very global to the very local. In some places religion is virtually
invisible and mute in political debates (many European settings offer a prime example, but
within the United Nations system overall discussion is largely framed in secular terms). In
other organizations and discussions, religious language, sympols, and actors are centrally
involved. That is the case in many nations of the Organisation of the Islamic Cooperation
(OIC) and in significant numbers of Christian communities, including many in the United
States. Two major religious actors are especially visible and have a major transnational in-
fluence: The Catholic Church and Catholic social teaching are an active influence among
the world’s approximately 1.2 billion Catholics; and political Islam is arguably the most
Religion, Politics, and Economic Development 125
visible political institution in many settings, with some 1.5 billion Muslims worldwide in-
volved, even as its “voice” is diffused and its role is contested. The issues in which religion
and religious actors are involved range from the highly esoteric (the very purpose of exist-
ence) to the utterly practical (food choice, marriage traditions). Religion can be positive
(major roles in education and health) or negative (exacerbating social tensions, thwarting
social change). But, all told, religion plays important if commonly underappreciated parts
in the transnational and local politics surrounding development across the board, and its
many complex roles deserve more active attention and research.
The Encounter: Faith, Politics,

and Development
Why Religion and Development?

A vast array of religious, or faith-inspired, actors have, for many centuries, provided humani-
tarian relief after earthquakes and wars, supported refugees and internally displaced people,
cared for orphans, dug wells, distributed seeds and fertilizers to farmers, run schools and
universities, and provided medical services. They have thus engaged in virtually the same
terrain as contemporary development institutions, though they speak with quite different
language and pursue engagement in different ways. While important segments of the two
worlds and perspectives have been in tension or divorced one from another, they share
much common ground in a concern for human dignity and welfare and for translating
the ideals of a common welfare and opportunities for a decent life into reality. A colleague
described the relationships among development and faith institutions as “ships passing in
the night,” dimly but mutually aware, in the same seas but rarely meeting.
The initiative launched by James D. Wolfensohn and Lord Carey of Clifton (who was
archbishop of Canterbury at the time) served as an accidental (and largely unintended)
catalyst for reflections about the politics of development and faith. Wolfensohn and Carey’s
starting hypothesis was that religious institutions were relevant to the question of devel-
opment both as advocates and as actors; as prime examples, they cited the large roles that
religious institutions have played in education and health. However, political debates about
a far broader range of issues involving religion’s roles vis-à-vis state and society came rap-
idly to the fore. These debates took new forms after September 11, 2001, centering above
all on perceptions about the “clash” versus “alliance” of civilizations as a shaping force in
geopolitical relations, about the role of Islam, and about the role that culture (intertwined
with religion in complex ways) plays in shaping the very ends and models of development.
The debates surface differing perceptions of the proper roles of religious institutions in
democratic and plural societies, including linkages among human rights and faith and de-
mocracy and religious authority. Not surprisingly, the debates within multinational settings
distinguish religious roles in national politics (generally perceived as up to each nation) and
in transnational affairs, whether at the United Nations or other forums. But issues like HIV
and AIDS and approaches to gender issues and reproductive health bring national and in-
ternational issues into contact and sometimes collision.
The development enterprise everywhere has myriad political dimensions. Religious

ideas, leaders, and institutions shape public attitudes and have always contributed to policy
formation; in many countries, they are at the heart of political activity. However, explicit
engagement between the respective “worlds” of development and faith was for decades re-
markably rare and scattershot. The World Bank’s intensive engagement thus opened new
debates. Geopolitical circumstances have subsequently encouraged a wider range of entities
and individuals to reflect on related issues. Various United Nations bodies, including spe-
cialized agencies, parts of the Secretariat, and the Alliance of Civilizations, have sought out
religious actors and are pressed through various routes to engage religious bodies more
systematically. Bilateral aid agences, especially in Europe, have found domestic politics, es-
pecially migrant communities, nudging them to explore how to engage more purposefully
with religion. Similar pressures on nongovernmental organizations (NGOs), think tanks,
and various private-sector actors have at a minumum sparked a process of reflection about
religion’s roles. Even so, religion is far from a “mainstream” topic within the development
community. It is rare to find explicit discussion in academic training programs, textbooks,
journals, policy papers, and professional conferences.
Many faith-linked groups (some with formal ties to religious bodies, others less so) also
have reflected on their relationships with the development institutions and their roles in the
politics around development. The form of enagement ranges from broad ideas to practice.
At the risk of oversimplification, approaches run a wide gamut, from fundamental critiques
of development approaches that portray “neoliberal development” as driven purely by the
desire for power and profit,2 to more nuanced critiques of specific policies (e.g., mining
contracts or educational curricula), and yet further to active mobilization in favor of pri-
ority global policies like disease campaigns.
The most significant cross-country faith-driven intervention was the Jubilee 2000 debt-
relief campaign that proved a successful rallying point for faith communities in different
world regions, and played a material role in reshaping public perceptions of development
challenges and vocabulary.3 Actors across political and faith spectrums in the United
States were instrumental in persuading legislators to increase sharply U.S. financing for
HIV and AIDS under George W. Bush’s presidency. Faith-linked groups in the United
States are the main actors in tense contemporary debates about family planning and abor-
tion in both unilateral and multilateral development programs. Many faith-linked groups
are astute in their understanding of development debates, programs, and foibles, even as
others operate in what amount to quite separate universes. A common complaint is that
when development institutions engage religious entities, it is in an instrumental form.
(For example: How can we use religious bodies to spread the word on the merits of polio
vaccination or an education reform?) Thus the politics of partnership—its ideals and its
pitfalls—are a recurring theme in policy discussions that continue to probe the meanings
of development and faith alike.
Definitions and Frames
Definitions of what is meant by development are scarcely needed in this volume; suffice it to
say that what is meant by the term and concept, especially outside development institutions,
is rarely crystal clear and certainly not without contest. As to religion, any discussion must
bear constantly in mind that this is a vast, complex, and dynamic realm of ideas, practices,
leadership hierarchies, and institutions. Appreciating its complexity and diversity are the
first keys to understanding. Terminology is fraught: Religion for some connotes the tran-
scendental aspects of existance and mankind’s role therein, while for others it highlights
specific institutions and authority (the word “religion” comes from the Latin term meaning
“to bind”). For some, “spiritual” suggests the essence of religion, while others would suggest
that it means precisely the opposite. “Faith” can imply a notion of transcendental belief sys-
tems that is similar to but broader than that suggested by the term “religion,” but the term
can also mean belief in somehing beyond what is immediately and tangibly seen—even, for
example, many principles of economics.
For purposes of this discussion, five categories of organizational groupings within this
religious world are the focus4:
1. The formal structures of religion (e.g., Catholic hierarchies or a Buddhist Sangha).

For many but not all faith traditions these structures extend from global to local
communities. Many are actively and deliberately involved in both transnational and
national politics.
2. Various movements, ranging from vast to small, and from very formal to very in-
formal (e.g., the Community of Sant’Egidio, a Rome-based lay Catholic organization
working in some eighty countries; Opus Dei, also a lay Catholic movement; engaged
Buddhist movements; the Art of Living, a Hindu-inspired spiritual movement; the
Ismaili Muslim Aga Khan Development Network; and Salafi Muslim movements).
These also play political roles both in mobilizing communities and shaping ideas
and in specific practical programs (e.g., running schools, hospitals, and youth
programs).
3. Faith-inspired organizations that work directly on development. Again, there are
a vast, largely uncounted, highly diverse set of entities ranging from enormous
and structured (World Vision, Catholic Relief Services, Islamic Relief) to informal
and tiny.
4. Global interreligious or ecumenical bodies like Religions for Peace and the World
Council of Churches that work for specific causes (e.g., peace) and to mobilize
common faith voices and initiatives.
5. The community and congregation level, where there are a wide array of women’s,
youth, and other groups. The community-level religious presence offers a particularly
compelling argument for the importance of religion for development. Few dispute
that this vast presence of faith-linked infrastructure and social capital at the local level
is without any parallel, and exists in virtually all parts of the world. These institutions
are nonetheless, by their nature, complex, hard to map, and often fractious and com-
petitive; thus, they atre difficult to organize toward a common purpose.
Another important series of threads that link religion to the politics of development
(and the politics of religion to development) are religious, theological ideas and practices.
The ideas often turn on justice and social cohesion (e.g., values in education; approaches
to material wealth; legal norms; and views of authority). The practices affect a gamut of
central development issues, including differentiated gender roles, financial contributions
and philanthropy, hand washing, and even approaches to land tenure and irrigation. This
chapter, however, focuses primarily on the political dimensions of religious institutions

and leadership.
Disconnects
The absence of explicit recognition of the roles of religion in international development and
related academic institutions is so marked as to demand reflection. Why do the several scans
that various groups have undertaken of published articles, government-and development-
agency reviews, white papers, policy pronouncements, and academic research about devel-
opment experience turn up so little mention of religion? What has blinded development
institutions, in particular, to the worlds of religion? It has not been for lack of trying, and
there are notable exceptions: World Development, for example, published a special review
in 1980 focused on religious roles; and scholars and critics, like Dennis Goulet and others,
have long pointed to the important intersections. And, as two specialists who recently
revisited the barren literature landscape on religion and development emphasized: “no-
one observing the tensions that led to partition in South Asia or the role of the Christian
churches and missions in Latin America, Africa, and Asia could fail to acknowledge the po-
litical salience of religion” (Deneulin and Rakodi 2011). They explain the neglect as largely
a response of postcolonial governments in Europe and North America and of multilateral
and bilateral donors to the academic and policy practice that sought to relegate religion to
“private space; this is sometimes termed the “secular assumption.”
The underlying presumption, based on the common view of how development occurred
in Europe and in places like Japan, was that religion would decline in importance with
modernization. As thinking about development evolved and became more systematized,
few specialists—despite changing norms and understandings across disciplines, whether in
economics, political science, or even sociology and anthropology—considered that religion
or theology had much relevance. The early decades of evolving develoment thinking were,
for the most part, a period when it was tacitly if not explicitly assumed that religion was
already in decline or would decline as societies progressed.
In practice, though—even as contemporary institutions and academic reflections about
development took form—religious institutions were actively engaged in the same issue.
As development institutions, public and private, moved from a focus on reconstruction
and humanitarian assistance toward long-term, multifaceted approaches to development
programs, a host of faith-based institutions were undergoing a continuous and often quite
similar process of change. The trajectories were not far apart in important respects. In
the early post–World War II period, faced with destitute societies, lingering conflicts, and
crippled infrastructure, humanitarian relief was the primary concern. Rebuilding became
a central focus once the immediate demands of feeding the hungry and resettling the dis-
placed were underway. Approaches were much influenced by traditions of charity, rooted
largely in religious traditions. As time went on, however, simply responding to crises and
raw poverty with relief and humanitarian aid seemed more and more inadequate, and
the focus shifted from reconstruction to development. Institutions in different parts of
the world came to seek longer term solutions that would build sustainable societies, de-
velop human resources, and, as the common phrase put it, “teach a man to fish,” rather
than simply handing him food to eat. Engaging local populations moved from a super-
ficial notion of “consultation” to appreciation that true engagement with communities
was demanded both by practical realities and consistent with the values of democracy.
Community engagement, eventually framed as ownership and “empowerment,” was in-
creasingly seen as a sine qua non for success.
The understanding that poverty and conflict were related, albeit in complicated ways,
took root, and it was especially in religious communities and circles that these links were
explored and related to a broad quest for social justice. In 1967 in his encyclical Populorum
progressio, Pope Paul VI issued a plea in stark terms: “Knowing, as we all do, that develop-
ment means peace these days, what man would not want to work for it with every ounce
of his strength? No one, of course. So We beseech all of you to respond wholeheartedly to
Our urgent plea, in the name of the Lord.”5 Both the voluminous Catholic social documents
that treated development issues and those of the World Council of Churches address many
of the same issues that seized the secular development community, including, for example,
a sharpening focus on ecological dimensions of development programs and trade policies.
Muslim organizations, including the Islamic Development Bank and the Organization of
the Islamic Conference (OIC), came increasingly to speak a similar language of social jus-
tice and solidarity in concern for the poor.
At least to a degree, the largely separate development paths pursued by faith-inspired
and by secular organizations (e.g., U.N. agencies, bilateral and multilateral institutions like
the World Bank, and the ever-multiplying array of international NGOs, foundations, and
private companies) have begun to converge. What prompted this mutual rethinking of tac-
tics and approach was, first, an increasing awareness in many quarters of the impressive
common ground that unites very different organizations that work to promote interna-
tional development and fight poverty and, second, a series of crises (economic, social, and
political) that obliged development actors to engage more actively with one another. It is
no accident that the eighth Millennium Development Goal that emerged from the 2000
Millennium Summit at the United Nations focuses on partnership—the competing, dis-
jointed, and discordant ideas and actions among the burgeoning number of development
institutions has demanded a succession of international meetings whose theme is aid har-
monization. The religious tensions that became so apparent with the Iranian Revolution of
1979, sectarian conflict across the globe, and mounting terrorism, notably the attacks on
the United States on September 11, 2001, have forced a new recognition and appreciation
that indeed religion is neither dead nor defunct but is probably in resurgence and is taking
new and complex forms. Thus both secular and faith-inspired institutions, individually and
more programmatically, have taken steps toward rapprochement.
Religion as Politics: Sources of Tension

A primary critique of Wolfensohn’s World Bank initiative to engage religion in develop-
ment thinking and work was that religion was intrinsically political. What did the govern-
ment representatives who presented that argument have in mind? Essentially five specific
and interrelated concerns contributed to a complex set of views about religion and its rela-
tionship to politics and development.6
Religion was and still often is perceived as a source of political tension and conflict.
At the extreme is fear that tensions among adherents of different religious traditions or
denominations are a principle cause of wars and conflicts (memories of long and bitter
religious wars are still raw); to this, add terrorism and volatility, both often simplistically
associated with religion. Development actors ask whether, by engaging with religious actors,
they will associate themselves with unsavory partners that they neither understand nor agree
with. They are also (rightly) concerned that their interventions or contacts might inadvert-
ently accentuate the risks of conflict. The concerns extend to broader social tensions asso-
ciated with identity politics and conflicts among communities, said to be fueled by religion.
Favoring one tradition over another is a worry, not only on “fairness” grounds, but also be-
cause it might fuel competition and tension. A common response (true or not) to arguments
for engagement with religious actors is that much religious tension is politician fueled, and
that the root causes of tensions are rarely religion per se, but rather ethnic identities, history,
or economic and social forces. Even so, the perception that religion is a cause of conflict
persists, and it has contributed to a tendency to avoid deliberate and direct engagement.
The role of religion as a direct political actor can raise concerns. At one extreme are the
views (a) that religious actors seek to claim or regain theocratic power and (b) that reli-
gion is essentially incompatible with democratic values and processes. As the full range of
Islamic-linked actors engages in the shifting politics of North Africa following the 2011–2012
Arab uprisings, these concerns have sharpened, harkening back to events like the Iranian
Revolution, the Islamist electoral victory in Algeria and its aftermath, the Hamas role in the
Palestinian territories, and the contested roles of Islam in contemporary Turkish politics.
At a related, more granular level, development practitioners and those who exert oversight
express unease about teachings in Muslim-run schools, starting with political messages in
textbooks and extending to concerns that such schools can even serve as terrorist training
ground. The complex roles of religion in Israel fuel debates, as do interventions of the
Catholic Church in legislative debates in the Philippines and Latin America. Whether
monks can even vote in Cambodia is in dispute. At the level of the United Nations, ideas
about creating a “spiritual council” were deflated when Hindus and Catholics confronted
one another vociferously during the ambitious 2000 summit of religious leaders. Still, reli-
gious roles in national and international politics are obviously far more complex than these
images suggest, and there are many positive instances of religious roles in fostering demo-
cratic values and participating in democratic institutions at all levels. Examples include the
long and honorable traditions of Christian democrats in Europe and Latin America and
successful democracy in Muslim Indonesia and Turkey. However, the argument is often
advanced that religion is best removed from active politics.
Related to the fears of outright religious conflict are concerns about religious freedom. This
is often directly linked to a widespread unease about the proselytizing approach and work
of several religious traditions. Even where the work of faith communities is directed to pro-
viding health care and running schools, the suspicion may arise that the underlying motive
is conversion, and, in large parts of the world, active evangelizing is seen both as disruptive
and contributing to social tensions and as undermining cultures and national identity. In Sri
Lanka, Cambodia, Malaysia, India, Pakistan, Guatemala, and Morocco, just to name a few,
questions of religious freedom are inextricably linked to evangelizing aspects of religion.
Faith organizations are active in humanitarian disasters and are generally welcome
partners. However, although the mainstream and clearly articulated consensus is that
proselytizing associated with with humanitarian work runs counter to international norms
and is immoral, there are groups that see spiritual and material needs as inextricably linked.
Continuing tension on the topic have led to significant efforts by the World Council of
Churches, World Evangelical Alliance, and the Vatican to work out clear codes of conduct
on proselytizing,7 but the subject has not been put to rest.
Indeed, historical experience suggests that following disasters (both natural or manmade)
the combination of turmoil and religious groups who come to help can change the religious
landscape. Islamist groups were among those that responded swiftly with aid following the
2010 Pakistan floods, with significant political repercussions. The Christian evangelical
groups that supported communities in Central America after hurricanes, as well as similar
groups working in refugee camps in Southeast Asia during conflicts, won admiration and
converts, which had lasting effects on the religious landscape and political repercussions.
The flows of finance from the Middle East for education and religious buildings in Africa
is seen by both national and international actors as politically motivated in ways color the
domestic political and social picture.
The ferment of increasing religious activity worldwide creates anxiety— rightly or
wrongly—about the motiviations of religious groups, whether they are social service
providers, advocates for political and social change, or more direct political players. Their
motivation is quite frequently viewed askance, with concerns that the unspoken, ulterior
motive for action is to gain followers and associated financial and political benefits. In de-
velopment circles, proselytizing is commonly raised as the proxy for a wider set of concerns
about engaging with religion.
Religion today is increasingly transnational, and the very capacity to reach across na-
tional boundaries—whether with money, media, organization, and ideas—has its polit-
ical dimensions. Religious bodies and actors exercise influence well beyond the borders
of the territory where they are based. This involves both transnational organizations and
less direct influences via, for example, diaspora populations and business networks. The
positive aspects of moral suasion (advocates for aid or cutting agricultural subsidies),
linking of communities through volunteerism and finance (microfinance), advocacy for
the common good (care of forests), and peacebuilding (e.g., interreligious councils in
West Africa) are juxtaposed with less positive aspects, such as the reinforcement of pa-
triarchal traditions, encouragement of restive minorities, and financing of subversive
groups. Religious groups within diaspora communities often exercise substantial polit-
ical influence, both for good (e.g., mobilizing support after the Haiti earthquake) and
with more nefarious consequences (e.g., helping to fuel long-lasting tensions in Ireland
and Sri Lanka). This transnational religion often falls outside the formal frameworks of
nation-states and international institutions, and it is often blended with nonreligious
activism. Financial flows are poorly known and thus subject to further concern. The
representative character of transnational religious bodies is even more difficult to dis-
cern or pin down than national political entities and intergovernmental organizations.
A common development-practitioner argument is that it is very well for each nation
to support religious institutions as it sees fit within its boundaries and the norms that
govern religion’s role in national politics, but engaging with religion outside the nation-
state framework is suspect.
In the primary international organizations (which tend still to be dominated by Western
history and concepts), the most common arguments about the politics of engaging with re-
ligion come back to the idea that church and state should be separate: Religion is essentially
private, and public bodies, including those involved in international development, are best
off when they do not associate formally with religion. The counter-argument is that such
ideas and arguments for strict secularity belie the complexity of interconnections between
religion and governments, even in the most secular corners of Europe, and that in most of
the world the sharp distinctions implied in the understanding of separation of church and
state make little practical sense. Religious beliefs and religious institutions are both part of
life, whether public and private; they are part of the understanding of identity and of core
social values. Religious leaders are among those who articulate political understandings,
and religious institutions provide social services and social safety nets. The simplistic sepa-
ration of religion from politics—of church, mosque, and temple from the state—is unwork-
able, especially in the poorest communities and in areas where the state is weak.
Building Richer Understandings

and Practice
The engagement of religion with development, especially its political dimensions, has
thus evolved against the backdrop of a prior expectation of separation in many parts of
the world. At a transnational level, significant gaps in knowledge about the work of faith
institutions in relation to development have stymied the process. These gaps result both
from lack of attention to religion in most of the training programs from which development
specialists are drawn and from a paucity of research about the roles of religion, specifically
in relation to development issues and work in most social science disciplines. Religious and
development “literacy” are widely acknowledged to be weak in many relevant institutions.
The knowledge gaps combined with pockets of outright scepticism and hostility produced
the environment, previously described, of “ships passing in the night.” In practice, change
has come about largely through the experience of crises, like the HIV and AIDS pandemic
and economic meltdowns, and through a broader sociopolitical transformation that has
taken place over the past few decades, with the growing role of civil society challenging
understandings of the proper roles of the state.
As a preface, the very diversity of both religious experience and institutions must
be stressed once more. Wide variations characterize different regions, countries, and
subregions.8 Nonetheless, the path toward more active engagement among faith and de-
velopment partners can be viewed as a significant element of development history over the
past decades. Major landmarks, including the profound political and idealogical impact of
world geopolitical shifts, have also affected and often shaped the relationships. A notable
example is the resurfacing of religion as a social and political force in the former Soviet
Union, and the coalescing of perceptions (and the contests they provoke) around a “Muslim
world” and a “clash of civilizations.” More specific to the learning process surrounding de-
velopment as it evolved country to country are events like the HIV and AIDS pandemic and
growing awareness of religious engagement in the fields of education, health, and natural
resource conservation.
Events That Provoked Engagement

The HIV and AIDS pandemic has opened eyes and doors on how faith and development
relate, posing ideological and pragmatic questions about the parameters and risks of en-
gagement. Religion is, it is often remarked, “part of the problem, part of the solution.” This
reflects the fact that there are dark and light sides to the story of religion’s involvement
in the pandemic; it also reflects how perceptions and practical engagement have changed
over time. The values dimension of religious teaching and practice, the implications of
hierarchies, the power of compassion at the community level, changing roles for civil so-
ciety in development advocacy and program implementation, and the politics of aid man-
agement all emerge as issues in the story.
Briefly, as awareness of the spread, nature, and socioeconomic implications of the HIV
and AIDS pandemic spread, beginning in the mid-1980s (HIV/AIDS was identified only
in 1981, and its full implications in terms of human tragedy took years to sink in), reli-
gious actors were among those who responded. The vast diversity of the response cannot
be overemphasized. Religious leaders were among the first to confront the tragedies of this
mysterious, incurable illness, which killed people in the prime of life, slowly and painfully,
and left orphans, decimating families and communities, and could be transmitted to un-
born children, who almost invariably died. Religious sisters, pastors, mothers’ groups, and
monks—many reached out to care. At different levels, religious leaders, initially seeing the
pandemic as a gay disease linked to rampant sexual activity, railed against sin and condemned
those involved, refusing even in some cases to bury AIDS victims in churchyards. But the
disease confounded expectations, and understandings changed. A critical change was the
“feminization” of the pandemic, as more women than men contracted HIV. A greater un-
derstanding that stigma was the worst enemy, since it pushed the disease underground,
helped to change hearts and minds. The mapping of transmission channels made high-risk
groups a focus of well-planned programs, and the development of drugs (incredibly expen-
sive at first) that made HIV and AIDS a manageable disease rather than a death sentence
was transformative. Powerful alliances developed among people living with AIDS, and they
advocated for funding and challenged the very norms of the pharmaceutical industry and
practices of development institutions (lending for health even at very low interest).
In this complex political drama, played out at global, national, and community levels, re-
ligious actors were important players. In the United States, leaders like Pastor Rick Warren
were moved by the HIV and AIDS challenge to press for government action and finance and,
in that effort, to reach across religious and political divides to form new alliances (Hertze
2006). Yet religious actors also complicated and polarized debates, as some looked at the
distribution of condoms to protect against the disease, work with sex workers, and sex-
education programs in schools as a license to immorality. In many AIDS-afflicted countries,
tensions around religion contributed to the dangerous pattern of denial that the problem
existed and unwillingness to address its causes and impact. Yet religious entities were, in
practice, among the most knowledgable about the disease; their community networks
and capacity to mobilize presented often the best option and “best-practice” approach to
solutions.
Religious politics around HIV and AIDS is a continuing story, but the rough parameters
suggest that the general direction is positive. The tense accusations of the early years
have generally given rise to more positive if disputatious engagement. Groups like the
International Network of Religious Leaders Living with or Personally Affected by HIV and
AIDS (INERELA+) engage religious leaders directly, and international meetings of reli-
gious leaders have demonstrated a capacity to take courageous stances within their own
divided communities. The primary actors have been Christian groups, but Islamic Relief ’s
South African international meeting brought a new dimension of compassion and scientific
and ethical debate to the community. In Cambodia, monks dealing with HIV and AIDS,
in cooperation with UNICEF, first encountered opposition from the formal Sangha lead-
ership; however, this changed with dialogue, and the experience is opening paths toward
more direct and well-designed Buddhist engagement in development.
The HIV and AIDS pandemic is one example of the path that has led from a denial
of religion’s significance within the mainstream development community—that is, from
a deeply negative perception and fear of unleashing dangerous forces—toward more con-
structive engagement. Likewise, as efforts to combat the pandemic multiply, many religious
communities have moved from a perception of amoral engagement to a desire to under-
stand the work and perspectives of development and forge different kinds of partnerships.
Other examples are coalitions involving religious leaders addressing malaria, tuberculosis,
vaccines, and maternal mortality (Berkley Center 2009, 2010, 2011, 2012).
This increasing engagement between development and religious institutions can be
seen as a significant dimension in the large and amorphous phenomenon often termed the
“civil society revolution.” This revolution gradually pried open development debates from
the small circles of those who held power and technocrats to a far wider social and polit-
ical scrutiny. With religious views mapping onto every conceivable ideological viewpoint,
generalizations about religion as part of civil society mobilization are perilous.
There is a tendency, especially among religious groups, to present religious leaders as
strong voices of and for the poor and excluded and as a force for peace and reconciliation.
The reality is more complex, Positive practical examples of religious groups advocating for
the poor include religious groups as powerful advocates for increasing development assis-
tance aid and protection of poverty-focused problems. More negatively, the engagement of
religious voices in the politics of reform can weigh against international norms and standards
(e.g,. on family law or education). Religious leaders have in various settings supported au-
tocratic regimes, while in others they are a voice for democracy. Religious leaders have
played complex roles as critics of complex policy interventions that are inceasingly the
focus of international development, weighing in on various political sides, for example, on
issues as varied as privatization, a pipeline project in Chad and Cameroon, and agricultural
subsidies. The sheer numbers of religious communities and groups and their extensive eth-
ical reflections and teachings have made them a major force in the changing dynamic of
civil society involvement in development-policy debates as well as a source of narratives
and information about what is happening at the community level.
Another important example of political involvement by religious organization is their
responses to fragile states and to the complex of issues surrounding governance, con-
flict, and peacebuilding. A central development problem today is how international
institutions can and should respond to the continuing challenges of the world’s poorest
states. Disappointments in efforts to address the challenges of fragile states are altering
the paradigms of development. Instead of a world divided into “developed” and “devel-
oping” countries, today’s tapestry is far more varied, with successful countries taking
distinctive paths and defining new relationships with development institutions and
actors. The conundrum centers on those states where classic development interventions
rarely succeed. A consequence of the new “mapping” of development challenges is that
it forces a sharper focus both on the political dimensions of social crises and on the
social consequences of state failures. Religious actors and issues are an important part
of the mix, both as sources of conflict and political paralysis and as a rich source of
peacebuilding and mobilization. Questions about why and how religion matters thus
have critical importance.
Failures of states, in many forms and places, have led to new debates about appropriate
roles of state and nonstate actors in providing basic services and in addressing the problems
of poverty. A central challenge in every fragile state situation is weak capacity—or, more
broadly, the challenge of governance. The term “governance” carries many meanings,
ranging from democratic systems and civil and political freedoms to corruption and ineffi-
ciency. It brings a sharper focus on rule of law and justice systems and on programs to fight
corruption. Religious actors are often the primary if not the sole service providers in weak
state situations. Constructive partnerships have emerged in some situations (Indonesia is a
good example), while in others the roles of religious actors are tacitly accepted. To a degree,
this work is recognized within parts of the develoment community, but largely in an ad hoc
fashion—for example, in agreements in the Democratic Republic of the Congo that divide
responsibilities for health and education among a group of private actors, among which
religious institutions are prominent. However, the remarkable absence of discussion of re-
ligious roles in the World Bank’s World Development Report in 2011 on fragile states is an
indication of a paucity of serious policy attention to the strategic issues and practical lessons
involved. Each fragile state may have distinctive sets of issues and potential institutional
responses, but the pervasive presence of religoius institutions is so obvious that the lack of
systematic attention is striking.
The fight against corruption was initially seen as taboo in many development circles;
corruption was well known, but tolerated. However, as civil society roles have expanded,
anti-corruption efforts have moved front and center in development debates. The roles of
religious actors vary from place to place, and religious leaders are among the world’s more
courageous voices, “speaking truth to power” and demanding honest and accountable gov-
ernment. However, give the ethical precepts of most religious traditions suprisingly few
religious institutions and leaders are at the forefront of global integrity alliances (Marshall
2010). In some instances historical and current relationships with governing institutions
and mutual dependence are the explanation. Another is that religious institutions and
leaders have rarely been part of strategic thinking on anti-corruption measures that un-
derlie the practical programs that show success.
Religious roles in conflict situations are important also in addressing the issues facing
fragile states. There is a substantial body of thinking and practice about religion in several
important dimensions of what is properly termed “peacebuilding,” and the links between
this work and development challenges, especially for the most fragile states, are increas-
ingly apparent. The experience includes extensive experience with direct engagement in
conflict resolution (e.g., the Community of Sant’Egidio, in negotiating peace agreements
in Mozambique, Algeria, and Cote d’Ivoire, and Pax Christi International). Many religious
groups are also engaged in post-conflict situations; as attention turns to practical ways to
prevent conflicts, religious bodies, present on the ground and attuned to social tensions,
are central actors. Within the Catholic Church, there is intensive focus on peacebuilding,
which is seen as a continuing, organic process that counters the traditional, discrete view of
the different phases of conflict within a continuum between outright conflict (or disasters)
and peaceful development. The work of a leader like Ela Bhatt, founder of the Indian Self-
Employed Women’s Association (SEWA), is similarly inspired by a broad understanding of
peace linked integrally to justice and inspired by Gandhian principles (Bhatt 2010). Such
intellectual approaches and practical experience are important dimensions of what reli-
gious institutions and leaders bring to the development “table.”
In the complex intersections between development thinking and practice and religious
ideas and institutions, gender issues have central importance. The issues involve both
perceptions and realities, and they turn around specific debates about legal regimes and less
tangible issues touching on cultural practice and traditions. The politics of international
approaches to the role of women and, more broadly, emerging tensions around “gender”
issues thus illustrate well some of the complexities involved.
Gender equality has emerged as a central axiom of best practice in development work,
at least at the level of principle; this focus has sharpened as research highlights both the
immense benefits of educating girls and increasing women’s income earning potential and
the many welfare gaps between girls and boys, men and women, in many world regions.
Gender equality is fundamental to the “rights-based approach” that many development
institutions espouse. This includes faith-inspired organizations that pride themselves on
their support for women and families. Nevertheless religious institutions are quite widely
perceived as ambivalent about gender equality or actively opposed to changes in legal
regimes that would assure full equality, either because such changes challenge religious
teachings about hierarchies within families or because they are perceived to undermine
family dynamics more generally. Debates about the benefits and drawbacks of instituting
legal systems based explicitly on Sharia (e.g., in Nigeria and Malaysia) bring these issues
to the fore. In Morocco, the much admired 2004 reform of the family-law regime, the
Mudawana, highlighted the complex political roles of religion. The reform’s success owes
much to the religious role of Morocco’s king and to the openess of public debate on the pros
and cons of changing family law (e.g., on issues such as divorce and illegimacy), which set
religious issues and perspectives in a context not of absolutes but of differing interpretations.
Thus in working for rule of law—another increasing focus of development “best practice”—
the complex interlinkages of religion and gender roles have singular importance.
The political dimensions of religion intersect with development ideas and practice at
every level, from the smallest community to international organizations. Engagement with
religion in the context of the United Nations illustrates both the contestation and changes
that take place over time. From the United Nations’ earliest years, the role of religion was an
issue—for example, in debates about the U.N. charter and Universal Declaration of Human
Rights (reference to God was omitted in large measure because of firm objections from the
Soviet Union); debates about this issue continue to this day. In practice, only one religious
body has formal status within the U.N. institutional structure: the Holy See, as a Permanent
Observer, without a vote. But many religious institutions participate in the work of the
United Nations through the civil society mechanisms, and there is a specific religious NGO
organization. As noted above, gender issues have historically engaged these groups most
actively, which explains in part hesitation by U.N. member states toward a long series of
proposals for more formal religious councils or membership. The arguments for such reli-
gious engagement include (a) expressed concerns that the United Nations operates on ex-
cessively secular principles and misses a solid ethical “voice” and (b) a broader suggestion
that religious bodies, given their size, the trust that people have in them, and a global scope
that differs from the nation-state configuration, should be part of the international system.
Interfaith organizations like Religions for Peace, United Religions Initiative (created on the
United Nations’ fiftieth anniversary with a parallel mandate in mind), and the Parliament of
the World’s Religions take inspiration from the United Nations and see themselves in signif-
icant roles, especially as peacemakers. These interfaith bodies have also worked to engage in
partnerships and in advocacy for the Millennium Development Goals. The United Nations
Alliance of Civilizations (UNAOC) was born of concerns about fears of civilizational clash;
religion, especially Muslim communities, are central to its vision and its activities. However,
even UNAOC, as well as UNESCO (the organization charged with working with culture,
encompassing religion), find member states at odds as to the means and level of engage-
ment with religion. Interestingly the most significant leadership among U.N. agencies has
come from UNFPA (United Nations Population Fund), where deliberate efforts to engage
religious institutions at many levels and in many ways resulted from the contentious politics
that surround reproductive health issues and gender roles, which is UNFPA’s core mandate.
In sum, religious issues are constantly on the political and social agendas of U.N. agencies,
but the sensitivity of these issues and the diversity of approaches to dealing with them echo
the uneasy engagement and diversity of views across and within member states.
Synergies and Paths Forward
The disconnects and frictions between the worlds of development and faith are real, and
they matter. They result in wasted resources and in the kind of tensions that sap will and
operational efficiency. Still more, they dampen the potential energy and ingenuity that cre-
ative partnerships could generate. They matter above all because they represent missed
opportunities in the global effort to confront the challenges of global poverty and inequity.
When a development actor asserts that “religion is part of the problem and part of the
solution,” thoughtful religious leaders agree. The assertion highlights two important points.
First, perceptions matter. Perceptions about what religious institutions are, do, and should
be are deeply held and varied, and they have far-reaching political implications. They are not
abstract when they translate into real action (e.g, when a public health official dismisses faith
voices from a planning session because he or she says their approach is not evidence-based,
or when a pastor reinforces stigma by refusing to bury a parishioner who died of AIDS in
the churchyard). Nor are they abstract when faith leaders denigrate what they describe as the
crass material motivations of dedicated development professionals, and vice versa. Second,
there is obvious diversity in religious experience and approaches to development. Few would
contest that some religious sects, among them Uganda’s Lord’s Liberation Army, which has
torn the nation’s northern regions and now its neighboring countries asunder, are evil and
imperil human progress. Religious views that call women to obey their husbands create con-
tention and undermine human rights. In contrast, the love of learning nurtured by many
religious institutions and their dedicated roles as inspired teachers give meaning to goals of
universal education. A nuanced, informed approach to the topic of religion and development
acknowledges the enormously significant roles and potential for good of religious institutions
and beliefs, but also acknowledges where there are true differences and problems.
In an ideal world, development work and implementation of the noble principles
enshrined in the Universal Declaration of Human Rights and the Millennium Declaration
of 2000 would trump long-standing unease at engagement with religious actors in polit-
ical forums. The mantra of partnership, the appreciation that different actors must work
together to achieve global goals and address global challenges, suggests that religious actors
should be more (at times centrally) involved.
The international development community broadly defined and most individual
institutions within it have not yet articulated a meaningful and actionable approach to en-
gaging with religion, in its many forms. Concerns about the politics of religion and more
specifically about the political roles of religious bodies are a large part of the reason why and
contribute to the uneven experience of engagement. Preconceptions and expectations about
religious roles on various development issues are another. Though the thread of attitudes
and consequent behaviors among religious institutions toward development institutions
are less easy to trace, uneasy relationships are nonetheless common. Positive experiences,
in various settings, including conflict resolution, cooperation on HIV and AIDS programs,
and creative partnerships in various fields, highlight the significance of experience that re-
ligious institutions offer as well as their many complexities.
Experience in different world regions points to several priorities for action. Improving
knowledge and “literacy” are at the top of the list. Better data about both religious activities
and their impact and caliber is much needed; hopefully, this would offer the possibility to
temper generic fears or unease about religion overall and allow institutions to disaggre-
gate different institutions and varied dimensions of religious roles vis-à-vis social services
and protection. Each local situation calls for different forms of engagement, and this is
appropriate. Engaging with global religious institutions, whether within the context of the
United Nations system or at a regional level, presents somewhat different challenges, in-
cluding questions about how representative the various religious and interfaith bodies are
and the capacity of various institutions to engage in meaningful ways with one another.
Nonetheless, given the large roles of religious institutions and their significance for poverty
and poor communities, the effort is called for.
Relationships among faith and development institutions often involve very practical and
immediate issues, but dealing with them effectively often raises larger political and phil-
osophical issues. Stepping back, the engagement also poses, for all concerned, challenges
that touch on the very objectives of development: What are the visions of an ideal society?
How can traditions and traditional beliefs and cultures survive the catapulting changes of
the contemporary world, and how should they change and adapt? How much diversity can
be sustained within a framework of common human rights and ideals of equity and equal
opportunity? The bumpy road of partnerships among religious and secular partners on
important development policies suggests that more effort is needed on thoughtful dialogue
leading to better understanding.
Notes
1. Definitions are challenging; terms such as “religion,” “faith,” “spiritual,” and “secular” are
used and interpreted differently in different settings. See the section “Definitions and
Frames” for a fuller exploration.
2. An example of sharp critique is a 2001 World Council of Churches booklet, “Lead Us Not into
Temptation: Churches’ Response to the Policies of the International Financial Institutions,”
available at http://www.oikoumene.org/fileadmin/files/wcc-main/documents/p3/lead_us_
not_into_temptation.pdf
3. For an analysis of the campaign and its impact, see Marshall and Van Saanen’s (2007)
chapter on Jubilee 2000.
4. Marshall (2013) elaborates on this institutional framework.
5. See, section 87. Populorum Progressio, Encyclical of Pope Paul VI on the development
of peoples March 26, 1967. http://www.vatican.va/holy_father/paul_vi/encyclicals/
documents/hf_p-vi_enc_26031967_populorum_en.html
6. The author, then an officer at the World Bank, was a participant in the lengthy reflections
with representatives of the World Bank’s governors on the topic.
7. See code of conduct at http://www.oikoumene.org/fileadmin/files/wcc-main/2011pdfs/
ChristianWitness_recommendations.pdf
8. Georgetown University’s Berkley Center for Religion, Peace, and World Affairs has
undertaken a five year “mapping” exercise that underscores the complexity of faith-linked
engagement in development and distinctive patterns by region and sector. See http://
berkleycenter.georgetown.edu/programs/religion-and-global-development
References
Berkley Center (2009). “Malaria: Scoping New Partnerships”, accessed July 8, 2015, http://re-
pository.berkleycenter.georgetown.edu/MalariaFinalReport.pdf
Berkley Center (2010). “Experiences and Issues at the Intersection of Faith &
Tuberculosis”, accessed July 8, 2015, http://berkleycenter.georgetown.edu/publications/
experiences-and-issues-at-the-intersection-of-faith-tuberculosis
Berkley Center (2011). “Reducing Maternal Mortality: Actual and Potential Roles for
Faith-linked Institutions and Communities”, accessed July 8, 2015, http://berkleycenter.
georgetown.edu/publications/reducing-maternal-mortality-actual-and-potential-roles-
for-faith-linked-institutions-and-communities
Berkley Center (2012). “Faith & Immunization: Past, Present and Potential Roles of Faith-Inspired
Organizations”, accessed July 8, 2015, http://berkleycenter.georgetown.edu/publications/
faith-immunization-past-present-and-potential-roles-of-faith-inspired-organizations
Bhatt, Ela (2010). Interview, Berkley Center for Religion, Peace, and World Affairs,
Georgetown University, May 17. http://berkleycenter.georgetown.edu/interviews/
a-discussion-with-ela-bhatt-founder-self-employed-women-rsquo-s-association-sewa
Deneulin, S., and Rakodi, C. (2011). “Revisiting Religion: Development Studies Thirty Years
On.” World Development 39(1): 45–54.
Hertze, A. (2006). Freeing God’s Children: The Unlikely Alliance for Global Human Rights.
Lanham, MD: Rowman and Littlefield.
Marshall, K. (2010). “Climbing up to the Light.” Reflections: Yale Divinity School: No More
Excuses: Confronting Poverty 97(2): 5–7.
Marshall, K. (2013). Global Institutions of Religion: Ancient Movers, Modern Shakers.
New York: Routledge.
Marshall, K., and Marisa Van Saanen. (2007). Development and Faith: Where Mind, Heart and
Soul Work Together. Washington, DC: World Bank.
United Nations (2000) United Nations Millennium Declaration (September). http://www.
un.org/millennium/declaration/ares552e.htm
World Council of Churches (2001). Lead Us Not into Temptation: Churches’ Response to the
Policies of the International Financial Institutions. http://www.oikoumene.org/fileadmin/
files/wcc.main/documents/p3/lead_us_not_into_temptation.pdf
Chapter 9
D oes Inequa l i t y Ha rm
Ec onomic Dev e l op me nt
and Demo c rac y?
Accounting for Missing Values,
Noncomparable Observations,
and Endogeneity
Christian Houle
The economic crisis that has recently afflicted most of the Western world has accentuated
the interest in the question of whether or not, in the long run, economic inequality is con-
sistent with economic and political development. For example, a recent article by Chrystia
Freeland in the New York Times—which builds on Acemoglu and Robinson (2012), Why
Nations Fail: The Origins of Power, Prosperity, and Poverty—has recently advanced the pos-
sibility that unequal societies with low levels of social mobility may be likely to create ex-
clusive political institutions and unprosperous economies. These questions seem especially
relevant since both the Great Depression of 1929 and the Great Recession of 2007 were
preceded by substantial increases in the level of economic inequality in the United States.
This chapter addresses these issues by first reviewing the literatures on the effect that
inequality has on economic development and on democracy. Overall, the findings of pre-
vious studies are mixed on both questions. While most recent empirical studies find that
inequality harms economic development, there is still considerable controversy over the
mechanisms driving the relationship. I discuss three approaches that have been used to ex-
plain why inequality impedes economic development: (1) the political economy approach,
(2) the social unrest approach, and (3) the credit market imperfections approach.
Empirical findings about the effect of inequality on democracy are even more inconclu-
sive. Some authors find no relationship, whereas others find positive, negative, or nonlinear
relationships. I argue that previous studies suffer from at least three important flaws that may
explain the inconclusiveness of the findings: (1) They rely on data sets with many missing
values (at least 30 percent), and the pattern of missingness is nonrandom. (2) The data
Does Inequality Harm Economic Development and Democracy? 141
that are available are not comparable across countries or even within countries over time.
(3) They do not account for the possible endogeneity between inequality and democracy.
I address these issues by making two important contributions. First, I construct the first
complete and comparable data set on inequality covering the period from 1948 to 2006.1
This is an important improvement since even the most complete data sets on inequality
include a maximum of about 70 percent of the country-years during the period they cover
(e.g., Houle 2009). The data set is generated by taking advantage of the fact that one of the
main determinants of the level of inequality of a country is the type of goods it produces.
Since factor endowments are clustered among neighbors, I predict the inequality level in
countries for which data is missing, using (among other things) the inequality levels of
neighboring countries. Second, I also use the neighboring level of inequality—which is
clearly exogeneous to the domestic level of economic and political development—as an
instrument in two-stage least squares estimations to address the issue of endogenity. My
findings largely confirm those of Houle (2009). While inequality does not affect democrati-
zation, it reduces the likelihood that a democracy, once established, will survive.
Does Inequality Harm Economic

Development?
Traditionally, arguments in favor of progressive policies designed to create economic

equality were based exclusively on ethical concerns. Equality was perceived as potentially
valuable since, particularly in low-income countries, it means that fewer people suffer from
diseases, malnutrition, infant mortality, etc. However, most early economists believed that
equality harms economic development, in particular because it reduces incentives to invest
and work. This is, for example, the view articulated by Arthur Okun (1975) in his influential
book Equality and Efficiency: The Big Tradeoff. Another related argument, often referred
to as the “Kaldorian” approach after Nicholas Kaldor, suggests that the rich tend to save a
greater proportion of their income than the poor, because the latter simply have to spend
a larger share of their earnings on basic needs.2 According to this view, inequality fosters
savings and investments, which in turn increases growth. Early economists thus believed
there was a tradeoff between efficiency and equity.
These arguments were later challenged in light of the great economic success of East Asian
countries after World War II. Despite the fact that these countries have highly equal wealth
distributions—often due to successful land-redistribution policies—during the 1960s and early
1970s they experienced among the highest growth rates. This is particularly striking when
comparing East Asian and Latin American countries. The latter were highly unequal and had
smaller growth rates, even though their initial per capita GDPs were roughly the same. Other
bilateral comparisons raise questions about the relationship between inequality and growth. For
instance, Lucas (1993) and Benabou (1996) cite the cases of South Korea and the Philippines. In
the beginning of the 1960s, these two countries had similar GDPs per capita, populations, urban-
ization, and primary and high school enrollment rates. One of the few significant differences be-
tween the two was that the Philippines were a lot more unequal than South Korea. Surprisingly,
in the following twenty-five years, South Korea attained an average per capita growth rate of
142 Christian Houle
about 6 percent and the Philippines only 2 percent. While these examples do not demonstrate
that inequality causes underdevelopment, they certainly raise questions.
During the early 1990s, a first wave of studies using cross-country methods found a neg-
ative long-run relationship between income inequality and per capita growth rates. The first
of these is Persson and Tabellini (1994), which employ a data set that covers fifty-six coun-
tries between 1960 and 1985. Using ordinary least squares (OLS), they found that increasing
the share of the income of the lower class increases growth in the long-run. Alesina and
Rodrik (1994) obtain analogous results with a similar statistical specification, but a slightly
larger data set. Moreover, they measure income with Gini coefficients. The central finding
of these articles—according to which inequality harms growth—was subsequently con-
firmed by a number of articles (e.g., Alesina and Perotti 1996; Perotti 1996; Benabou 1996).
These results were later reconfirmed in a series of work using a new, higher-quality data set
on inequality developed by Deininger and Squire (1996) and again relying on cross-national
techniques (e.g., Deininger and Squire 1998).
A second wave of studies, spearheaded by Forbes (2000) has obtained quite different
results. Contrary to earlier articles, they used panel techniques with fixed effects. Therefore,
instead of examining whether countries with lower inequality levels grow on average at a
faster rate, say over a period of twenty to thirty years, they look at whether change in the
level of inequality within a given country affects growth. In general, these studies find that
inequality has a positive effect on growth in the short-run—for example, within the next
five years (Li, Squire, and Zou 1998; Forbes 2000; Balisacan and Fuwa 2003). Moreover, an-
other important study by Barro (2000) reports that, in the medium term (within a ten years
period, the effect of income inequality on growth is statistically insignificant. Nevertheless,
when he distinguishes between low-and high-income countries, the relationship is nega-
tive for the first group and positive for the second.
These different findings do not necessarily contradict each other. As suggested by Lloyd-
Ellis (2003) and even Forbes (2000) herself, the relationship between inequality and growth
may be negative in the short run, insignificant in the medium run, and negative in the long
run. In fact, as discussed subsequently, theories usually predict that these variables should
be negatively linked mainly in the long term, notably through the accumulation of human
capital. Figini (1999) directly tests the hypothesis that the negative effect is stronger in the
long run. He runs a number of cross-country regressions with different time spans and
shows that the relationship indeed strengthens with longer periods.
A third wave of studies, using better quality and more complete data sets, have tended
to support the negative relationship reported by the early empirical literature (e.g., Easterly
2007; Roe and Siegel 2011; Woo 2011; Knowles 2013). These studies often use instrumental
variable estimation techniques to account for the potential endogeneity problem—that
is, economic development itself may affect inequality (e.g., through the Kuznets curve).
Interestingly, these results are not sensitive to the inclusion of fixed effects by country.
While most of the recent literature suggests that, at least in the long run, inequality harms
economic development, there is still uncertainty about which causal mechanisms drive the
relationship. There are three main mechanisms that have been developed. First, the early
literature was dominated by the political economy approach, which is based on the ap-
plication of the median voter theorem by Meltzer and Richard (1981) to the question of
redistribution in democracies (e.g., Persson and Tabellini 1994; Alesina and Rodrik 1994).
The idea is that, in an unequal society, citizens tend to elect politicians promoting high
redistribution and, thus, high taxes. Since high taxes diminish returns to investment, it also
lowers growth. A straightforward implication of this approach is that, since the dynamics
take place through the voting process, the negative relationship should only be observed
among democratic countries. However, empirical studies find that, in fact, the relation-
ship is much stronger among undemocratic than democratic countries (e.g., Deininger and
Squire 1998; Figini 1999).
Moreover, contrary to what it implies, most empirical studies find that the relationship
between inequality, on the one hand, and transfers and/or taxation, on the other, is statis-
tically insignificant or even negative (e.g., Persson and Tabellini 1994; Perotti 1996; Figini
1999). Finally, again contrary to the implicit assumptions made by the political economy
approach, redistribution and taxation do not necessarily reduce growth (e.g., Perotti 1996).
Second, the social unrest approach claims that economic inequality creates social and
political unrest, which reduces growth (e.g., Alesina and Perotti 1996; Benabou 1996;
Benhabib and Rustichini 1996; Roe and Siegel 2011). This approach is based on two implicit
assumptions: (1) the positive impact of inequality on political instability; and (2) the neg-
ative effect of social instability on investment and/or growth. Using different measures of
social instability, most authors confirm both relationships. Social and political unrest can
take the form of unsuccessful and successful coups d’état, riots, strikes, protests, revolutions,
irregular government turnovers, political assassinations, or crime more generally. These
different forms of instability distort incentives by increasing the uncertainty faced by poten-
tial investors. A related approach argues that inequality harms property rights or increases
policy volatility, which in turn increases uncertainty and reduces growth (e.g., see Keefer
and Knack 2002; Woo 2011).
The third and final approach, the credit market imperfections approach, states that in
an unequal society some individuals may not be able to invest in a given asset—especially,
human capital—even when faced with high marginal returns. Poor individuals may be
unable to borrow the required funds because of credit market imperfections. In a society
where laws enforcing loans are relatively inefficient, borrowers have higher incentives to
default, since they are unlikely to get caught and reprimanded. Therefore, lenders will ask
for collateral, which they can seize in case of default; hence preventing poor individuals that
do not have enough collateral from, even if they would be willing to assume the risk of the
investment.
Inequality can adversely affect growth through credit market imperfections if (1) a partic-
ular production factor exhibits diminishing returns at the individual level,3 or (2) individuals
are heterogeneous and those that have enough resources to invest are not necessarily those
that face the highest returns.4 Under those conditions, inequality leads to an inefficient al-
location of resources, and distorts incentives to invest and work.
One interesting example, especially for developing countries, is the case of land. There
are reasons to believe that large landholders face greater incentive problems. They must
hire more workers, whereas small farmers usually work on their own land. It is difficult to
monitor agrarian workers, since agricultural activities are subject to high risks, such that
the landholder is unable to determine if a bad crop is caused by low effort or by exoge-
nous factors, like weather—that is, there is a moral hazard problem. Empirical evidences
indeed suggest that there is an inverse relationship between the size of a piece of land and
its per acre productivity (e.g, Carter 1984). Therefore, if there are borrowing constraints
that prevent small farmers from buying land from large landholders, the economy could be
144 Christian Houle
inefficient. This is consistent with the observation that there is a strong negative relationship
between land inequality and growth (Deininger and Squire 1998).
Other branches of the literature focus on the inability of the bulk of the population to in-
vest in physical and/or human capital (e.g., Galor and Zeira 1993; Lloyd-Ellis and Bernhardt
2000). For example, Galor and Zeira (1993) present an overlapping generations model where
individuals receive unequal bequests. Whether or not a child gets an education depends
only on his/her initial bequest. The authors find that inequality decreases the average level
of human capital, and thus aggregate output, in both the short run and the long run.
Since credit market imperfections are hard to measure, there are relatively few empir-
ical studies directly testing this approach. Perotti (1994) uses the loan-to-value ratio for
mortgages as a proxy for the quality of credit institutions. He finds credit availability to be
significantly related to growth and this effect to be stronger when inequality is high. The
credit market imperfections approach is also consistent with the finding according to which
the negative effect of inequality on growth is stronger in non-OECD countries, in which
credit markets are underdeveloped (see Knowles 2013).
Related to the credit market imperfection approach is the argument that inequality limits
social mobility, which is an important engine of economic development. This idea is closely
related to the line of argument developed by Acemoglu and Robinson (2012) in their im-
portant book Why Nations Fail: The Origins of Power, Prosperity, and Poverty, although
these authors do not focus on the role of inequality but on political institutions limiting
social mobility. According to that view, it is not necessarily economic inequality per se that
is detrimental to development, but rather the lack of social mobility it engenders. In fact,
there is strong evidence that there is a negative relationship between inequality and inter-
generational mobility (e.g., Andrews and Leigh 2009). The relationship is called the Great
Gatsby curve. As suggested above, the lack of opportunities for social mobility leads to an
inefficient allocation of resources, and reduces incentives to invest and work.
Finally, in light of the Great Recession of 2007, many authors have examined the effect of
inequality on the likelihood of experiencing an economic crisis. These studies suggest that
inequality may inhibit development by reducing the capacity of an economy to sustain high
rates of economic growth and by increasing the likelihood that it experiences an economic
crisis (e.g., Berg and Ostry 2011; Berg, Ostry, and Zettelmeyer 2012). The mechanisms
discussed previously to explain the negative effect of inequality on economic development
could also explain why unequal countries are more likely to fall victims to economic crises.
Some authors have also linked inequality to high levels of household debt-to-income ratio,
which were important causal factors for both the Great Depression of 1929 and the Great
Recession of 2007 (see Kumhof and Ranciere 2010; Rajan 2010). Inequality induces the
lower and middle classes—who have access to cheap lending from the rich in their country
and abroad—to borrow in order to maintain their living standards.
Does Inequality Harm Democracy?
As pointed out in the introduction, current political commenters have also warned that
economic inequality may lead to the creation of exclusive political institutions. Most of
the previous theoretical literature has indeed argued that inequality harms democracy by
decreasing the likelihood both that an autocracy democratizes and that a democracy re-
mains democratic. This view was first expressed by Aristotle and has been reaffirmed by
some of the classical authors on democracy, such as Lipset (1959) and Dahl (1971), as well
as more recent authors (e.g., Boix 2003; Muller 1995; Rosendorff 2001). Values often play an
important role for these authors. Citizens in equal societies are more likely to have access to
education and to share democratic values, such as tolerance, which have been argued to be
essential for the establishment and consolidation of democracy. These arguments have also
often been closely related to those of modernization theory, according to which economic
development fosters democracy. At a given level of economic development, reducing ine-
quality means that more people have the resources necessary to solve their collective action
problem and demand democracy.
These authors also point to the role of the middle class—which they associate with low
inequality levels—as a key determinant of democracy. According to these authors, the
middle class is a natural supporter of democracy because it is unlikely to adopt extremist
positions and is likely to be tolerant. To paraphrase Lipset (1959), a society that is shaped as
a diamond—with a large middle class and small lower and upper classes—is more condu-
cive to democracy than a society that has a pyramid shape.
Some of these authors, including Boix (2003), argue that inequality affects regime
transitions through its effect on redistribution. According to Meltzer and Richard (1981)—
who apply the median voter theorem to the question of redistribution in democracies—
unequal democracies redistribute more than those that are more equal.5 Therefore, Boix
(2003), among others, argues that inequality decreases the willingness of the ruling elites to
democratize; reducing the likelihood of democratization. Similarly, when a country is al-
ready democratic, inequality increases the expected future level of redistribution; increasing
the likelihood that the upper class stages a coup against a democracy.
Acemoglu and Robinson (2006) propose a second possible relationship between ine-
quality and democracy. As in the first approach discussed above, they argue that inequality
harms the consolidation of already established democracies. However, unlike most authors
before them, Acemoglu and Robinson (2006) do not argue that inequality has a linear
negative effect on democratization. Instead, they argue that the relationship between ine-
quality and democratization is inverted U–shaped. Like those of Boix (2003), the theoret-
ical arguments of these authors rest on the median voter theorem. However, in Boix (2003)
only the willingness of the elites to concede democracy is affected by inequality, whereas
in Acemoglu and Robinson (2006) both the willingness of the elites to concede democracy
and that of the population to demand it depend on inequality.
In equal autocracies, the population simply does not demand democracy because it has
little to gain in terms of redistribution; making such countries unlikely to democratize. At
intermediate levels of inequality, however, the population has incentives to demand democ-
racy. At the same time, the ruling elites are unwilling to use repression, because redistri-
bution is relatively inexpensive; and so they democratize. But when inequality is high, the
elites prefer to repress. Therefore, the regime remains authoritarian. In this account, regime
change occurs because of the inability of the elites (or the masses) to credibly commit to
high (low) levels of redistribution.
A third approach has recently been proposed by Ansell and Samuels (2010). These
authors build on the contractarian approach to regime transition rather than the redis-
tributive approach, notably used by Boix (2003) and Acemoglu and Robinson (2006).
146 Christian Houle
According to the contractarian approach, democracy emerges when powerful groups

that are independent from the state demand protection against expropriation by the state.
Historically, democracy has been related to the rise of the bourgeoisie and the collapse of
the landed upper class. Ansell and Samuels (2010) thus predict that income inequality—
which is often linked with the expansion of the bourgeoisie, at least in the early phases of
industrialization—fosters democratization, while land inequality harms it.
One important observation is that most of these predictions are primarily about inter-
class inequality, not the overall inequality level in a society. For example, Boix (2003) and
especially Acemoglu and Robinson (2006) insist that their predictions only hold for ine-
quality between the capital and labor classes. The same is true for authors such as Lipset
(1959) and Ansell and Samuels (2010) who discuss the role of certain social classes in the
transition and consolidation processes.
The empirical results on the relationship between inequality and democracy are
mixed. Some authors find that there is no relationship (e.g., Barro 1999; Bollen and
Jackman 1985; Papaioannou and Siourounis 2008), some find a negative relationship
(e.g., Muller 1988, 1995; Boix and Stokes 2003; Boix 2003), others a positive relationship
(e.g., Ansell and Samuels 2010; Midlarsky 1992), and yet others an inverted U–shaped
relationship (e.g., Burkhart 1997; Epstein et al. 2004). Houle (2009) finds that while in-
equality harms the consolidation of democracies, it does not affect the likelihood that a
country democratizes in the first place. The negative effect of inequality on democratic
consolidation has been recently confirmed by Haggard and Kaufman (2012), although
they raise questions about the causal mechanisms based on the median voter theorem.
Freeman and Quinn (2012) find that the effect of inequality on democratization depends
on the extent to which an autocracy is financially opened. On the one hand, when
autocracies are financially closed, the relationship between inequality and the proba-
bility of democratization is inverted U–shaped, as predicted by Acemoglu and Robinson
(2006). On the other hand, when an autocracy is financially opened, inequality increases
the likelihood of democratization.
These studies suffer from at least three limitations that may explain the inconclusive-
ness of their results. First, the inequality data set they use has a very large proportion of
missing values. For example, the widely used Gini coefficients data set of Deininger and
Squire (1996)—used by Boix (2003) among others—contains only 11 percent of the country-
years during the period it covers (Houle 2009). Even the most recent studies typically have
around 30 percent missing observations. For example, the democratization models of
Freeman and Quinn (2012) contain a maximum of fifty-four autocracies, and even for these
countries many years are missing. Such high levels of missingness are likely to affect results
significantly because unavailable observations are not missing at random.
The data set that is used the most widely—including by Freeman and Quinn (2012)—is
that of the World Institute for Development Economics Research (WIID 2008), which is
an updated version of the data set of Deininger and Squire (1996). In this data set, a very
large proportion of the missing observations are from sub-Saharan Africa and the Middle
East. This is an obvious problem because countries from these regions often have interme-
diate levels of inequality and low democracy levels. Their omission could explain, for ex-
ample, why Freeman and Quinn (2012) find that there is an inverted U–shaped relationship
between inequality and the likelihood of democratization in closed economies, since the
countries that are likely to contradict such a relationship have simply been excluded from
the estimation.
Second, not only are data sets on inequality incomplete, but the observations that are
available are not comparable across countries and even within countries over time. Most
recent studies use the data set of the WIID (2008), which report Gini coefficients based on
surveys conducted by the countries themselves, using different definitions and methods.
These sometimes change even within countries over time. Surveys differ along many
dimensions, but three are particularly important: (1) the unit of reference (e.g., household
vs. individual); (2) the definition of revenues (e.g., expenditure vs. income); and (3) net
vs. gross income. These differences are likely to affect the Gini coefficients that have been
calculated (see Galbraith 2012; Solt 2009). For example, Gini coefficients calculated with
net income are likely to indicate lower levels of inequality than those calculated with gross
income.
Some authors, such as Freeman and Quinn (2012), have tried to resolve this issue simply
by adding constants. For example, these authors use regression analysis to estimate the av-
erage difference between Gini coefficients calculated on net and gross income and add a
constant to the Gini coefficients based on net income. However, this approach has many
problems (see Atkinson and Brandolini 2001; Galbraith 2012; Solt 2009). In the case of
net and gross income, for example, it assumes that all countries have the same redistribu-
tion system during the whole period covered, which is obviously not the case. In general,
the impact of using different units of reference and definitions of income depends, among
other things, on the family structure, the details of the tax laws, the redistributive system,
state capacity, and the propensity to save (Solt 2009). These are likely to differ widely across
countries. These issues are partially addressed by Solt (2009), who uses a sounder method
to estimate the error generated by the use of noncomparable observations.6
Moreover, because of the low number of “high-quality” observations in the WIID (2008)
data set, authors that use it must include observations that are not only noncomparable but
also of very low quality. For example, Freeman and Quinn (2012) use the observations that
have a quality rating of at least 3 (out of 4, where 4 indicates the lowest quality). Observations
with a quality rating of 3 are “observations where both the income concept and the survey
are problematic or unknown” (United Nations University 2014, p. 15).
In addition, the indicators of inequality used by most previous authors do not directly
measure interclass inequality. In fact, most authors use Gini coefficients, which capture the
overall level of inequality in a society (e.g., Boix 2003; Freeman and Quinn 2012; Ansell and
Samuels 2010). Some use other variables that are likely to be related to inequality, such as
infant mortality (e.g., Epstein et al. 2004). Therefore, most of the literature uses measures of
inequality that are not well suited to test existing theories about interclass inequality.
The third main limitation with previous empirical tests on the effect of inequality on
democracy is that they have not accounted for endogeneity—particularly reverse causa-
tion. In fact, in inequality theories of democratization, inequality affects regime transition
precisely because it affects the incentives of different social classes to control redistributive
policies, and thus change the inequality level. Moreover, country-specific factors could
affect both the likelihood of regime change and inequality; hence creating omitted variable
bias. The remainder of this chapter contributes to the literature by estimating the effect of
inequality on transitions to and from democracy using a complete and comparable data
148 Christian Houle
set on inequality, and by using an instrumental variable strategy to address the issue of
endogeneity.
Data
The unit of analysis in this study is the country-year. The data set contains nearly 7,000
observations and covers about all countries between 1948 and 2006.
Political Regimes
To determine whether a country is democratic or autocratic, I use the regime type data set
of Cheibub et al. (2010), which extends the data set of Przeworski et al. (2000) until 2006.
These authors define a regime as democratic if it satisfies four conditions: The first and the
second conditions are that the chief executive and the legislature, respectively, need to be
elected by the population. The next condition is that there must be multiple parties. Last,
there must have been at least one alternation in power through elections.
Three Measures of Inequality

This study uses three measures of inequality: First, as the primary measure, I use the cap-
ital share of the value added in production. This gives the proportion of the value created
within specific firms that accrues to the owners of these specific firms, as opposed to the
laborers. This data set is an updated version of the capital shares of Rodrik (1999); it has
been assembled by Ortega and Rodriguez (2006). It is constructed from data collected by
the United Nations Industrial Development Organization (UNIDO).7 Dunning (2008),
Acemoglu and Robinson (2006), Przeworski et al. (2000), Haggard and Kaufman (2012)
and Houle (2009) have also recently used that same source of capital shares to measure
inequality.8 According to Dunning (2008), “capital shares represent the best available cross-
national indicator of private inequality” (143). Low capital shares indicate low levels of ine-
quality, because a large proportion of the value added in production is accruing to the labor
class as opposed to the capital owners. The sample contains about 3,500 observations and
covers 116 countries between 1960 and 2000.
The capital share has many theoretical and empirical advantages over alternative meas-
ures of inequality. First of all, contrary to Gini coefficients, which measure the overall level
of inequality in a society, capital shares directly capture inequality between social classes.
In fact, according to Acemoglu and Robinson (2006), “when the major conflict is between
the rich and the poor, one variable that captures inter-group inequality is the share of labor
income” (59). Note that the capital share is conceptually similar to the surplus-value of
Karl Marx.
Another advantage of using capital shares is that they are calculated based on surveys
distributed directly by UNIDO to firms using similar definitions and methodology for all
countries, making cross-country comparisons meaningful. This stands in stark contrast to

WIID’s Gini coefficients, which are calculated based on national surveys. The comparability
of the capital shares data set of Ortega and Rodriguez (2006) has recently been challenged
by Freeman and Quinn (2012). Their skepticism stems from the positive relationship be-
tween capital shares and GDP per capita. They claim that Ortega and Rodriguez (2006)
themselves give three possible explanations for this, all of which suggest that capital shares
should not be used as measures of inequality: (1) that it is driven by the fact that capital
shares do not include the informal sector, which would bias the capital shares upwards in
poor countries; (2) that the definition of the wages that are reported are sometimes different
across countries and that rich countries tend to include compensations; and (3) that they
do not include the agricultural sector, which again should bias the capital shares upward in
poor countries.
However, Freeman and Quinn (2012) omit to mention that Ortega and Rodriguez (2006)
have examined these three possibilities and that they found that none of them can explain
the positive relationship between capital shares and GDP per capita. In fact, since the cap-
ital shares give the proportion of the value that is created within specific firms that accrues
to the owners of these specific firms, the exclusion of the informal sector cannot affect the
value of the capital shares, only whether or not it is representative of the whole economy,
an issue that is addressed in more detail subsequently. The same point can also be made
regarding the exclusion of the agricultural sector. Moreover, Gini coefficients, when drawn
from national income surveys, also omit the informal sector. Finally, regarding the second
point, it is true that OECD countries use a more inclusive definition of wages, which may
partially explain why they have lower capital shares. However, all of the results reported in
this chapter are robust to the exclusion of OECD countries, and so are not driven by the
differences in the definition of wages between OECD and non-OECD countries.9
That inequality diminishes at lower levels of development, by itself, is hardly surprising.
In fact, according to Ortega and Rodriguez (2006) “there is nothing in the current state of
either the empirical or theoretical literature that would lead us to treat the negative relation-
ship between capital shares and per capita income [. . .] as an anomaly” (6). Most authors
indeed agree that development should, at least in the long run, decrease inequality (e.g.,
Boix 2003; Boix and Stokes 2003; Lipset 1959). One possibility, for example, is that rich
democracies are more likely to have legislation that favors the labor class, such as the au-
thorization of founding unions; thus increasing the share of the value created that accrues
to the workers. The negative correlation between capital shares and GDP per capita seems
to be entirely driven by rich democracies. In fact, the correlation is only –0.03 among
nondemocracies. Moreover, many models demonstrate formally that the share of the
wealth created that accrues to the labor class should increase as a country develops, because
human capital surpasses physical capital as the primary engine of growth in the later stages
of development (see Galor and Moav 2004). That inequality tends to be low in rich coun-
tries is also fully consistent with the predictions of Kuznets.
One potential limitation with the capital shares data set is that, although its observations
are comparable, they may not be representative of the class relationships outside the
manufacturing sector. Moreover, the size of the manufacturing sector itself varies across coun-
tries, such that capital shares may be a better approximation of the level of interclass inequality
in some societies than in others. However, previous studies demonstrate that inequality within
a specific sector of the economy tends to reproduce itself in the other sectors of the economy
150 Christian Houle
(Galbraith 2012; Williamson 1982). Therefore, using interclass inequality within a given sector
of the economy—the manufacturing sector in this case—gives a good approximation of the
overall level of interclass inequality of that country. This is consistent with the widespread
finding, discussed subsequently, according to which inequality does not vary much within
countries over them, even though the structure of the economy itself does change.
Second, as an additional measure of inequality, I use the Gini coefficients data set of Solt
(2009), which, as discussed previously, contains observations that are relatively comparable.
Although its observations are not fully comparable and do not capture the type of inequality
that is theoretically relevant, it still enables us to test the robustness of our results. The data
set contains about 5,300 observations on 173 countries between the late 1940s and 2006.
Third, I use the income Gini coefficients data set of the “Estimated Household Income
Inequality” (EHII), constructed by the University of Texas Inequality Project (UTIP) (2013),
using the UNIDO data set to compute inequality in wage pay, measured with the Theil’s T. It
regresses the Gini coefficients of Deininger and Squire (1996) on the Theil’s T and corrects
for the bias in the data source (e.g., net vs. gross income). It then uses the predicted values
as estimated Gini coefficients. The data set includes more than 3,500 observations on 154
countries between 1963 and 1999.
Constructing a Complete and Comparable Data Set

on Inequality
I use Amelia II to generate a complete data set on inequality. The data set contains three
measures of inequality: the capital share data set of Ortega and Rodriguez (2006), the Gini
coefficients data set of Solt (2009), and the Gini coefficients data set of the EHII. For each
missing observation, I impute twenty-five predicted values. This enables me to account for the
level of uncertainty of each imputed observation during the estimation process.10 I use three
types of evidence to impute missing observations. First, inequality is highly persistent within
countries over time (e.g., see Deininger and Squire 1998; Glaeser 2005; Solt 2009). For example,
Lindert and Williamson (2003) find no systematic tendency for inequality within country to
change over the last two centuries, and Lindert (2000) finds that the level of inequality in
England in the seventeenth and eighteenth centuries is about the same as in 1995. He also finds
that wealth inequality was about the same in the United States in 1983 as in 1776. Therefore,
given that inequality within countries is relatively stable over time, I use the observations that
are available to impute those that are not available for the same country in other years.
Second, for many country-years while we do not have observation for some of the meas-
ures, we often have it for some of the others. For example, in a given case we may not have
values for capital shares, but have Gini coefficients from Solt (2009) or the EHII. In such
cases, I use the observations that are available for one measure of inequality to impute those
that are not available for other measures. In addition to the three measures of inequality
discussed previously, I also use the proportion of farming land that is used by family farms,
which is reported by Vanhanen (1997). This provides a proxy for the level of inequality in
the farming sector.
Third, the level of inequality of a country depends primarily on it factor endowment (see
Easterly 2007; Glaeser 2005; Engerman and Sokoloff 2002; Sokoloff and Engerman 2000;
Roe and Siegel 2011). For example, countries that have historically relied on the production
of cash crops or minerals have inherited highly unequal social structures that still persist
today. Such factor endowments have led to the creation of a very small and rich economic
elite, and a large and poor lower class—often composed of a large proportion of slaves. The
former have maintained the economic status quo by creating exclusive political institutions
that reproduce economic inequalities at the political level. The high correlation between
inequality and factor endowments has led many authors to use the latter to measure the
former. For example, Easterly (2007) uses the abundance of land suitable for growing wheat
relative to land suitable to growing sugarcane as an instrument for inequality.
Moreover, factor endowments are clustered within regions. Countries that are neighbors
tend to rely on the same natural resources. Therefore, neighbors often share similar ine-
quality levels. In fact, the correlation between the level of inequality of a country and that
of its neighbors ranges between 0.45 and 0.79 depending on the measure of inequality used.
The previous literature has indeed noticed that there is little variation in inequality within
subregions (e.g., Deininger and Squire 1998). Moreover, international shocks that affect ine-
quality are likely to have similar effects on neighbors because they share factor endowments
(see Alquist and Wibbels 2012).
Other factors that are likely to affect inequality, such as colonial heritage, also tend to be
shared among neighbors. Historical events that had important effects on inequality, like the
establishment of communist regimes in Eastern Europe, have also been regionally clustered.
I thus use the level of inequality of neighbor countries to impute the missing inequality
values. Therefore, contrary to Houle (2009), I am able to impute missing observations even
for countries where no data are available using observations available either for alternative
indicators of inequality or the inequality levels of neighboring countries.
It is very important to note that I do not simply fill in the missing inequality values of a
country by using the inequality levels of its neighbors. That would be equivalent to assuming
that there is a perfect correlation between inequality in one country and its neighbors, which
is clearly not the case. I rely on the observed correlation between a country’s inequality level
and that of its neighbors to predict twenty-five values for each missing observation. In order
to make sure that my results are not entirely driven by the imputation model, I run my anal-
ysis with three data sets: (1) the full data set that includes both imputed and nonimputed
observations, (2) the original data set that includes only nonimputed observations, and
(3) a data set that includes nonimputed observations along with imputed observations for
countries on which we have at least one capital share observations. The intuition for using
the latter data set is that since inequality is highly persistent within countries over time, it is
much easier to impute missing observations for countries for which we have at least some
inequality values than for those for which we have none. This imputation procedure does
not rely on the inequality level of neighbors.11 In all cases, the results are unchanged.
Control Variables
I use the same domestic control variables as in Przeworski et al. (2000): GDP per capita;
growth; an oil-exporter dummy variable; the proportion of the population that is Muslim,
Protestant, or Catholic; ethnic and religious fractionalization; the number of past transitions;
a dummy variable for countries that did not exist prior to 1946; and a dummy variable for
152 Christian Houle
former British colonies. I also include decade dummy variables, the age of the regime, as
well as its square and its cube.
Empirical Tests of the Effect of Inequality

on Democracy
In this section, I test the relationship between inequality and democracy using dynamic
probit models. These models estimate the probability that countries with a certain regime
(in the current period) transition to a new regime in the next period. One advantage with
this estimation technique is that it enables us to distinguish between the effect of inequality
on democratization and on consolidation. Tables 1 and 2 present, respectively, the impact of
each independent variable on the likelihood that a democracy collapses and on the proba-
bility of that an autocracy democratize within a given year.12
Column 1 of Table 9.1 estimates the effect of inequality on the likelihood of a demo-
cratic breakdown when inequality is measured with the capital shares, which is the indi-
cator of inequality that is the most sound theoretically. Positive coefficients signify that the
associated independent variables increase the probability of backsliding to dictatorship. As
expected, inequality increases the likelihood that a democracy breaks down. The relation-
ship becomes even stronger both substantively and statistically when only the nonimputed
observations are used (see Houle 2009, Table 9.2). Results are also unchanged when one
includes only nonimputed observations along with imputed observations for countries on
which we have at least one capital share observation (again, see Houle 2009, Table 9.2, for
the results, and the appendix for the multiple imputation procedure). Figure 9.1 shows the
effect of inequality on the probability of a transition away from democracy, when other
variables are at their median.
Column 2 reproduces model 1 but using an instrumental variable approach. It uses the
level of inequality of neighboring countries as an instrument for the domestic level of ine-
quality. Basic tests show that the inequality level of neighbors is indeed a very strong instru-
ment for domestic inequality levels. In the first-stage regression, the F-statistic on the level
of inequality of neighbors is 186.75, which is well above the threshold for strong instruments
that is usually set at 10.13 Since I use the inequality level of neighbors to impute missing
values, I only use the non-imputed capital shares in the estimation reported in column 2
(and column 2 of Table 9.2). Results are unchanged when imputed capital shares are also
included (available upon request).
It is possible that inequality in neighboring states affect the regimes of neighbors, which
in turn influences the domestic political regime. If that were the case, the instruments would
not be exogenous. Therefore, in order to account for this potential mechanism, I control
for the proportion of neighbors that are democratic. Other than through its effect on the
regime of neighbors, the level of inequality of neighbors is exogenous to the regime of a
country. As shown in column 2, results are unchanged when I account for endogeneity.14
Columns 3 and 4 of Table 9.1 reproduce column 1 but with the Gini coefficients of Solt
(2009) and of the EHII, respectively. Again, inequality is found to increase the likelihood of
a democratic breakdown.
Table 9.1 Dynamic Probit Analysis of the Effect of Inequality on Transition
from Democracy to Autocracy
Measures of Inequality
Capital Shares Solt’s Gini EHII’s Gini
(1) (2) (3) (4)
Inequality 2.822 12.628 1.912 3.803

(1.11)** (1.142)*** (.95)** (1.658)**
GDP per capita –.383 –.142 –.414 –.359
(.105)*** (.315) (.104)*** (.107)***
Growth –.037 –.029 –.036 –.038
(.012)*** (.012)*** (.012)*** (.012)***
Oil .058 –.503 .143 .073
(.345) (.369) (.333) (.312)
Muslim .003 –.005 .003 .005
(.003) (.005) (.004) (.004)
Protestant .00009 .008 –.003 –.001
(.004) (.008) (.004) (.004)
Catholic –.002 –.005 –.003 –.002
(.004) (.004) (.005) (.004)
Ethnic fraction –.005 .009 –.004 –.005
(.004) (.007) (.004) (.004)
Religious fraction –.0009 .019 –.001 –.0005
(.004) (.011) (.004) (.005)
No. past break. .162 –.002 .193 .192
(.074)** (.112) (.072)*** (.073)***
New country .197 1.747 .127 .107
(.215) (.559)*** (.203) (.212)
Formerly British –.645 –.892 –.527 –.62
(.255)** (.455)*** (.25)** (.241)***
Regional democracies (%) .007
(.006)
IV N Y N N
Log–pseudolik. –551.42 –4535.57 –553.51 –554.16

N 6842 1268 6842 6842
No. of countries 175 62 175 175
*** $p < .01$, and, ** $p < .05$.

Note: Robust standard errors clustered by country in parentheses. All models include decade dummy
variables, the age of the regime along with its square and cube.
Table 9.2 Dynamic Probit Analysis of the Effect of Inequality on Transition from Autocracy to Democracy
Measures of Inequality
Capital Shares Solt’s Gini EHII’s Gini
(1) (2) (3) (4) (5) (6) (7) (8)
Inequality .008 .046 –.039 .164 –.6 –3.074 .39 .848

(.006) (.042) (.049) (.163) (.627) (4.074) (1.006) (7.062)
Inequality squared .0003 –.0009 .0003 –.00005
(.0004) (.001) (.0005) (.0008)
Cap. open .101
(.125)
Cap. open * inequality –.0004
(.005)
Cap. open * inequality squared .00002
(.00003)
GDP per capita .007 –.168 .015 .115 –.008 –.012 .0005 –.0002
(.066) (.108) (.066) (.092) (.066) (.067) (.069) (.069)
Growth –.014 –.011 –.015 –.019 –.014 –.014 –.014 –.014
(.006)** (.013) (.006)** (.012) (.006)** (.006)** (.006)** (.006)**
Oil –.456 .183 –.483 –.276 –.451 –.433 –.458 –.455
(.254)* (.492) (.249)* (.301) (.268)* (.269) (.275)* (.279)
Muslim –.003 –.004 –.003 –.002 –.003 –.003 –.003 –.003
(.003) (.005) (.003) (.004) (.003) (.003) (.003) (.003)
Protestant –.002 .005 –.002 .004 –.002 –.002 –.003 –.003
(.004) (.01) (.004) (.007) (.004) (.004) (.004) (.004)
Catholic .001 –.008 .001 –.001 .002 .002 .002 .002
(.003) (.008) (.003) (.004) (.003) (.003) (.003) (.003)
Ethnic fraction –.0009 –.005 –.0007 –.003 –.002 –.002 –.001 –.001
(.002) (.003) (.002) (.003) (.003) (.003) (.002) (.002)
Religious fraction .002 .018 .002 .006 .002 .002 .0009 .0009
(.004) (.01)* (.004) (.006) (.004) (.004) (.004) (.004)
No. past break. .272 –.167 .265 .215 .29 .287 .29 .286
(.067)*** (.271) (.067)*** (.064)*** (.065)*** (.066)*** (.067)*** (.067)***
New country –.238 –.988 –.232 –.45 –.26 –.268 –.251 –.268
(.19) (.303)*** (.193) (.229)** (.191) (.194) (.195) (.197)
Formerly British –.043 .039 –.043 .063 –.01 –.008 –.022 –.02
(.137) (.2) (.136) (.183) (.141) (.14) (.141) (.141)
Regional democracies (%) .016
(.008)**
IV N Y N N N N N N
Log–pseudolik. –551.42 –5662.7 –551.26 –375.46 –553.51 –550.79 –554.16 –553.78

Wald joint test [0.23] [0.3] [0.54] [0.93]
N 6842 1505 6842 4166 6842 6842 6842 6842
No. of countries 175 69 175 91 175 175 175 175
*** $p < .01$, ** $p < .05$ and * $p < .1$.

Note: Robust standard errors clustered by country in parentheses, and p-values in brackets. All models include decade dummy variables, the age of the regime
along with its square and cube.
156 Christian Houle
0.20
Probability of a Democratic Breakdown 0.15
0.10
0.05
0.00
0.3 0.4 0.5 0.6 0.7 0.8 0.9 1.0

Inequality
Figure 9.1 Predicted Probilities of Democratic Breakdown
Table 9.2 reports the impact of inequality on the probability of transition from dictator-
ship to democracy. Column 1 tests the hypothesis that inequality has a linear negative effect
on democratization using the capital shares. Contrary to what has been predicted by much
of the literature, inequality does not reduce the likelihood of transition to democracy. As
found by Ansell and Samuels (2010), inequality fosters democratization, although, contrary
to what these authors find, the relationship is not statistically significant.
Column 2 redoes the same analysis as column 1 but using the same instrumental variable
approach as in model 2 of Table 9.1. Column 3 of Table 9.2 tests the nonlinear relationship of
Acemoglu and Robinson (2006), according to which the relationship is inverted U–shaped,
by adding capital shares squared. This prediction would be supported if the coefficient on
capital share is positive and the one on capital share squared negative. As shown in model 2,
both coefficients turn out to have the wrong sign, although neither is statistically significant.
The variables are also not jointly significant.
Model 4 tests the argument of Freeman and Quinn (2012) capital openness conditions
the relationship between inequality and democratization.15 When autocracies are finan-
cially closed, the relationship between inequality and the probability of democratization is
inverted U–shaped, as predicted by Acemoglu and Robinson (2006). However, when an au-
tocracy is financially opened, according to Freeman and Quinn (2012), inequality increases
the likelihood of democratization. In fact, the hypothesis of Boix (2003) himself is also
conditional: when assets are immobile, inequality harms democracy; but, when assets are
mobile, inequality has little effect, although in his empirical section Boix (2003) does not
account for the interaction effect between inequality and asset mobility. Column 3 of Table
9.2 tests this relationship using the same set-up as Freeman and Quinn (2012), that is, by in-
cluding inequality interacted with capital openness, and inequality squared interacted with
capital openness. The findings show no evidence that the relationship between inequality
and democratization is conditional on capital openness.
Columns 5–8 redo columns 1 and 3 with the Gini coefficients of Solt (2009) and the EHII.
In all cases, previous theories on the relationship between inequality and democratization
are not supported by my empirical findings. Finally, the effect of the control variables is gen-
erally robust across model specifications and consistent with our expectations.
Conclusion
This chapter has reviewed the main literature on the relationship between inequality, on
the one hand, and economic development and democracy, on the other. Although previous
empirical findings on the effect of inequality on economic growth are mixed, some tentative
conclusions may be drawn. Most recent studies show that inequality harms economic devel-
opment, at least in the long run. Moreover, the relationship is especially strong in non-OECD
countries. The relationship is probably driven by a combination of the mechanisms described
by the social-unrest and credit market–imperfections approaches. In particular, inequality
inhibits social mobility, which is essential to economic development and innovation.
There is even more confusion about the effect of inequality on democracy. This chapter
has argued that this may in large part be explained by the fact that previous studies use data
sets with very large proportion of missing values and noncomparable observations, and that
they do not account for endogeneity between inequality and democracy.
I address the issue of missingness by generating the first complete and comparable data
set on inequality. It contains nearly 7,000 observations between 1948 and 2006. To gen-
erate the data set, I take advantage of the fact that inequality depends on the type of goods
produced by a country. Since the economies of neighboring countries tend to be similar,
I predict the inequality level of countries for which data is missing using the inequality
levels their neighbors. Results suggest that, contrary to what previous theories predict, ine-
quality does not affect the likelihood of democratization. These findings do not depend on
the measure of inequality used or on whether we estimate a linear or a nonlinear relation-
ship. However, inequality increases the likelihood that democracy collapses.
It is important to note that the results showing that inequality harms development and
democratic consolidation do not imply that redistribution would necessarily promote de-
velopment and democratic sustainability, at least in the short run. In fact, redistribution
may itself undermine growth (e.g., because it distorts incentives, often resulting in lower in-
vestment levels and labor supply). Moreover, there is a deadweight loss to redistribution—
that is, the amount transferred to the poor is smaller than the amount extracted from the
rich, leading to further inefficiencies. Redistribution may also harm democratic consoli-
dation. For one thing, lower growth created by inefficient redistribution could destabilize
democracies. Furthermore, large-scale redistribution may incite a worried economic elites
to overthrow a democracy, especially in new regimes. Evaluating the best policies to adopt
to promote development and democracy requires comparing the short-term risks and costs
of redistribution to its long-term benefits. Moreover, the cost and benefits of different re-
distributive tools—for example, investment in education as opposed to direct income and
wealth redistribution—should also be compared.
158 Christian Houle
Notes
1. Only a few countries, mostly Pacific Islands, are excluded from the data set.
2. Smith (2001) indeed finds that inequality stimulates savings.
3. In the case of education that would imply that those with less education will benefit more
from an additional year of education than those that have high levels of human capital.
4. For human capital, this means that those that would have the highest marginal returns from
education are not necessarily those that are born with the resources necessary to get educated.
5. This causal mechanism has recently been questioned by Kaufman (2009) who finds that in
Latin America, inequality is not related to higher demands for redistribution. Moreover,
Haggard and Kaufman (2012) demonstrate that redistributive conflicts are rarely at the
origin of transitions to and from democracy, even though unequal democracies are more
likely to collapse.
6. Solt (2009) uses the fact that the relationship between different units of reference and
definitions of income will change slowly in time within countries and are likely to be
similar among countries of the same regions.
7. Capital share is calculated as 1 minus the labor share, which measures the ratio of com-
pensation of employees to the value added in production.
8. Acemoglu and Robinson (2006) and Przeworski et al. (2000) use the version of Rodrik
(1999).
9. Freeman and Quinn (2012) also argue that surveys of the number of firms within the
same country vary widely from year to year. However, the very fact that capital shares are
highly persistent within countries over time implies that this does not have an important
effect on the capital share values.
10. The imputation model includes two polynomials of time, which are interacted with the
cross-sectional unit. This enables the patterns over time to differ across countries, which is
important because we have no reason to believe that inequality evolves in the same way over
time in all countries. As recommended by Honaker and King (2007), I include lags and leads
for my central variables, the three measures of inequality. I also include all control variables.
11. See the appendix in Houle (2009) for more information on this imputation process.
12. The results reported in Tables 9.1 and 9.2 are estimated by the same regressions. Dynamic
probit models estimate the likelihood of transitions to and from democracy at the same
time. The results are reported separately to facilitate interpretation.
13. Only nonimputed capital shares are included when calculating the F-statistic. It is 56.69
when all observations are included.
14. Regressions using instrumental variables were run separately for democratization and
consolidation, which explains the lower number of observations (e.g., only autocracies
are included in column 2). This is done in order to limit the number of instruments
needed and does not affect the validity of the results.
15. Freeman and Quinn (2012) argue that such a relationship does not exist for democratic
consolidation.
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Chapter 10
Ethnici t y a nd
Devel op me nt
Nic Cheeseman
There is a growing consensus that ethnic diversity is bad for development. Higher levels of
ethnic fragmentation are commonly thought to make it less likely that governments deliver
public goods, make productive investments, and generate economic growth. In short, other
things being equal, countries that feature more ethnic groups are likely to be poorer than
countries with fewer ethnic groups. Thus, Easterly and Levine’s (1997) influential study finds
that, on average, “highly diverse” countries have GDP growth rates that are 2 percent lower
than “less diverse” countries. To understand why this has become received wisdom, it is
important to understand the basic intuition behind these arguments: Imagine an ethnically
diverse country in which political competition is predominantly structured around ethnic
groups, such that leaders mobilize support on the basis of ethnic appeals and owe their
votes to distinct communities, and voters expect to be locked out of access to government
services unless “one of their own” is elected to power.
How might ethnic diversity shape political outcomes in such a country? At the local
level, when ethnic divisions are salient, different communities are likely to view each other
as rivals for scarce resources. In turn, because ethnic groups see each other as competitors
rather than as collaborators, it becomes less likely that they will be able to overcome
collective action problems in order to pool their resources and promote local develop-
ment. At the same time, because voters lack trust in communities other than their own,
they are less willing to support governments that propose to redistribute resources to
them. Instead, leaders elected on the back of campaign pledges to further the position of
the ethnic group are likely to be evaluated on the basis of their ability to deliver resources
to the community.
This means that, at the national level, aspiring politicians are incentivized to avoid pro-
viding public goods—which by definition can be consumed by all citizens—in favor of
collective or private goods that can only be consumed by their supporters. Leaders are
therefore less likely to invest in areas such as health, education, or the construction of
effective communications systems and road networks (Collier, 2007). In the worst-case
scenario, these bottom-up and top-down pressures combine to create a perfect storm in
which leaders do not want to provide public goods, and citizens do not want to receive
Ethnicity and Development 163
them. This directly undermines development if we understand development to refer to

the provision of roads and healthcare; indirectly it also undermines development to the
extent that economic growth is dependent on a skilled workforce and a viable national
infrastructure.
But although these arguments are intuitively appealing, they are not all as strong as they
first appear. Most significantly, what matters is not simply the degree of ethnic diversity
but whether or not ethnic divisions have been politicized. It may be true that some of the
world’s least developed countries are ethnically diverse, such as the Democratic Republic of
Congo (DRC), but if we understand “ethnicity” in a broad sense to include racial, religious,
and linguistic groups, so are some of the most developed countries, most notably the United
States of America. As the first section of this chapter demonstrates, ethnic identities do not
just exist, they evolve and change over time. The appropriate question to ask is therefore
not: “How diverse is that country?” But rather: “Has ethnicity been politicized and, if so, in
what way?”
Once we have adopted this change of focus, there are still reasons to question just how far
the focus on ethnicity and public goods can explain the lack of development in the world’s
poorest states. In the second section I show that while there is some good evidence that
public goods are less likely to be provided in more ethnically politicized areas, much of the
cross-national research in this area is based on dubious data. This is in part because it is
extremely difficult to measure ethnicity, ethnic politicization, and public goods provision—
which in turn raises serious questions about the reliability of the data that researchers use
to study ethnicity and development.
The third part of the chapter then considers the evidence that ethnic politics leads
governments to pursue economically unproductive policies. Again, at first glance the
evidence appears strong—after all, sub-Saharan Africa is one of the poorest areas in the
world, and it is the continent with some of the most ethnically diverse, and politicized,
societies. But it is actually very difficult to differentiate the impact of ethnicity from
the wider political environment—colonial legacies, natural resource endowments, un-
equal access to world markets, the size of the private sector, and so on. It is possible,
for example, that rather than ethnicity undermining development, the politicization of
identities and poor economic performance are both manifestations of a third under-
lying factor: the combination of weak institutions and strong social structures that is
epitomized by the emergence of neopatrimonial politics. After all, it is clear that even
in the most divided societies citizens greatly value the provision of infrastructure and
education. The explanation of why these services are not provided must therefore go
beyond ethnicity.
But despite these caveats, ethnicity remains an important part of this story. Communal
identities may only undermine development when politicized, but it is also true that once
strong ethnic identities are present it becomes easier for leaders to retain political support
even if they perform poorly, which in turn undermines political accountability. The fourth
and final section of the chapter therefore reflects on how ethnicity can best be managed. It
demonstrates that it is unfeasible to make highly diverse societies homogenous, and instead
argues that inclusive political institution and higher levels of social interaction between
different communities can reduce the political salience of ethnicity and so break the link
between ethnicity and development.
164 Nic Cheeseman
Understanding Ethnicity
Much of the early literature on ethnic groups, or “tribes,” assumed that identities were set
in stone: that groups existed as clear and coherent entities, that group culture was relatively
stable, and that being a member of a community was simply a question of being born into it.
However, from the 1950s onwards, anthropologists, historians, and political scientists have
increasing rejected “primordialist” notions of ethnicity because they fail to explain the way
that identities change. In light of changes in the prominence, size, and definition of ethnic
groups over time, it became clear that any theory of ethnicity must take into account human
agency. Terence Ranger’s hugely influential (and no less controversial) work on the inven-
tion of tradition in Africa argued that far from being set in stone, the notion of African
tribes led by a chief had been “invented” by colonial rule (1983). Of course, he did not mean
that communities with a common lineage or language magically appeared in the space of a
few short years, but that the institutionalization of identities into rigid tribes and the cen-
tralization of power under chiefs was the product of imperial design.
Ranger’s article inspired a range of responses. Against the notion that ethnicity was largely
a product of top-down processes of European invention, Leroy Vail demonstrated the great
significance of what he called “cultural entrepreneurs” (1989), individuals who sought the
advancement of their communities by investing their time and energy in reimagining—and
in many cases reifying—the practices of their people. This process was not simply benign. By
playing divide-and-rule politics, colonial authorities actively encouraged political, cultural,
and economic competition, and local leaders pursued cultural innovation as means of soft
power in order to advance their (and their communities’) causes. Vail therefore concluded
that ethnic identities were as much constructed from below as they were imposed from
above—a position largely accepted by Ranger himself in his later work (1993).
A similar concern with the way in which identities are constructed animated Benedict
Anderson’s analysis of nationalism in his seminal work, Imagined Communities (1991).
By focusing his attention on the causes of nationalism and the processes through which
nation-states come into being, Anderson demonstrated that nations are effectively imagined
communities that come into existence under certain conditions. In particular, he argued
that nationalism was promoted by the spread of a shared language, myth of origin, and set
of cultural reference points, all of which were furthered by the democratization of educa-
tion and the capacity to read and write, and by the emergence of the printing press, which
standardized the spelling and grammar of the national language and disseminated it to the
masses. Although Anderson was writing about nationalism, much of his argument is ap-
plicable to ethnic groups: In Africa and Latin America, for example, the standardization of
languages through mission education and the translation of religious texts contributed to
the emergence of stronger ethnic identities.
Many of these arguments regarding the dynamic nature of ethnicity had already been
anticipated by earlier studies of processes of cultural continuity and change in urban areas.
In the 1930s, anthropologists from the Rhodes-Livingstone Institute (RLI), working under
the direciton of Max Gluckman, found that ethnic identities were often heightened in urban
areas as a result of the competition between members of different groups over jobs and
services. The salience of “tribalism” was not simply a product of greater ethnic diversity in
urban areas, though; ethnicity rose to prominence because it was an important resource.
Coethnics could help each other to find a job and a place to stay, could lend money when
times were hard, and were more likely to share a common set of cultural and religious
frameworks. In other words, ethnicity, and ties to coethnics, had real implications for an
individual’s material and social well-being. This point has been echoed by contemporary
work on migration, which often emphasizes that transnational ethnic, linguistic, and re-
ligious networks are particularly valuable to immigrants because they represent a form of
social capital that allows new arrivals to gain credit and access to business communities.
When understood in this way, it is clear that the relationship between ethnicity and eco-
nomic development is not always negative (Bates, 2000).
But while Clyde Mitchell and his colleagues at the RLI never doubted the import of eth-
nicity (1956), they also recognized that the way it shaped behavior was complex. Arnold
Leonard Epstein’s (1981) work on the Zambian copperbelt found that people had a number
of identities available to them and selected which one to embrace at any given moment
depending on the context. When individuals had a civil dispute they tended to embrace
their ethnic heritage and submit themselves to traditional courts that made decisions based
on custom—however defined. But when the same individuals campaigned to establish
better working conditions in the copper mines they rejected representation along ethnic
lines and instead asserted their class identity as workers. Like Anderson, Vail and the later
Ranger, Epstein demonstrates that ethnicity becomes salient under particular historical, so-
cial, and political conditions that give communal identities meaning and provide incentives
for individuals to invest in them.
The idea that individuals can choose which identities to invest in—that, to this extent,
ethnic identities are constructed when individuals come to see ethnicity as the most effective
way of achieving their goals—is the foundation of the constructivist school (Posner, 2005).
Political scientists have built upon this insight by focusing less on how many ethnic groups
exist in a given country and more on the question of when and how ethnicity becomes
politicized. This is an important question because there is great variation in the extent to
which ethnicity matters for political and economic outcomes, even in diverse societies. In
his oft-cited study of electoral politics in India, Steven Wilkinson (2006) investigates when
leaders do and do not seek to incite interethnic violence. Focusing on political competition
at the town level, he starts from the premise that Hindu nationalist parties that represent
the upper castes, such as the Bharatiya Janata Party (BJP), will naturally struggle to mobi-
lize lower castes. However, party leaders know that lower-caste Hindus are likely to vote for
a Hindu nationalist party if their sense of ethnic identity is intensified to the point where
it drowns out their “class” interests; and this can be achieved by inciting riots between the
Hindu majority and the Muslim minority. But organizing riots is costly, and so leaders are
most likely to employ this strategy when they really need to: Interethnic violence is there-
fore most likely to occur in the run-up to close elections.
By contrast, at the state-level, leaders may actually have an incentive to prevent ethnic vi-
olence. Wilkinson (2006) suggests that where a viable Muslim party contests a seat, or where
the number of Muslim voters is high enough to mean that they can determine which of two
Hindu parties wins power, leaders have an incentive to address the concerns of Muslims. As
these concerns are predominantly security related, state-level leaders stand to gain by ac-
tively preventing interethnic violence. The take-home message of Wilkinson’s work is there-
fore that the extent to which political leaders decide to exacerbate ethnic tensions depends
166 Nic Cheeseman
on “whether doing so will help or hurt them politically” (2006, p. 232). Thus, even in coun-
tries with as pronounced ethnic and caste divisions as India, the use of ethnic strategies by
political leaders is likely to vary across space and time. This has profound implications for
the relationship between ethnicity and development. The explanation of poor economic
performance is not simply whether or not a society is diverse, but whether it features the
background conditions that lead to the political mobilization of communal identities.
Ethnicity, Public Goods, and Development
The provision of public goods such as primary schools, a national road network, and clean
air is significant to the development of both individual citizens and an effective national
infrastructure capable of attracting investment. But public goods are notoriously difficult
to provide: Since they benefit everyone, individuals cannot be punished for failing to con-
tribute to the production of the good by being excluded from benefits it generates. Under
these conditions, a rational, utility-maximizing individual would know that he can profit
from the project without contributing, and so would sit back and relax while others do the
work (“free-riding”). If everyone does this, the public good never arrives. This is the classic
collective action problem (Olson, 1971). A self-interested individual will only help out if the
cost of contributing is less than the benefit she is likely to receive, and if she believes that
her contribution is critical to the success of the project—an unlikely event, given the size
and scale of most public goods.
Of course, public goods do get provided because this sort of collective action problem
can be overcome in a number of ways. Local communities can find other strategies to
punish individuals who fail to cooperate in the provision of a public good—for example,
ostracizing them. Where such sanctions cannot be imposed, individuals may still seek to
contribute if they feel a sense of solidarity, charity, or civic responsibility. Strong communal
identities that give rise to a sense of common cause—such as ethnicity—can therefore facil-
itate the provision of public goods. However, the benefits of communication and solidarity
that may emerge within a given ethnic group are not likely to be replicated in multiethnic
contexts, in which individuals would need to join forces across ethnic lines in order to
provide public goods. This is one of the main reasons that many political scientists and
economists predict that less homogenous countries will find it harder to secure develop-
ment. It is therefore important to remember that it is not ethnicity that creates barriers to
the provision of public goods, but ethnic diversity.
Although a number of studies have documented the negative relationship between ethnic
heterogeneity and the provision of public goods, the precise mechanisms through which
this process may work are rarely systematically set out and tested. Responding to this gap
in the literature, Habyarimana et al. (2007) propose three potential mechanisms through
which ethnic diversity may effect the provision of public goods: preferences, technology,
and social sanctioning.
Preference mechanisms are based on the idea that certain communities might have
different preferences regarding the goods that they would like to be provided. If this is the
case, then different communities will find it harder to agree on what public goods to pro-
vide, which would help to explain low provision (Habyarimana et al. 2007, pp. 701–7 12).
Technology mechanisms refer to the greater ease that members of the same ethnic group
may have when working with members of their own community. Such advantages can be
divided into two sub-categories. On the one hand, homogenous communities may have an
advantage because they share a common language, history, and culture that enables them to
work more efficiently, which Habyarimana et al. refer to as an efficacy mechanism. On the
other hand, homogenous areas may suffer less “free-riding” because it is easier for coethnics
to find and punish those that do not cooperate, a dynamic that they term findability.
The third main category of potential explanations that Habyarimana et al. document
are social sanctioning mechanisms, a category that is based on the idea that a group may
develop a norm of sanctioning group members that simply does not apply to nongroup
members. This would be similar to the common notion that one has a greater duty to aid
close family members than others to whom one is not related. If such logic holds at the level
of ethnic groups, we should expect to see more cooperation among members of the same
group as a result of entrenched social practice. Social sanctioning is a different mechanism
than technology, because it implies that even when those seeking to provide public goods
can punish everyone for noncooperation, they only actually look to sanction coethnics.
Of course, these mechanisms are not mutually exclusive—ethnic diversity could under-
mine public-goods provision through a combination of all three. Indeed, Habyarimana
et al. (2007) find evidence for all three mechanisms in the existing literature. But they also
investigate which mechanism is the most important by playing a series of games designed
to simulate different collective action problems with randomly selected individuals in
Uganda. They find no evidence at all to support the preference hypothesis or the argument
that coethnics are more efficient at working together (i.e., the efficacy explanation). Instead,
they find that the greater productivity of more homogenous communities is based on the
fact that members are better able, and more willing, to sanction each other.
In explaining their findings, they argue that members of the same communities are better
able to identify and monitor the activity of coethnics through social networks, and so they
are in a better position to prevent free-riding. Thus the second aspect of the technology
mechanisms, findability, has an important role to play. However, this is conditional on the
fact that coethnics are more likely to be motivated by norms of reciprocity. In other words,
the greater ability of co-ethnics to “find” each other increases the likelihood that public
goods will be produced, but only because people of the same community are more likely to
expect others to contribute to group endeavors and to feel a duty to contribute themselves.
Combining these insights, they conclude that “the positive impact of ethnic homogeneity
on collective action stems directly from the ability of ethnic ties to induce more cooperative
behavior among those individuals who, absent the social connection provided by ethnicity,
would be least likely to cooperate” (Habyarimana et al. 2007, p. 724).
The danger of Habyarimana et al.’s excellent contribution is that it risks giving the impres-
sion that ethnicity will always have such negative consequences. They find that ethnicity is
an important factor because they are operating in Uganda—a country in which ethnicity
has been politicized and then repoliticized over time. To find out whether ethnic diversity
has the same effect in a country with a different history requires cross-national research.
But relatively little work of this kind has been done, and many of the large-n studies1 that
have been conducted are based on dubious data. In part, this is because it is extremely dif-
ficult to measure ethnicity and ethnic diversity. For example, is it better to measure ethnic
groups or language groups, which are often broader identities that draw together a number
168 Nic Cheeseman
of different ethnic communities? There is no straightforward answer to this because, as

Daniel Posner (2005) has shown, the identity that is relevant changes according to what you
are looking at. Larger identities are most likely to come to the fore in contests for power at
the national level, whereas ethnic identities are more relevant for subnational issues.
Even if we can agree on what we want to measure, we still have to decide how to measure
it. As Posner (2004) points out, there are at least seven different ways that political scientists
have attempted to measure ethnic diversity, with radically different results. For example,
on a 0–1 scale, in which 0 = the most homogenous population and 1 = the most diverse
population, Somalia scores 0.81 on the basis of the formula employed by Alesina, Baqir and
Easterly (1999), but only 0.08 according to the commonly used ethno-linguistic fraction-
alization measure (Posner, 2004, p. 856). Such vast discrepancies suggest that the different
findings presented in the literature are in part driven by different ways of counting groups
and calculating diversity (Montalvo and Reynal-Querol, 2005).
What is needed is more cross-national work that first investigates the ethnolinguistic
background of the area and is able to pay attention to local specificities. Where such anal-
ysis has been done, it has demonstrated that the impact of ethnicity varies considerably
across countries. This point is brought out best by Edward Miguel’s (2004) influential re-
search on whether more ethnically diverse communities were less successful in providing
public goods in Kenya and Tanzania. In the Kenyan case he finds that the relationship holds.
Homogenous communities are far more successful at raising money to provide school
facilities than more diverse communities. But Miguel finds that this relationship does not
hold in Tanzania. Thus, “while Kenyan communities at mean levels of ethnic diversity have
25 percent less primary school funding per pupil than homogeneous areas on average, the
comparable figure for the Tanzanian district is near zero and statistically insignificant”
(Miguel 2004, p. 328).
This variation is explained by the profoundly different approaches the two countries took
to managing ethnicity after independence. In Kenya, President Jomo Kenyatta (1964–1978)
eschewed any real attempt at nation-building and instead adopted a survival-of-the-fittest
approach to development, in which communities were expected to help themselves be-
fore they looked for central government assistance. Access to power and wealth was not
distributed equally; rather, members of Kenyatta’s Kikuyu ethnic group and other allied
communities received favorable access to political office, land, and credit, which resulted in
growing inequality between different communities, intercommunal jealousy, and distrust.
This winner-takes-all approach to politics was subsequently entrenched under the pres-
idency of Daniel arap Moi (1978–2002), who promoted the interests of his own Kalenjin
community at the expense of the Kikuyu and also employed ethnic violence to intimidate
opposition supporters following the reintroduction of multiparty politics. Under these
conditions it is hardly surprising that members of different communities struggle to work
together.
By contrast, Tanzanian president Julius Nyerere adopted a top-down Jacobean approach
to nation-building, emphasizing a unified Tanzanian culture and the importance of national
unity. As part of this policy, Nyerere promoted the adoption of Swahili as a common lingua
franca in order to overcome ethnic differences, while the education system was used to pro-
mote a sense of civic identity. Consequently, the nation-building process in Tanzania served
to deemphasize ethnic divisions and to constrain horizontal inequality. Because ethnic
divisions are less pronounced, ethnic diversity has a negligible impact on public-goods
provision. Ethnic diversity is thus not always bad for development: What matters is the way
that ethnic cleavages are entrenched or diluted over time.
But while Miguel’s work represents a significant contribution to the debate, it only gets
us so far. For example, for all of the research that has been done over the years, we lack a
compelling account of what level of ethnic diversity is worst for development. Are four
medium-sized groups worse than two large ones? Habyarimana et al.’s (2007) argument that
ethnic homogeneity is good for public-groups provision suggests that this is the case. But it
may also be true that higher levels of ethnic diversity are better for development than mod-
erate levels: When there are many smaller ethnic groups, they cease to be useful vehicles
for political mobilization, and ethnicity is less likely to become salient. In other words,
the relationship between ethnic diversity and development could be linear or it could be
shaped like an inverted U; to make matters even more complicated, variations in the in-
ternal structures of ethnic groups and how they relate to one another means that this rela-
tionship may work in different ways in different countries.
Neopatrimonialism, Winner-Takes-All
Politics, and Development Policy
Many of the most ethnically diverse countries in the world are in sub-Saharan Africa. The
majority of the worst governed states in the world are on the same continent. And many
of the poorest people in the world live in those states. It is not hard to connect the dots
between ethnicity, economic mismanagement, and poverty (van de Walle, 2001). Yet pre-
cisely because many of the countries that are most ethnically diverse experienced colonial
underdevelopment, postcolonial conflict, and weak political institutions, it is very difficult
to work out precisely what role ethnicity plays in this process.
The conventional wisdom is that ethnic politics undermines the conditions needed for
economic transformation. To see why, it is useful to begin by considering Peter Evans’s
(2005) explanation for the economic success of “tiger” economies such as South Korea
and Taiwan. According to Evans, economic growth in these states was facilitated by the
emergence of an alliance between industrializing elites and meritocratic and rule-bound
bureaucracies. This concentrated network of actors was able to articulate and defend ec-
onomic policy—a phenomenon that Evans refers to as “embedded autonomy,” in order to
highlight both the collusion between these actors and their relative insulation from social
pressures. When they were so minded, such elite alliances were able to use their privileged
position at the apex of political and economic power to promote economic growth, making
tough decisions with short-term costs but long-term benefits—which Evans argues helps
to explain why the economies of countries such as South Korea grew at such an impressive
rate in the 1970s and 80s.
Another way of putting this argument is that long- term economic development
hinges on the ability of leaders to ignore, or overcome, pressure to divert expenditure to
improving standards of living in the short term. In this regard, the tiger economies were
well placed: Typically, they were relatively equal societies, featured authoritarian regimes
capable of repressing trade union activity, and were significantly less ethnically diverse
170 Nic Cheeseman
than their African counterparts. As a result, governments could push ahead with economic
policies, popular or not.
When such conditions are not present, leaders are often forced to compromise long-term
economic goals for short-term expediency. This point is brought out well by Kohli’s (2004)
path-breaking book on state-directed development in Brazil, Nigeria, and South Korea,
which seeks to explain why the success of the Asian tigers was not replicated in many Latin
American and African countries. In the case of Brazil, Kohli suggests that the main barrier
to growth has been the combination of high levels of economic inequality and a strong and
entrenched trade union movement; as a result of these two factors, the government has
constantly been forced to accommodate union demands for higher wages, compromising
on its inflation and fiscal policy. In the case of Nigeria, Kohli identifies a somewhat different
problem: the disruptive impact of ethnic groups, who expect their leaders first and foremost
to look after their interests. Just as with union demands in Brazil, the need for African po-
litical leaders to appease their communities leads to a distortion of economic priorities, and
diverts attention away from long-term investment, toward short-term consumption.
But as Kohli recognizes, the problem in the Nigerian case is not so much ethnicity as
the neopatrimonial political systems within which it is embedded. In neopatrimonialism
systems, “traditional” forms of authority, such as the power accruing to an individual from
their position as the leader of a particular ethnic group according to local custom, are fused
with the “rational-legal” authority that comes with the bureaucracy of a modern state. One
of the distinctive features of this sort of political system is that informal institutions (such
as personal networks) shape how formal institutions function and vice versa. Typically, the
ability of political leaders to draw upon the personal support of members of their commu-
nity and other close allies enables them to undermine the checks and balances that formal
institutions are supposed to place on executive power. The outcome of this process is the
personalization of politics and the use of public resources for personal gain. But with great
power comes great responsibility: Leaders who derive their authority from their position
within a particular ethnic group are placed under great pressure from members of their
support network to channel resources down the network.
The problem with this is that what clients demand is rarely long-term economic growth;
rather, leaders are expected to legitimate themselves by directly contributing to their com-
munity and by rewarding their supporters. Because this is the primary way in which the
performance of office holders is evaluated, political entrepreneurs know that they are far
more likely to lose popularity if they fail to provide largesse than if they are caught engaging
in corruption. Incumbent rulers therefore face strong incentives to manipulate economic
policy and state resources to keep their personal networks (and, of course, their pockets)
well greased. Thus Kohli concludes that, just like their Brazilian counterparts, Nigerian
policy-makers are not insulated from social pressure; it is this, along with the weak checks
and balances on their activities, which causes long-term goals to be sacrificed.
As one of the two main ingredients of neopatrimonial politics, strong ethnic identities
are central to this story. But so is the existence of a weak set of political institutions that
were transplanted onto strong societies and failed to gain control over them. It was this par-
ticular process of historical development in the context of predominantly rural countries
with few institutions capable of integrating different communities into a broader national
identity that explains the link between ethnic diversity and economic growth in Africa.
In countries that have experienced different patterns of state formation—for example, in
which stronger and more durable political institutions evolved gradually over a longer pe-
riod of time, driven by processes of industrialization and urbanization, as in much of Latin
America and Europe—ethnic identities have not given rise to neopatrimonial politics, and
so the impact of ethnic diversity on development has been profoundly different.
The economic significance of ethnicity even varies within neopatrimonial states with
salient ethnic divisions, as demonstrated by Chandra’s (2004) research on the conditions
under which ethnic parties are successful in India. Chandra notes that in some cases a self-
reinforcing equilibrium emerges in which “voters expect co-ethnic elites to favor them in
the distribution of votes, and elites expect co-ethnic voters to favor them in the distribution
of benefits”—the model of “worst-case scenario” ethnic politics (2004, p. 47). But Chandra
also notes that in some cases ethnic parties fail. In seeking to explain why, she employs a
constructivist model similar to that of Wilkinson (2006), arguing that leaders and their
supporters are not bound by any primordial ties but by strategic considerations of how best
to access state resources.
Chandra’s explanation of the prevalence of ethnic voting is that it enables voters to over-
come information deficits. Put simply, it is hard for voters to know if different parties and
leaders have policies that will benefit them and are likely to keep their promises. So people
vote for parties in which coethnics are heavily represented in the leadership because this
is the easiest way for them to maximize their expected gain from voting. On Chandra’s
model it follows that an individual is most likely to vote for a party when it is dominated
by coethnics and when other parties contain no coethnics. The more indistinct the compo-
sition of the leadership of different parties, the less pronounced “ethnic voting” should be.
Chandra tests her argument by looking at the support for the Scheduled Castes (lower
castes) for “their” party, the Bahujan Samaj Party (BSP), in three Indian states. She finds that
the BSP only failed to monopolize the vote among Schedule Castes when Schedule Caste
elites were overrepresented in other parties. In these constituencies, in which established
parties did a better job of including marginalized communities, ethnic politics was less pro-
nounced. Of course, there is more to ethnic politics than just headcounts—Chandra does
not offer a full account, for example, of the reason that people come to expect coethnics to
deliver greater benefits to them in the first place—but her analysis serves as an important
reminder that it is not inevitable that ethnically diverse countries will feature “ethnic pol-
itics”; thus, there is no reason to expect that ethnic diversity will always lead to negative
developmental outcomes.
How to Solve a Problem Like Ethnicity
The good news is that, as the constructivists have so ably demonstrated, ethnicity is mal-
leable: If it can be mobilized into politics, it can be mobilized out of politics. Over the
past forty years, political scientists, constitutional drafters, and political commentators have
been locked in a continuous debate over how to best manage and overcome ethnic tension
(Jukes et al., 1998). One possible solution would be to move toward more homogenous
countries. This idea makes intuitive sense: If the problem is ethnic diversity, then why not
split up diverse countries into a set of homogenous nation-states? You might reply that ec-
onomic growth is not everything, but liberal political theorists have also argued that if we
172 Nic Cheeseman
want to promote equal and fair societies we have reason to value homogenous communities
(Miller 2000), because wealthier people are less likely to agree to pay high taxes in order
to subsidize poorer people if they belong to different ethnic groups and thus have weaker
bonds of reciprocity and trust.
But the idea of making countries more homogenous has a number of flaws that, leaving
aside normative concerns about whether or not it is ethnical to restrict the free movement of
people, relate to the feasibility of creating more homogenous political units. First, allowing
subnational groups to secede only works if communities are geographically concentrated.
If members of different groups are spread roughly equally across the country—as is the
case, for example, in Rwanda—then simply dividing the population into separate countries
becomes unfeasible.
Second, even if it was practically feasible to allow widespread secession, converting mul-
tiethnic states into ethnic-states would mean radically redrawing state borders. But this
stands in tension with existing international norms. Although there was an impressive in-
ternational consensus on the right of the people of South Sudan to determine their own
future, and the United Kingdom allowed the people of Scotland a vote on independence,
in general states are too concerned to protect their own sovereignty to support the notion
that subnational ethnic groups should be allowed to form their own states. South Sudan was
an exception, not the rule: “Proto states,” such as Tranistria in Moldova and Somaliland in
Somalia typically go unrecognized by the international community.
Of course, the less extreme option of simply restricting immigration does not suffer
from any of these drawbacks. But it has other major defects. Most obviously, it would do
nothing for states that are already diverse. Furthermore, there are good reasons to think
that restricting immigration may actually have a negative impact on long-term economic
development. Immigrants often arrive with different skills to the host population. This is
most obviously the case when states allow economic migrants to enter the country so long
as they have specialized skills and fill jobs that could not be done by nationals. In such
cases, restricting immigration is likely to harm the ability of employers to find skilled labor,
undermining labor market flexibility and productivity, which, in turn, renders the economy
less competitive and so undermines long-term economic growth.
What other more feasible solutions might there be? One of the longest-standing debates
in political science has been which set of governing institutions are most likely to reduce
ethnic tensions. On one side, Arend Lijphart (1977) has argued in favor of systematically
including key groups in the political system though a “consociational” model of democracy.
Based on his own interpretation of the historical experience of the Netherlands between
1918 and 1967 (other cases include Belgium, Lebanon, and Switzerland), Lijphart puts for-
ward a model with three key elements: federalism, so that groups may have a degree of self-
government; minority veto, so that smaller communities cannot be dominated by larger
groups on issues that directly concern them; and power-sharing, so that executive power is
shared by allowing all of the main groups to have seats within the cabinet. Lijphart argues
that such a model has two main strengths: First, the inclusion of minorities within the po-
litical system will enhance the legitimacy of the system itself. Second, the granting of a veto
to minority groups will foster a spirit of compromise, as bigger groups will need to secure
the support of smaller groups if significant changes to the political system are to be effected.
Both developments could mitigate the salience of ethnic cleavages and hence the tension
between ethnic diversity and development.
Against this, Donald Horowitz (2004), among others, has suggested that a consociational
system involves explicitly recognizing ethnic differences and organizing the political system
around them, and so risks institutionalizing ethnicity. As a result, this system undermines
the evolution of an “ethnically blind” society. Moreover Horowitz argues that Lijphart’s
elaborate model requires such a degree of collaboration between different groups in order
to be established that it will only work in countries where there is already a significant
degree of trust within the population. In other words, it is least effective where it is most
needed. Underpinning Horowitz’s critique is the notion that Lijphart’s approach is wrong-
headed: Instead of forcing inclusion and hoping that leaders act cooperatively, we should
look for ways to reshape the political game so that leaders find that it is in their interest to
broaden their support base.
Horowitz (2004) therefore proposes the introduction of the alternative vote (AV) elec-
toral system, in which individuals vote by ranking parties in order of preference and if no
candidate wins over 50 percent of the poll, the votes of the lowest candidate are reallocated
to voters’ second choices. Horowitz concludes that such an electoral system would militate
against ethnic politics because in divided societies political leaders would need to pick up
second preference votes from rival communities in addition to first choice votes from their
own community in order to win; therefore there would be strong incentives to design more
inclusive campaigns. However, many critics have noted that, in reality, AV systems such as
the one introduced in Fiji often fail to generate more inclusive parties.
Given this, the way forward would seem to be to combine elements from both models in
order to produce a political system that both formally protect minorities and that generate
incentives for leaders to pursue more inclusive strategies such as the provision of public
goods. In postconflict countries such as Burundi, the introduction of formal quotas to guar-
antee different communities a share of jobs and leadership positions in strategically signifi-
cant areas such as the police and the army, along with the requirement that parties could not
run ethnically homogenous slates, prevented the resumption of straightforwardly ethnic
politics and helped to manage (though by no means end) ethnic tensions around the elec-
tion of 2005. By adopting an AV electoral system that would encourage political leaders to
appeal to a range of different communities, such countries could simultaneously foster new,
less divisive norms of political mobilization. In time, this would enable them to relax formal
quotas for ethnic representation, leading to a more inclusive and ethnically blind polity.
What might be done at the local level? As Habyarimana et al. (2007) conclude, the nat-
ural extension of their argument that ethnic diversity undermines development because
coethnics lack norms of cooperation and sanctioning, and have inferior mechanisms
through which to impose sanctions, is that the provision of public goods is likely to be
improved when the quantity and quality of interaction between members of different ethnic
groups increases. Interethnic interactions are important for two reasons: First, higher levels
of interaction make it more likely that cross-ethnic social networks will emerge to replicate
the ties that bind ethnic groups together. The more this happens, the more heterogeneous
communities will develop “technologies” to sanction uncooperative members. Second,
areas in which interethnic interaction is high are more likely to develop common norms
of cooperation and sanctioning so that individuals come to expect the same behavior from
individuals from different communities as they do from coethnics.
This latter argument had already been anticipated by the social-capital literature. Taking
the work of Alexis de Tocqueville as a leaping off point, Robert Putnam has long argued that
174 Nic Cheeseman
what makes democracy work is the quality and quantity of interactions between individuals.
Putnam (1993) suggests that when the number of interactions is higher—for example, when
most people come into contact with one another through their membership of a range
of civic organizations—bonds of reciprocity will form that will in turn build and sustain
higher levels of trust within society. Putnam refers to the sum total of this reciprocity or
trust as “social capital” and argues that this social capital is as important to the effectiveness
of democracy as economic capital is to the economy. This is because trust and reciprocity
encourage voluntary cooperation such that individuals are more likely to pay their taxes, to
support government expenditure that does not directly benefit them, and to group together
to solve problems that the government has not.
Another way to put this would be that communities with greater social capital are more
likely to overcome collective action problems and provide public goods. But not any kind
of interaction will do. Putnam recognizes that the range of interactions is important: If
individuals only form interactions with other individuals like them, what can result is a se-
ries of groups that are very internally cohesive but that comprise a very disjointed society.
What is required is thus a mixture of “bonding” institutions (which strengthen ties among
individuals from a shared background) and bridging institutions (which create new ties be-
tween individuals from different backgrounds). When both are present, ethnic diversity is
less likely to undermine economic development.
While Putnam focuses heavily on associational life as the foundation of reciprocity, ev-
idence suggests that a range of other ties may be just as important. Survey research has
found (a) that respondents married to someone from a different ethnic group are more
likely to adopt a “civic” outlook that emphasizes the national good rather than an “ethnic”
outlook that prioritizes the needs of a particular community and (b) that urbanites, who
live in more cosmopolitan areas and are more educated and have access to more informa-
tion, are less likely to vote along ethnic lines. Given this, the expansion of access to infor-
mation and education in Africa and Asia is likely to make it easier to manage the tension
between ethnic diversity and development in the future than it has been in the past.
Conclusion
Ethnicity, or more specifically ethnic diversity, is not inherently bad for development. But
when ethnic identities are politicized, intergroup competition can undermine the collective
action needed to provide local public goods, while ethnic voting can undermine the pressure
on political leaders to provide public goods at the national level. Taken together, these two
processes reduce the pressure on the government to develop an effective infrastructure,
consider the long-term implications of economic policy, and curb corruption. Two obvious
casualties of this outcome are economic growth and national development. However, eth-
nicity is always only part of the story. In many countries the politicization of ethnicity and
poor economic performance are intimately linked to a history of weak institutions and
strong social networks, and the roots of development failure cannot be fully understood
outside of this context. But what makes ethnicity (broadly understood) more “dangerous”
for development than other forms of identity, such as class, is that it facilitates the devel-
opment of neopatrimonial political systems in which leaders rarely provide public goods,
even if this would make them more popular with the electorate. How to manage ethnicity
is therefore a pressing challenge, but one that is unlikely to be met by simply homogenizing
society. Rather, it is the construction of stronger institutions and the fostering of higher
levels of social interaction between different communities that can end the relationship be-
tween ethnic diversity and development.
Note
1. “Large-n” refers to studies with a high number of cases.
References
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Chapter 11
Civil C on fl i c t
and Devel opme nt
Håvard Hegre
Conflict as Development in Reverse
Civil conflicts are among the most devastating social phenomena in the modern world.
They often have staggering death tolls—in Lebanon 1975–1990, for instance, about 145,000
out of the country’s population of 2.8 million were killed in battle (Lacina and Gleditsch
2005). On top of direct battle deaths come numerous other adverse consequences, such as
displacement of large populations, economic distortions and capital flight, the erosion of
public health systems, and undermining of social trust. Civil war is “development in re-
verse” (Collier et al. 2003, p. 13). At the same time, civil conflicts occur disproportionally
often in poor countries.
This chapter reviews the literature on the relationship between civil conflict and devel-
opment. First, I sketch definitions of the two concepts. I then discuss the empirical rela-
tionship between the two and review a number of explanations of why they are associated.
I then briefly visit the likely future of the conflict–development relationship as well as
development’s role in what some observers see as a global decline in armed conflict (Gat
2006; Pinker 2011).
Definitions of Development and Conflict

Development is a multifacted concept (Przeworski et al. 2000; Lipset 1959; Dahl 1971, pp. 1–
4); the literature on the relationship between conflict and development is equally multifac-
eted. Accordingly, the first step in weighing explanations of the relationship is to consider
the nature of development.
Developed economies are based predominantly on manufacturing and service produc-
tion, whereas nondeveloped ones derive most of their income from agriculture and other
forms of natural-resource extraction. Extensive manufacturing and service production
necessitate deep economic diversification—various sectors of the economy specialize and
178 Håvard Hegre
exchange goods and services with each other. Associated with this widespread speciali-
zation is a population and workforce that is skilled and educated—developed economies
cannot function unless they can draw on extensive human capital. This skilled labor is rel-
atively well paid—development, in most cases, means there is considerably less poverty
and a sizeable middle class. Manufacturing, in particular, also requires easy access to finan-
cial capital, and banking is typically an important part of the service sector of a developed
country. Nondeveloped countries, on the other hand, rely on capital in the form of land that
yields agricultural produce or other natural resources.
Development is also associated with demographic changes. High education levels lead
to lower fertility rates, and the absence of poverty to high life expectancy. When the demo-
graphic transition is complete, developed societies have modern demographic profiles with
a large elderly and a relatively small young population.
Development also requires some specific forms of political organization. Most impor-
tantly, adequate protection of property rights and economic actors is necessary to stimu-
late investments and protect the economic transactions essential to a diversified economy.
Moreover, governments are required to invest in essential infrastructure such as ports,
roads, and telecommunications. There is also a strong tendency that this political organiza-
tion takes the form of democratic government (Lipset 1959; Przeworski et al. 2000, pp. 1–4).
All these aspects of development tend to go together. When the population is educated,
financial capital is likely to be important, and infant mortality rates low. Some sources
of income, however (in particular, oil extraction), can produce wealth and other societal
changes that are less widely diffused throughout society. It is the widely diffused aspects of
“development” that is important here, not the presence of isolated pockets of highly wealthy
and developed activities.
Civil conflict is here taken to mean organized armed conflict between collective actors
within a sovereign state. The Uppsala Conflict Data Program (UCDP) provides a precise
and widely used definition of “armed conflict” (Themnér and Wallensteen 2011, p. 532):1
An armed conflict is a contested incompatibility that concerns government and/or territory

where the use of armed force between two parties, of which at least one is the government of
a state, results in at least 25 battle-related deaths in one calendar year.
Important aspects of this definition are “contested incompatibility,” which implies that both
parties have a stated political aim that motivates their fighting (governments fighting or-
ganized criminality falls outside this definition); “the use of armed force,” which rules out
nonviolent conflicts even if they occasionally lead to unorganized violence; and a threshold
in terms of the intensity of the use of violence—here, twenty-five deaths per year.
In some cases, civil conflicts do not involve the government—either because the gov-
ernment has ceased to function (as was the case in Somalia in the late 1990s) or because
the conflict involves disagreements between ethnic groups over territorial rights (such as
Dinka–Nuer conflicts in South Sudan or Afar–Issa conflicts in Ethiopia). The UCDP project
calls such conflicts “nonstate” conflicts. Although nonstate conflicts naturally fall within
the concept of civil conflict, the conflict literature has predominantly focused on armed
conflicts involving the government. This is partly because good data have been available
for several years through the Correlates of War project (Sarkees 2000) or the UCDP data
(Gleditsch et al. 2002) for this type of conflict, but not for others. Reflecting the distribution
Civil Conflict and Development 179
of relevant studies, I will mainly focus on state-based conflicts, but also note a few patterns
regarding other types of violence.
The Development–C onflict Correlation
Figure 11.1 demonstrates the strength of the relationship between development and armed
conflict. It shows the log infant mortality rate (IMR) in 1965 for all countries along the hor-
izontal axis, and the number of battle deaths in internal conflicts over the 1965–2013 period
divided by the population in 1965 along the vertical axis. The line is the average proportion
killed as a smoothed function of IMR. Most conflict countries are marked with country
names in the figure, whereas countries with no or very minor conflicts appear only with
nonmarked dots.
The figure shows that conflicts have disproportionally occurred in countries that had high
infant mortality rates in 1965. The main exceptions are the conflicts in Northern Ireland
and the Basque countries. Russia (Caucasus), Israel/Palestine, Sri Lanka, and Lebanon
are exceptions among upper-middle income countries, but the three latter conflicts were
extremely lethal.2 The remainder of the fifty or so conflict countries are almost all in the
poorer half of the world’s countries. The figure also shows that conflicts typically were most
lethal in the poorest countries.
4%
Afghanistan
Lebanon
Cambodia
Proportion of population killed in battle, 1965−2013
2%
1%
El Salvador
Nicaragua
Syria
0.5% Somalia Uganda Sri Lanka
Chad
Congo
Iraq
Guatemala
S Leone
0.25% Sudan
Liberia Rwanda Zimbabwe Israel/Palestine
DR Congo
0.1% Burundi
Yemen Colombia
Libya
Turkey
200 100 50 25 12
Poverty in 1965: Infant mortality rate
Figure 11.1 Deaths in Internal Conflicts, 1965–2013, vs. Poverty, 1965

Sources: For battle deaths, Lacina and Gleditsch (2005) and Themnér and Wallensteen (2014), based on Upsala Conflict
Data Program (UCDP). For infant mortality rates, United Nations (2011).
180 Håvard Hegre
The Extent to Which Conflict Is Due to Development

A string of recent studies have identified the “correlates” of civil conflict by means of time-
series cross-national statistical studies designed to assess the effect of variables on the risk
of civil conflict onset, controlling for other variables. All these studies find a strong link be-
tween development and internal conflict, measured as GDP per capita (Collier and Hoeffler
1998; Fearon and Laitin 2003), energy consumption per capita (Hibbs 1973; Hegre et al.
2001), or infant mortality rates (Urdal 2005). The pattern apparent in Figure 11.1 cannot
simply be attributed to other factors such as political system, former colonial power, geo-
graphical location, or a preexisting history of conflict. Hibbs (1973) and Hegre et al. (2001)
indicate that the relationship between development indicators and political violence or the
risk of armed conflict may be curvilinear, with the highest amount of violence in middle-
income countries. At least, it seems that the difference between the poorest countries and
lower-middle income countries is smaller than between lower-middle and upper-middle
income countries.
The strong relationship between development and conflict applies to governmental
conflicts as much as to territorial or secessionist ones (Buhaug 2006). Similarly, clear neg-
ative correlations have been found between development (typically measured as GDP per
capita) and the risk of military coups (Belkin and Schofer 2003; Rød 2012), and the risk of
violence against civilians perpetrated by insurgents (Wood 2010) as well as governments
(Sundberg, 2009, p. 21). Harff (2003) finds trade openness—at least partly an aspect of de-
velopment as defined—to be associated with a lower risk of genocides among failed states.
It seems that what matters is primarily the poverty of the country as a unit. Indicators of
individual-level economic inequality have not been found to have a robust association with
the risk of civil conflict (Collier and Hoeffler 2004; Hegre and Sambanis 2006). This con-
clusion has recently been challenged, however. Boix (2008) find countries with a large pro-
portion of small family farms (in contrast to large landowner estates) have a lower risk of
political violence. Moreover, studies such as Stewart (2002), Østby (2008), and Cederman,
Weidmann, and Gleditsch (2011) indicate that ethnic groups that are relatively disadvan-
taged have a higher propensity for involvement in conflict. Reflecting the group nature of
conflict, group-level measures are more relevant to assess the importance of more localized
patterns of violence. Possibly contradicting this conclusion, a couple of studies indicate
that conflict events tend to occur in relatively centralized and well-to-do parts of conflict
countries (Raleigh and Hegre 2009; Hegre, Østby, and Raleigh 2009), but these studies only
capture the targets of violent events, not the poverty of the perpetrators. Moreover, several
studies indicate that oil dependence increases the risk of conflict, controlling for GDP per
capita and other factors (e.g., Fearon and Laitin 2003). This may not be so much because
oil in itself is conducive to conflict as the fact that a country that is rich due to oil may be
less developed as defined above than one whose wealth primarily relies on labor-intensive
services and manufacturing.
Most internal conflicts have taken place in countries that were poor in the 1960s.
Figure 11.1 suggests the most lethal conflicts predominantly have occurred in the poorest
countries—examples are those in Afghanistan, Cambodia, Liberia, and El Salvador, all
with direct death tolls exceeding 1 percent of the population. There are several exceptions,
however—most notably the conflicts in Lebanon, Sri Lanka, and Israel. Lacina (2006) does
not identify any correlation between poverty and the number of battle deaths per capita
per year. What she finds is that wars are particularly severe in nondemocracies, when they
last long.
The relationship between conflict and poverty is robust to alternative model specifications.
Poverty is a more robust predictor than political institutions, for instance, and virtually all
published studies find it to be significant, even when controlling for the Cold War, neigh-
borhood conflicts, regional variables, and other predictors.3
As in all cross-national studies of development, data quality is an issue. GDP estimates are
uncertain in poor countries (Jerven 2010), and several countries are missing data. However,
the statistical relationship between GDP per capita and risk of armed conflict seems to hold
up in studies that deal with bias from systematic differences in data availability in conflict-
ridden countries (Honaker and King 2010). Moreover, the relationship holds using different
indicators for poverty, such as infant mortality or energy consumption per capita.4
How Conflict Affects Development

The studies cited so far simply assume that variations in development is causally prior to
conflict, but this is not necessarily the case. Conflicts might be development in reverse: “In
such condition, there is no place for Industry, because the fruit thereof is uncertain,” as
recognized by Hobbes (1651/1968, p. 186) hundreds of years ago. Several studies find a
strong, adverse effect of conflict on GDP. Figure 11.1 plots deaths in internal conflicts for the
1965–2009 period as a function of the development level at the beginning of this period,
but it is possible that conflicts before 1965 both increased the subsequent risk of conflict and
undermined development.
Figure 11.2 illustrates how detrimental conflicts often are. The two lines show that GDP
per capita for Burundi (solid line) and Burkina Faso (dashed line) were roughly similar
from independence up to 1990. The bars represent the conflicts that occurred in the two
countries. The narrow bars show the very minor conflict in Burkina Faso in the mid-1980s;
the wide bars, the severe Burundian conflicts from 1991 and onward. After 1990, Burkina
Faso increased its growth rate along with several other African countries. Burundi, on the
other hand, saw a severe depression in income during the first years of the conflict and a
subsequent economic stagnation.
Burundi’s trajectory is typical. Collier (1999) and Gates et al. (2012) estimate that civil
wars on average reduce GDP growth by more than 2 percent for each year of war duration.
Murdoch and Sandler (2002, 2004) find effects of a similar magnitude and also demon-
strate that civil wars have adverse growth effects in neighboring countries. Blomberg and
Hess (2002) show that recessions may increase the risk of both internal and external con-
flict, which in turn raises the probability of new economic downturns. Blomberg and Hess
(2006), Bayer and Rupert (2004), Long (2008), and Magee and Massoud (2011) find that
political violence reduces international trade, which in turn depresses growth.
Koubi (2005) studies the effect of both inter-and intranational wars on average growth
in per capita real output. She finds that a war’s severity, measured in battle deaths, has a
significant negative impact on growth. When she conducts the analysis for interstate wars
only, the statistical significance disappears, indicating that the “association between war
and economic growth is due to civil wars” (Koubi 2005, pp. 76–77).
182 Håvard Hegre
1500 300
250
Battle Related Deaths
1000 200
GDP per Capita

150
500 100
50
0 0
1960 1970 1980 1990 2000 2010
Year
BRD in Burundi BRD in Burkina Faso

GDP of Burundi GDP of Burkina Faso
Figure 11.2 Effect of Conflict on GDP per Capita: Burundi vs. Burkina Faso

Source: Gates et al. (2012).
Collier (1999) also examined the differential effects of war duration. He finds that while
short wars “cause continued post-war [GDP] decline, [. . .] sufficiently long wars give rise to
a phase of rapid growth” (Collier 1999, pp. 175–176), reflecting a “phoenix effect” (Organski
and Kugler 1980). Collier attributes the continued decline in GDP after short wars to
postwar environments being less capital-friendly than before the war. Indeed, capital flight
is a big problem in postconflict economies (Davies 2008). Koubi (2005, p. 78) and Chen,
Loayza, and Reynal-Querol (2008, p. 71) corroborate Collier’s findings. After “the destruc-
tion from war, recovery is achieved through above average growth,” but this growth follows
the pattern of “an inverted U, with the strongest results achieved in the fourth or fifth year
after the onset of peace” (Chen, Loayza, and Reynal-Querol 2008, pp. 72, 79). Likewise,
Blomberg and Hess (2002) find a strong negative effect of both external and internal con-
flict on growth. Flores and Nooruddin (2009) examine the special problems democracies
face when trying to implement economic policy reforms in a postconflict environment.
The economic effects of civil war also tend to spill over into neighboring countries
(Salehyan and Gleditsch 2006). Murdoch and Sandler (2002, 2004) focus on the spillover
effects from conflicts in neighboring countries and the magnified costs of being located
near conflicts in the same region or subcontinent. Murdoch and Sandler (2002, p. 96) show
that a neighboring civil war affects GDP directly and indirectly. The direct effect is from
the collateral damage whereby battles close to the border destroy infrastructure and cap-
ital. The indirect effect occurs by increasing the “perceived risk to would-be investors and
divert foreign direct investment away from neighbors at peace.” They further find that a
civil war creates “significant negative influence on short-run growth within the country and
its neighbors” (Murdoch and Sandler 2002, pp. 106–107). In Murdoch and Sandler (2004)
they argue that “owing to regional economic integration and regional multiplier effects,”
the spillover effects may go beyond a country’s immediate neighbors. For neighbors within
a radius of 800 km, they find that “a civil war at home is associated with a decline in ec-
onomic growth of 0.1648, while an additional civil war in a neighbor is associated with a
decline of approximately 0.05 or about 30 percent of the home-country effect” (Murdoch
and Sandler 2004, p. 145). This implies that “a country in a region with three or more civil
wars may be equally impacted as a country experiencing a civil war” (Murdoch and Sandler
2004, p. 150).
Figure 11.3 indicates that the adverse effects of conflict are by no means limited to the
economic sphere. Along the horizontal axis, the figure places the countries of the world
according to their infant mortality rate in 1965; along the vertical, the proportional de-
crease in IMR over the 1965–2013 period. Some poor countries, such as Oman, Chile, and
South Korea, have experienced dramatic reductions in poverty according to this measure.
The conflict histories of countries are represented by circles with area proportional to the
number of battle-related deaths in percentages. Several war countries have also seen con-
siderable improvements in IMR (e.g., the countries in Central America, Algeria, and Sri
Lanka).5 But a disproportionate number of the countries that were poor in 1965 and remain
poor today have had long and destructive civil wars. Afghanistan, Somalia, Burundi, and
Cambodia are evident examples.
The direct death tolls of civil wars are typically a few thousand fatalities. These deaths
are nearly always accompanied with a large number of indirect deaths. In the most
93% Chile
S Korea
Oman Portugal
Cuba
90%
Saudi Arabia
Percentage reduction in IMR 1965−2013
Libya Spain Singapore

Kuwait
85% Vietnam Greece Italy
Turkey Nicaragua, El Salvador Malaysia Austria
Algeria Jordan Mexico Poland
Israel/Palestine Cyprus German Federal Republic
Morocco Belgium Japan
Brazil Colombia Sri Lanka
Argentina Malta Canada Iceland
Philippines Trinidad and Tobago Australia Norway
Dominican R UK
75% Yemen Bolivia Uruguay
Nepal China Venezuela NZ Denmark
USA
Haiti, Laos
Panama
Gabon Mongolia
Senegal Lebanon Bulgaria
India Russia
Malawi
Ghana
Guinea Myanmar
50% Tanzania Paraguay
Niger Ethiopia
Mali CAR IraqZimbabwe
Afghanistan Burundi
Chad Zambia
S Leone
C d'Ivoire, DR Congo, Rwanda
N Korea
0%
200 100 50 25 12
Poverty in 1965: Infant mortality rate
Figure 11.3 Poverty Reduction, 1965–2013, vs. Deaths in Internal Conflicts, 1965–2013

Note: The size of circles is proportional to the share of population (in 1990) killed in internal war.
Sources: For battle deaths, Lacina and Gleditsch (2005) and Themnér and Wallensteen (2014), based on Upsala Conflict
Data Program (UCDP). For infant mortality rates, United Nations (2011).
184 Håvard Hegre
comprehensive study of the health consequences of war, Iqbal (2010) shows that fertility
rates increase and life expectancies decrease as a result of conflict. Gates et al. (2012) dem-
onstrate that conflict increases undernourishment, infant mortality rates, and access to safe
water, in addition to depressing income. Lai and Thyne (2007) find civil wars to reduce
educational expenditures by an amount sufficiently large to reduce enrollment in all ed-
ucational levels. Ghobarah, Huth, and Russett (2003) show that the adverse health effects
linger on for several years after the conflict has ended. Both Plümper and Neumayer (2006)
and Ghobarah, Huth, and Russett (2003) report that the health consequences of conflict are
more severe for women than for men, despite that fewer women are killed directly in battle.
Explanatory Mechanisms
Why Conflict Reduces Development

Collier (1999) classifies the routes through which conflict reduces development into de-
struction, disruption, diversion, and dis- saving. War actions destroy production and
health facilities; war-related deaths and maiming reduces the workforce; and the destruc-
tion of roads hinders economic exchange and increases transportation costs. Disruption
occurs through the insecurity created by violence and a general breakdown of the social
order, as well as the effect of large population groups that flee their homes and thereby
their jobs. Particularly devastating for public health is the increased difficulty of obtaining
safe drinking water in conflict zones (Gates et al. 2012). In many instances, large refugee
populations are exposed to epidemic diseases through crowding, bad water, poor sanita-
tion, and malnourishment (Ghobarah, Huth, and Russett 2003, p. 192).
Civil wars lead to massive diversion of public funds. Increased military spending shifts
public resources from expenditures that promote growth and public health (Ghobarah,
Huth, and Russett 2003, p. 192). Finally, war economies suffer from dis-saving and massive
capital flight. The effects on capital are due to the destruction of infrastructure as well as
to the increases in transaction costs. “The ability to enforce contracts is reduced as the
institutions of civil society [are] weakened, trust declines, time horizons shorten due to un-
certainty, and opportunism becomes more profitable” (Collier 1999, p. 178). In an analysis
focusing specifically on capital flight, Davies (2008) shows that capital flight is high in con-
flict and postconflict countries, in particular in combination with high inflation.
Armed conflict also adversely affects the structure of the economy. Since land-specific
capital, as represented by agriculture and other primary commodities, is less mobile, the
flight of mobile capital means that conflict makes economies more dependent on primary
commodities (Collier et al. 2003, p. 84). In a study of the national accounts of Uganda 1971–
1986, Collier (1999) shows that arable subsistence agriculture, a relatively war-invulnerable
sector, increased from 20.5 to 36 percent of GDP, and that war-vulnerable sectors (con-
struction, transport, distribution, finance, manufacturing) decreased from 42.5 to 24 per-
cent. The erosion of incentives to invest in the conflict country applies at all levels of the
economy. Skilled labor migrates, middle-class citizens with savings move them abroad, for-
eign companies close down all activities if the costs of protecting investments become too
high, and governments become short-sighted and opportunistic—in the terms of Olson
(1993), if conflict countries were lucky enough to have a “stationary bandit” before, war
tends to reinstall the roving ones. The income losses due to war are typically of the kind that
increases the future risk of new conflicts. Supplies of financial and human capital contract
relative to land, natural resource extraction, and unskilled labor. The breakdown of govern-
ment control opens up space for production of illegal drugs, as happened in Colombia and
Afghanistan.
Why Development Reduces the Risk of Conflict

Just as armed conflict hurts economic activity and public health through several pathways,
there are several mechanisms through which development reduces the risk of conflict.
Internal armed conflicts, moreover, are complex processes and are likely to have a com-
plex pattern of explanations. As discussed previously, development is a multifacted con-
cept, and societal changes that are theoretically distinct often occur together. Hence,
scholars often disagree about the relative importance of these mechanisms. Currently, suf-
ficiently detailed data are not available to allow cross-national studies to distinguish clearly
between them.
Poverty as Motivation for Conflict

Poverty may itself lead to conflict. In the words of Marx and Engels (2010/1848, p. 34), the
ends of poor workers “can be attained only by the forcible overthrow of all existing social
conditions. . . . The proletarians have nothing to lose but their chains.” A large gap between
people’s actual “need satisfaction” and what they expect can lead to frustration, a strong
sense of injustice, and a revolutionary “mood” (Davies 1962). However, partly based on
another Marx argument, Davies explicitly argues that “absolute need satisfaction” is not
what drives revolutions. What is crucial is relative satisfaction. Davies introduces the “J-
curve,” reflecting that revolutions occur when the gap between actual and expected need
satisfaction increases, either due to economic crises or to increasing inequalities. An early
empirical assessment of this claim is Gurr (1968), who finds a positive correlation between
social strife and economic discrimination, political discrimination, and short-term depri-
vation. Gurr’s “persisting deprivation” measure is also positively correlated with civil strife.
This to some extent captures absolute poverty such as the proportion of the population
that lacks education.
Up to recently, no studies found a clear link between “relative deprivation” due to within-
country economic inequality and internal armed conflict. More recent work supports to
a larger degree deprivation-based arguments, showing associations between conflict and
specific forms of inequality (Boix 2008; Østby 2008; Cederman, Weidmann, and Gleditsch
2011). Consistent with this idea, most rebel groups do indeed state revolution, democrati-
zation, or poverty reduction as their goal. The relationship between poverty and rebellion
is complex, however. For one thing, rebel group leaders are often from more well-to-do
segments of the population. Che Guevara was a middle-class medical student; John Garang
of the SPLA had a Ph.D. in agricultural economics; and Prachandra of the Nepalese Maoist
insurrection was from a Brahmin landlord family.
186 Håvard Hegre
Foreshadowing the curvilinear relationship found by Hibbs (1973), Davies (1962, p. 7)
adds another qualification to the idea that poverty leads to conflict. Revolutions do not
occur when a society is generally impoverished. Evils “are endured in the extreme case
because the physical and mental energies of people are totally employed in the process of
merely staying alive. . . . When it is a choice between losing their chains or their lives, people
will mostly choose to keep their chains.”
Empirical studies such as Collier and Hoeffler (2004) and Fearon and Laitin (2003) find
little relation between conflict and “grievance-related” measures such as inequality, ethnic
diversity, dictatorship, and religious discrimination. Consequently, they argue that the cor-
relation between average income and the risk of armed conflict must be explained apart
from how the absence of development affects motivation for conflict.
Opportunities for Violence Entrepreneurs

The lack of a clear relationship between “extent of grievance” and armed conflict is likely
due to the “rebel’s dilemma” (Lichbach 1995): A civil war must be fought before justice is
achieved; the rebel army must be sufficiently strong to defeat the government, and must
be hierarchally organized to be militarily successful (Collier 2000). This gives rise to a
collective-action problem (Olson 1965), since any potential rebel group recruit knows he or
she will be better off if someone else fights to bring about the revolution—fighting is costly
and the revolution is a public good.
Partly echoing the arguments of Lichbach (1995), Collier dismisses the explanatory
power of motivation for conflict (Collier 2000; Collier et al. 2003; Collier and Hoeffler 2004;
Collier, Hoeffler, and Rohner 2009). Even if the collective-action problem somehow could
be solved, Collier (2000) also points to a commitment problem. Since it is necessary to
organize a rebel army hierarchically, a rebel leader that successfully overturns a dictator
will be in a position merely to replace him upon victory, and maintain the unjust political
system, since it now benefits him. Being aware of this incentive, the potential recruit must
be skeptical of the expected utility of revolution. Based on this logic and the weak statistical
relationship between conflict and “grievance” indicators, such as political system or eco-
nomic inequality, Collier (2000) and Collier and Hoeffler (2004) indicated that greed is a
more powerful motivator for conflict, referring to cases such as the so-called Revolutionary
United Front in Sierra Leone, which soon seemed more interested in diamond extraction
than in revolution (also see Berdal and Malone 2000).
The argument that greed should be the sole or even dominant motivation for armed
conflicts has been contested effectively (e.g., Regan and Norton 2005; Stewart, 2008;
Cederman, Wimmer, and Min 2010; Cederman, Weidmann, and Gleditsch 2011). In his
more recent account of the development–conflict relationship, Paul Collier primarily
stresses how aspects of development affect the feasibility of internal conflict. Given the
problems of recruiting merely on the basis of a revolutionary agenda, Collier argues, rebel
leaders have to rely on private incentives to recruit, rather than on appeals to lofty motives
of justice-seeking. A regular salary or “bonus payment,” in the form of opportunities for
looting, are among such incentives.6 This links rebellion to development since salary costs
for rebel groups are low where there is an abundance of poor, unemployed, young males
(Lichbach 1995, p. 44).7 Indeed, studies find conflict onset to be more frequent where
populations have large “youth bulges” (Urdal 2006), and where education levels are low
(Thyne 2006), controlling for other development indicators. Several studies find economic
incentives to be important. Studies using systematic data on rebel combatant backgrounds
suggest that the poor tend to be overrepresented among rebel as well as government forces
(Arjona and Kalyvas 2006; Humphreys and Weinstein, 2008; Viterna 2006, p. 10).
Obviously, an evaluation of the financial sustainability of a rebellion must compare salary
costs with the potential gain from fighting. Collier and Hoeffler (2004) list three sources
of revenue that can all be linked to a relative absence of economic development. The first
is to use violence to enable extraction of natural resources. In low-income countries, pri-
mary commodities are relatively important to the economy. Many primary commodities
make up useful sources of finance for rebel groups. Exports of alluvial diamonds fueled and
prolonged the conflicts in Sierra Leone and Angola, as did opium in Burma and coca in
Colombia (Fearon 2004; Lujala, Gleditsch, and Gilmore 2005). A second source is donations
from migrants. Remittances from migrant workers make up an important proportion of
international capital flows for many economies—more than 5 percent is not uncommon
(Giuliano and Ruiz-Arranz 2005, p. 5). An unknown proportion of such remittances flow
to rebel groups—such flows seem to have been important in Eritrea, Sri Lanka, and Kosovo.
A third source is support from other governments. All of these sources of revenue are par-
ticularly promising in low-income countries, where they typically are large relative to the
total economy.
Poor State Capacity

Hobbes (1968/1651) saw anarchy as the main explanation for war, and called for a “levia-
than” to keep citizens from killing each other. Gat (2006) and Pinker (2011) review accounts
of how the emergence of early states substantially reduced the propensity for humans to kill
each other. Translated into the domain of modern (although poor) states, the feasibility of
rebellion obviously depends not on the absolute amount of soldiers and resources available
to a rebel group, but on the resources available relative to what the government can invest
in the contest. In line with Collier and Hoeffler (2004), Fearon and Laitin (2003) stress the
conditions that favor insurgency. They, however, place somewhat more emphasis on the
strength of the governments opposing the insurgents.
At least four aspects of state capacity are relevant, and all are partly linked to socioec-
onomic development. The first concerns physical access to the territory of the state; the
second and third, the military capabilities of the government and the intelligence required
for effective counter-insurgency activities; and the fourth, the state’s ability to implement
policies designed to reduce support for the opposition.8
Guerillas can operate more easily if governments have problems physically accessing
parts of the territory they govern. Both Fearon and Laitin (2003) and Collier and Hoeffler
(2004) stress the importance of “safe havens”—rural regions where the terrain is moun-
tainous or forested or poorly served by roads. Development, as defined here, removes such
havens through better infrastructure and a flow of migration into cities. Governments of
poor countries, in particular in Africa, tend to control core areas but have weak presence
in the “hinterlands” (Herbst 2000). In many countries, particularly in those that inherited
their borders from former colonial powers, the population is very unevenly distributed
188 Håvard Hegre
geographically. The Democratic Republic of Congo is a prime example, with a large pop-
ulation concentration in the east separated from the capital by thousands of kilometers
of inaccessible jungle. Such physical-demographic features add to the challenges posed
by poor governments (Herbst 2000; Kocher 2004; Buhaug, Gates, and Lujala, 2009;
Holtermann 2012).
In addition to accessibility, governments must have sufficient military capabilities to
put down rebellions. Governments of poor countries also often command relatively small
armies that are lightly armed and often poorly trained and organized. States with large
armies relative to their populations tend to have shorter wars if they break out (Mason
and Fett 1996; DeRouen and Sobek 2004). Obviously, armies are also more effective the
better equipped and organized they are. Relatedly, government armies faced with elusive
insurgents relying on guerilla tactics depend on an ability to obtain information about who
the insurgents are and where they can be attacked. In the absence of adequate informa-
tion, governments are often compelled to make use of indiscriminate force against local
populations. Such violence often strengthens insurgencies, since young males consider
themselves safer as soldiers in the rebel army than as civilians in their home villages.
State capacity is not limited to governments’ coercive capacity, but also on their abilities
to implement conflict-reducing policies. In many cases, an important component of the
struggle between the government and an insurgency is a contest over the “hearts and
minds” of local populations. A well-organized government with adequate budgets is able to
provide basic services to populations in order to strengthen their support for the govern-
ment relative to potential insurgents. Such basic services include health services, infrastruc-
ture that develop economic opportunities, and security against crime and natural disasters.
Many rebel groups rely on a combination of persuasion and public-goods provision (cf.,
Popkin 1988; Viterna 2006; Wood 2003; Young 1998) for eliciting part-time collaboration.
Decreased Lootability in Diversified Economies

Another aspect of development is the importance of “lootability.” In the context of inter-
state conflict, Rosecrance (1986) argues that commerce is gradually replacing conquest as a
means of advancing the “national interest.” When land is the major factor in both produc-
tion and power, a territory can be seized and made profitable by means of physical force—
“labor, capital, and information is mobile and cannot be definitely seized” (Rosecrance 1996,
p. 48). Conquest used to be the major cause of interstate war since states could improve
their position by building empires or invading other nations to seize territory. When mo-
bile factors of production—capital and labor—surpass land in importance for productive
strength, land becomes relatively less valuable, and states are better off trading with other
states than attempting to conquer them. According to Gat (2006, p. 658), “[r]‌ather than the
cost of war becoming prohibitive [. . .], it was mainly the benefits of peace that increased
dramatically once the Malthusian trap was broken, tilting the overall balance between war
and peace for [. . .] industrializing and industrial societies, regardless of their regime, for
which wealth acquisition ceased to be a zero-sum game.”
This development-related change has an analogy in internal conflicts. When land-based
assets, such as most primary commodities, are economically dominant, states have strong
incentives to use physical force to retain control, and potential insurgents have similar
incentives to try to seize control over the central power or to obtain larger autonomy for
a region. This argument reflects the importance placed on primary commodity exports by
Collier and Hoeffler (2004) and Fearon and Laitin (2003). Several rebel economic activities
require high rebel territorial control, such as the taxation of natural resource production,
rich landowners, and household incomes (Fearon and Laitin 2003).
Boix (2008, p. 432) expands this to a much more complete explanation:
Modern political violence (particularly violence of an organized nature) occurs in states in

which assets are immobile and unequally distributed. In relatively equal societies, peaceful,
democratic means of solving conflict are advantageous to all parties and violence happens
with little probability. In economies where wealth is either mobile or hard to tax or confiscate,
sustained political violence to grab those assets does not pay off since their owners can either
leave in response to the threat of confiscation or are indispensable to the optimal exploitation
of assets.
Boix (2008) finds strong empirical evidence for this account. Theoretically, he builds
on a related argument in the literature on democratization, where the models of Boix
(2003) and Acemoglu and Robinson (2006) provide an explicit link to civil war. In both
accounts, elites agree to democratization because they fear a revolution staged by the poor.
Democratization, they argue, is most likely when inequality is moderate, since the tax rate
preferred by the median voter would then be lower than if the poor are much worse off than
the rich. The implication for internal conflict is that revolutions will be more frequent in
unequal societies, since the elites have a stronger incentive to resist democratization.
Boix (2003) adds the concept of “asset specificity” to this. If the assets that the rich control
are in the form of land or other resources that cannot be moved out of the country, the poor
will be able to impose radical taxes if they get to control the tax rate (either through dem-
ocratic institutions or through a successful revolution). If most of the wealth is in the form
of financial capital, a larger fraction of it is “safe” from taxation, and democratization is less
threatening. Revolutions, then, will also be less frequent where capital is mobile, since the
poor can maximize redistribution more easily by means of democratization than through
revolution. Moreover, where lootable assets are predominant, rebel groups have incentives
to stage limited campaigns—not to entirely take over the government, but to secure access
to profitable natural resources.
Higher Costs to Violence in Densely Interacting Societies

Interstate conflict has become increasingly rare since the end of World War II. Russett and
Oneal (2001) highlight the importance of the expansion of interstate trade for this decline.
As noted by Rosecrance (1986), however, the emerging predominance of “trading states”
is partly a function of economic development. Just as countries become more dependent
on trade with other countries and thereby more reluctant to use violence against them, the
incentives to use organized violence against other groups is likely to change when groups
engage more frequently in economic exchange. Economic exchange has a dual effect,
according to Rosecrance. Trade becomes a more cost-effective way of getting access to re-
sources and reduces the benefit of obtaining political control over territories by means of
force. At the same time, trade relationships require a minimum of confidence that trading
190 Håvard Hegre
partners mutually respect property rights, so that considerable “reputation costs” add to the
financial and human costs of warfare.
Indirect Effect through Political Institutions

A couple of studies (Hegre 2003; Collier and Rohner 2008) find that the relationship be-
tween poverty and the risk of armed conflict is contingent on the political system of a
country. This runs counter to the argument that development mainly works through its
effect on financial sustainability. Hegre (2003) finds that increased economic development
only reduces the risk of armed conflict in democracies. In nondemocracies, development
does not change the risk of conflict. This regularity should be seen in conjunction with
the fact that that “the more well-to-do a nation, the greater the chances that it will sustain
democracy” (Lipset 1959, p. 75). At least up to the last decade or two, very few poor coun-
tries have had stable, well-functioning democratic political systems. Perhaps reflecting the
limited capacity for political action among impoverished citizens, pressures for political lib-
eralization are typically weak in poor countries. In middle-income countries, on the other
hand, autocratic leaders face much more forceful demands for democratization. As recently
seen in Syria and Libya, such demands sometimes escalate into large-scale armed conflict.
In autocracies, then, the conflict-reducing effect of development through the strengthening
of the state apparatus is offset by the conflicts due to political demands. In consolidated
democracies, where most citizens support the political system, stronger states and more
complex economies effectively reduce the opportunities and incentives for armed conflict.
This finding puts some of the previous explanations in a new light. The explanations
based on opportunities for rebellion and on military- state capacity are somewhat
weakened, since they should not be contingent on the design of the political system.
Grievance-related explanations, on the other hand, are strengthened if demands for de-
mocratization drive the contingent relationship. The counter-argument posed by the
collective-action problem may be less important here, since middle-income populations
typically are better educated and networks of interaction are denser, helping the opposi-
tion to solve collective-action problems.
Education and the Cognitive Ability to Maintain Peaceful Relations

I noted that Thyne (2006) found education to decrease the risk of civil conflict, control-
ling for other aspects of socioeconomice development. Pinker (2011, p. 172) argues that ed-
ucation and the wide dissemination of literature following the invention of the printing
press helped set off the “humanitarian revolution.” With literacy, “[t]‌he pokey little world
of village and clan, accessible through the five senses and informed by a single content
provider, the church, gave way to a phantasmagoria of people, places, cultures, and ideas.”
This lead to a widening of the “empathy circle,” the group of people whose interests people
value as they value their own. Moreover, Pinker argues that reason is another of the “better
angels of our nature” (in addition to empathy) that explains the decline in violence. Reason
helps individuals to control themselves, but also help “integrative complexity” (Suedfeld
and Tetlock 1977)—the degree to which political discourse acknowledges multiple points
of view (and, thus, tradeoffs or compromises between them) and refers to higher princi-
ples or systems. Integrative complexity is negatively related to violence, and positively to
education. Moreover, reason is clearly related to education, a factor that has changed suf-
ficiently quickly and systematically to qualify as an explanation of declining trends of vio-
lence globally as well as differences between various regions of the world.
Conflict/Poverty Traps—How Bleak

Is the Future?
It is clear from the previous sections that conflict and poverty are endogenous to each other.
Poverty is among the most important structural conditions that facilitate internal armed
conflict (Collier and Hoeffler 2004; Fearon and Laitin 2003; Hegre and Sambanis 2006).
The detrimental effect of conflict on the economy, then, increases the risk of continued or
renewed conflict. The changes to the structure of the economy—away from capital-based
production to natural-resource extraction, further increase the vulnerability to conflict and
to more authoritarian politics (Collier and Hoeffler 2004; Boix 2003). Collier et al. (2003)
argues that about a fifth of the world’s countries are caught in a “conflict trap,” where in-
termittent fighting effectively prevents countries from escaping the poverty that facilitates
conflict. Collier et al. (2003, p. 111) estimates that by 2050, only about 10 percent of fifty or
so “marginalized countries” will have been able to escape the trap.
It is hard to quantify precisely how strong the trap is, but Figure 11.1 indicated that it is
less difficult to escape the conflict trap than indicated by Collier et al. (2003). Most conflict
countries are found in the bottom left of the figure. Conflict countries such as Afghanistan,
Liberia, and Burundi were poor in the 1960s and have reduced infant mortality by much
less than comparable countries. However, even Afghanistan and Somalia have clearly lower
infant mortality rates in 2009 than in 1965. Some war countries, such as Laos, Nicaragua,
and Colombia have reduced poverty at a quicker rate than comparable countries.
Figure 11.4 shows another simulation of future global conflict, drawn from Hegre et al.
(2013). The upper line represents the proportion of the world’s countries expected to be in
an armed conflict (as defined previously). Up to 2011, the line reflects observed conflicts;
from 2012, it shows predicted conflicts. The lower line plots the proportion of major
conflicts with at least 1,000 annual battle-related deaths. The simulation is based on a sta-
tistical model of the historical relationship between armed-conflict incidence and a set of
predictors, including development indicators such as infant mortality rate, education levels,
and demographic composition. The predictions are obtained by simulating changes into
and out of conflict according to the estimates for this model, deriving input variables from
forecasts by the United Nations and the International Institute for Applied Systems Analysis
(IIASA) (United Nations 2011; Samir et al. 2010).
Since the United Nations and the IIASA project continued improvements to these de-
velopment variables, the simulations indicate a significant decline in the global incidence
of conflict. In 2011, 17 percent of the countries of the world had a minor or major conflict.9
In 2050, this proportion will be reduced to less than half of that figure, according to the
predictions in Hegre et al. (2013).
The projected decline is particularly strong in the Middle East/North Africa (MENA)
and South and Central Asia regions. Over the past couple of decades, these regions have
192 Håvard Hegre
Global proportion
90% CI 90% CI
Minor or major conflict Major conflict
.2
.1
0
1960 1970 1980 1990 2000 2010 2020 2030 2040 2050
Figure 11.4 Past and Predicted Global Proportion of Countries in Internal Armed
Conflict, 1970–2050
Source: Based on Hegre et al. (2013).
had more conflict than expected from these predictors. Moreover, all three development
variables are projected to decrease in these regions. For instance, in the MENA region, the
proportion of population without secondary education was about 30 percent in 1995 and
will be less than 15 percent in 2050. Given this development, this study suggests that the
proportion of countries in conflict will decline from about 20 percent to about 6 percent
over the next forty years.
Figures 11.1 and 11.4 indicate that the conflict-dampening effect of development on con-
flict on average is stronger than the effect of conflict on development. Countries will not
find themselves in perennial conflict traps if there are sufficiently strong exogenous factors
that can pull them out. Such exogenous factors obviously exist, both for the conflict side
and for the development side of the equation.
Several studies, for instance, find a substantial effect of U.N. peacekeeping operations
on the risk of conflict recurrence (Doyle and Sambanis 2000; Fortna 2004; Gilligan and
Sergenti, 2008; Hegre, Hultman, and Nygård 2011). Even if U.N. peacekeeping operations
are unable to completely prevent fighting, the dampening effect may be strong enough for
countries to slowly grow out of the trap. Global and regional hegemons also have the poten-
tial to prevent armed conflicts.
Several additional factors affect development independently of domestic conflicts.
Global and regional economic growth stimulates investment and affects incentives even in
fairly marginalized countries—the growth of China and India is eventually bound to affect
Myanmar, for instance. International development assistance is another exogenous source
of growth (to the extent that it is effective).
To some degree, conflict propensity and development are both responses to deeper soci-
etal changes, such as changes in norms regarding the use of violence, a general increase in
the valuation of human lives, and the willingness to invest resources that improve the liveli-
hood of a population. Finally, changes in international norms affect both the incentives for
using physical force for political purposes and the legitimacy of governments that neglect
to provide minimal public goods for their populations.
Obviously, some exogenous factors increase the risk of conflict as well as affecting ec-
onomic development. The steady increase from 1960 to 1992 in the number of countries
with conflict seen in Figure 11.4 runs counter to the main argument in this chapter. Almost
all countries became less poor over this period. International factors are necessary to ex-
plain that the decline in global conflict levels did not start until the 1990s (Hegre et al. 2013,
p. 11). The Cold War accounts for part of this increase—superpower financing of parties to
conflicts helped sustain them, and global politics prevented the United Nations from en-
gaging in effective peacekeeping operations until the 1990s (Goldstein 2011, p. 5). Equally
important was the creation of a large number of new states from former colonies. Most of
the new states formed after 1945 were poor countries, and their weak and unconsolidated
state institutions sooner or later failed to prevent armed conflict. Optimistic projections
presuppose that the current favorable climate continues.
Conclusion and Future Research Agendas
This chapter has reviewed the existing literature on the reciprocal relationship between con-
flict and development, broadly defined.
Although the correlation between the two is clear and well documented, several
questions remain unanswered. Reflecting the diverse nature of the development concept,
several indicators have been used to capture it—GDP per capita, energy consumption per
capita, infant mortality rates, life expectancy, education levels, the relative importance of
primary commodities to the economy, and urbanization. The various indicators are associ-
ated to varying extents with different theoretical mechanisms through which conflict and
development affect each other. The availability of several indicators in principle promises an
ability for researchers to distinguish statistically between different explanations. In practice,
however, this is difficult; since indicators are highly correlated, mechanisms rarely operate
in isolation from each other, and a multitude of idiosyncratic features of how particular
social groups interact ensures that that most of the variance in behavior will remain unex-
plained. Distinguishing between various explanations should figure high on future research
agendas.
A promising avenue may be to continue to supplement the cross-national studies that
form the bulk of the empirical studies reviewed here with statistical studies of conflict
at a geographically more disaggregated level (as done in Buhaug and Rød 2006; Hegre,
Østby, and Raleigh 2009; Weidmann 2009; Kalyvas and Kocher 2009; Do and Iyer 2010;
Cederman, Weidmann, and Gleditsch 2011). For instance, such studies may help in dis-
tinguishing the importance of state capacity from poverty by comparing within-country
variation in poverty levels. Good qualititative case studies that critically address the theo-
retical mechanisms posited in more general studies will also be helpful, spelling the various
incentives and conditions out for the relevant groups.
Another important set of research questions is to identify the factors that help countries
to break out of conflict traps. For instance, development assistance targeted at education
may slowly alter the situation in countries where intense conflict inhibits any short-term,
194 Håvard Hegre
investment-based growth. The review here indicates this is the case, but existing studies do
not give conclusive answers.
This chapter allows for cautiously ending on a fairly optimistic note. It is well known that
the world lives in a time of unprecedented material abundance. A large minority enjoys
luxuries that previously were reserved for extremely narrow elites, such as artificial light-
ning, forty-hour work weeks, and fruit and spices imported from the other side of the globe.
Never before has such a large proportion of mankind been free from dire poverty. In only
the last fifty years, infant mortality rates have been reduced by 50–75 percent in most coun-
tries. Less recognized is the argument that the world has seen a equally dramatic decline
in armed conflict (and in violence in general). This decline is amply documented in Gat
(2006), Pinker (2011), and Goldstein (2011). These two processes are interrelated, and we can
continue to expect future trends in conflict that reflect the likely future trends in develop-
ment. Conflict/poverty traps certainly exist, where conflicts exacerbate the conditions that
facilitate continued conflict. This chapter, however, has noted that the conflict-dampening
effect of development on conflict on average is stronger than the poverty-increasing effect
of conflict. As long as the world can avoid a new cold war or the break-up of large, poor
states into new political units, continued global economic growth is likely to push armed
conflicts further back into remote parts of the world.
Acknowledgments
The chapter draws in part on Hegre and Holtermann (2012), Hegre et al. (2013), and Gates
et al. (2012). Thanks to my co-authors for allowing me to use this material here.
Notes
1. See http: //www.pcr.uu.se/research/ucdp/definitions/ for further details concerning this
definition.
2. The figures for Israel/Palestine have been adjusted relative to the original sources such that
battle deaths, total population, and infant mortality rates refer to Israel as well as the occu-
pied territories.
3. See Hegre and Sambanis (2006) for an extensive study of the robustness of civil war
predictors.
4. The coverage for infant mortality rate is quite complete; see, for instance, United Nations
(2011).
5. The IMR figure for Syria is the U.N. projection from 2010, but adjusted slightly based on
the estimated effect of war from Gates et al. (2012). The full impact of the current war is
likely to be considerably larger.
6. See Lichbach (1994; 1995, pp. 228ff.) for a detailed and nuanced discussion of the impor-
tance of selective incentives. Relatedly, many rebel groups rely on forced recruitment, and
some may recruit individuals that value violent behavior for its own sake.
7. The opportunity costs of becoming a government soldier are also lower, of course.
However, this may be of relative advantage to rebels, since governments usually face less re-
cruitment constraints due to their greater resources and opportunity to conscript soldiers
(Collier 2000).
8. See Sobek (2010) and Hendrix (2010) for a discussion of state capacity in relation to civil
conflict.
9. That is, 17 percent of the 169 countries for which sufficient data exist.
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Chapter 12
The P olitic s of t h e
Resou rce C u rse
A Review
Michael L. Ross
Hundreds of studies report that too much natural-resource wealth is harmful for devel-
oping countries.1 The apparent symptoms include a reduction in democratic accountability,
bureaucratic effectiveness and female labor-force participation, and a rise in economic vol-
atility, corruption, and the likelihood of civil war.
Is the discovery of natural-resource wealth really so harmful? Which resources matter
and why? How strong is the evidence?
The “resource curse” can be defined as “the perverse effects of a country’s natural-resource
wealth on its economic, social, or political well-being.” While most published studies report
evidence that is consistent with the idea of a resource curse, there is considerable disagree-
ment about the mechanisms that cause the reported problems and the conditions under
which they are more likely to occur. Little is known about the policy interventions that
might help. A handful of studies argue that the resource curse is illusory.
The study of the resource curse is linked to many other debates in political science—for
example, on the causes of democratic transitions (Gassebner, Lamla, and Vreeland 2013),
the role of taxation in state-building (Brautigam, Fjeldstad, and Moore 2008; Smith 2008),
the consequences of foreign aid (Bermeo 2011; Ahmed 2012; Morrison 2012), and the
determinants of civil war (Fearon and Laitin 2003). A series of global policy initiatives—
including the Kimberley Accord, the Extractive Industries Transparency Initiative, and the
“Publish What You Pay” movement—has been launched to help resource-rich developing
countries avoid these ailments.
This chapter offers a short review of research on politics of the resource curse.2 It develops
three broad themes. First, there is robust evidence that one type of mineral wealth—
petroleum—has at least three harmful effects: it seems to make authoritarian regimes more
durable; it appears to increase certain types of corruption; and it is associated with the onset
of violent conflict in low-and middle-income countries, particularly when it is found in the
territory of marginalized ethnic groups. The effects of oil on both authoritarian rule and
conflict appear to be recent phenomena, emerging after the 1970s. Many other claims are
plausible and await further testing.
The Politics of the Resource Curse 201
Second, the literature has many weaknesses and unresolved puzzles: there is no consensus on
the mechanisms that link petroleum wealth to these outcomes, the conditions that make them
more or less likely, the reasons they emerged when they did, and why other minerals—with the
partial exception of alluvial diamonds—do not seem to be linked to the same outcomes.
Finally, it points out that research on this issue has been sharply limited by available
data. Some of the data that scholars most fervently covet—for example, on the true size and
disposition of natural-resource revenues, or on the operation of state-owned petroleum
companies—are deliberately concealed or misreported by governments. Until recently,
most studies have been based on the statistical analysis of large data sets with a single ob-
servation for each country and year—data sets that have been mined up to (and perhaps
beyond) the point of diminishing returns. There is a promising trend toward subnational
research, where the data are often better and identification strategies more convincing.
Future progress will depend on our capacity to find new data, including both cross-national
and subnational data, that can cast light on the many unresolved puzzles.
The first section of this chapter discusses the intellectual roots of the resource-curse
literature, in both political science and economics. Section two describes the many ways
that scholars define “natural resources,” and explains why some of them are problematic.
The subsequent three sections summarize research on how resource wealth affects democ-
racy, the quality of government institutions, and the incidence of violent conflict. The final
section looks at some key puzzles and challenges.
Some Roots
The earliest published reference to the term “resource curse” appears in Auty (1993). The
notion that natural-resource wealth can have perverse consequences, however, has a long
and distinguished intellectual history. Early modern philosophers like Machiavelli, Bodin,
and Montesquieu argued that when countries have favorable resource endowments, their
citizens become myopic and slothful. Adam Smith’s The Wealth of Nations stressed the
dangers of pursuing mineral wealth, warning:
Of all those expensive and uncertain projects, however, which bring bankruptcy upon the
greater part of the people who engage in them, there is none perhaps more ruinous than
the search after new silver and gold mines. . . . They are the projects, therefore, to which of
all others a prudent law-giver, who desired to increase the capital of his nation, would least
choose to give any extraordinary encouragement.3
Even David Ricardo, who helped develop the modern concept of economic rents, saw
few social or economic benefits from mining silver or gold. In On the Principles of Political
Economy and Taxation, he notes that Spain and Portugal were Europe’s greatest producers
of gold and silver, yet
This increase of the quantity of those metals . . . has not, it seems, increased that annual pro-
duce; has neither improved the manufactures and agriculture of the country, nor mended the
circumstances of its inhabitants. Spain and Portugal, the countries which possess the mines,
are, after Poland, perhaps, the two most beggarly countries in Europe.4
202 Michael L. Ross
Political scientists who study the resource curse draw more proximately on the work of
Middle East scholars who, beginning in the 1970s, revived the concept of the “rentier state”
to explain the peculiar qualities of the region’s oil-producing governments.5 Mahdavy (1970,
p. 428) is widely credited with giving the “rentier state” term its contemporary meaning: a
state that receives substantial rents from “foreign individuals, concerns, or governments.”
Beblawi (1987, p. 50) developed a more precise definition, suggesting that a rentier state was
one where the rents are paid by foreign actors, where they accrue directly to the state, and
where “only a few are engaged in the generation of this rent (wealth), the majority being
only involved in the distribution or utilization of it.”
Both Mahdavy and Beblawi argued that governments funded by external rents were freed
from the need to raise taxes; this made them less accountable to their citizens, and hence
less likely to deploy these rents in ways that promoted economic development. Their argu-
ment encapsulates two of the most prominent claims in the resource-curse literature: that
rents damage government accountability and reduce economic growth.
In the 1980s and 1990s, the rentier-state literature was gradually refined by scholars
studying Libya (First 1980; Vandewalle 1998), Iran (Skocpol 1982; Shambayati 1994), Tunisia
(Bellin 1994), Saudi Arabia and the Arab Gulf states (Crystal 1990; Gause 1994; Chaudhry
1997), the Congo Republic (Clark 1997), Gabon (Yates 1996), Indonesia (Törnquist 1990),
and other resource-rich countries. Karl’s influential Paradox of Plenty (1997, p. 44) drew
heavily on this literature to explore the “disappointing political and economic outcomes”
in Venezuela—and more briefly, Algeria, Iran, Indonesia, and Nigeria—following the oil
shocks of the 1970s.
For economists, much of the resource-curse debate was triggered by a seminal 1995
working paper by Sachs and Warner, which reported a negative correlation between a
country’s dependence on natural-resource exports in 1970 and its economic growth between
1971 and 1989. The Sachs and Warner study, in turn, drew on a World Bank–sponsored
study organized by Gelb (1988) that analyzed how six oil-rich states—Algeria, Ecuador,
Indonesia, Nigeria, Trinidad, and Venezuela—responded to the oil shocks of the 1970s.
Later studies by Auty (1990, 1993) extended this analysis, looking at an overlapping set of
oil-and mineral-exporting countries.6
The ensuing research by economists has traveled deep into territory nominally occupied
by political scientists. It also echoes arguments first raised by development economists in
the 1950s and 1960 about the hazards of primary commodity exports: that the volatility
of international commodity prices is economically damaging for low-income countries
(Nurske 1958; Levin 1960); that commodity booms fail to stimulate other sectors of the
economy, at least in the absence of strong government intervention (Hirschman 1958);
and that the declining terms of trade for primary commodities relegates the commodity-
exporting countries to the periphery of the global economy (Prebisch 1950; Singer 1950). 7
What Does “Natural Resources” Mean?
The term “natural resources” can cover many types of commodities, each of which can
be measured in many ways. Scholars have gradually converged on certain measures, but
problems remain.
There are three components to most definitions of “natural resources.” The first is the
choice of resource. Early studies by Sachs and Warner (1995) and Collier and Hoeffler (1998)
looked at broad measures of resources that included petroleum, other minerals, and agri-
cultural commodities—everything that fell under the World Bank’s prepackaged measure of
“primary commodities.” Today agricultural products are rarely seen as part of the resource
curse—both because they are produced, not extracted, and hence fail to meet standard
definitions of natural resources, and because they are seldom correlated with unfavorable
outcomes.8 A relatively small number of studies have looked closely at the effects of nonfuel
minerals (Sorens 2011), forest products (Price 2003; Harwell, Farah, and Blundell 2011), or
commodities more generally (Besley and Persson 2011; Bazzi and Blattman 2014).
Just two types of resources have been consistently correlated with lamentable
outcomes: petroleum, which is the key variable in the vast majority of the studies that iden-
tify some type of curse, and alluvial diamonds, which in several careful studies have been
associated with civil conflict. Still, it is too early to conclude that other resources do not
matter: not everything has been well measured or received the same kind of attention as oil.9
The second component identifies the salient quality of the resource. Common choices
include the quantity of production, the value of production, the rents generated by pro-
duction, and the value of exports. A smaller number of studies have looked at the value of
petroleum or mineral reserves, petroleum discoveries, the number of workers employed in
the resource sector, the international price of a given resource, the depletion of the resource,
and the government revenues generated by the resource sector.
The final component is the method used to normalize these values to make them com-
parable across countries or regions—that is, whether to express the measured quantity as a
fraction of GDP, a fraction of total exports, a fraction of total government revenues, by land
area, or on a per capita basis.
These three components can be combined in dozens of ways to generate alternative
measures of a country’s natural-resource endowment. The proliferation of measures has
been both good and bad: it means that scholars have usefully explored many potentially
interesting dimensions of resource wealth that might have important economic or political
effects; but it has also made it lamentably easy for researchers to stumble across resource
measures that are statistically, but spuriously, associated with a given outcome.
For example, one common measure—exports of fuel or nonfuel minerals, as a fraction
of GDP—is probably biased upward in poorer and more conflict-prone countries; this
could cause it to be spuriously correlated with bad “outcomes.” Consider two countries with
the same population that produce the same quantity of oil: the numerator—a country’s
oil exports—will be larger in the poorer country, since it will be too poor to consume its
own output. On a per capita basis, the United States produces more oil than Nigeria, but
Nigeria exports more than the United States, because the United States is wealthier and
consumes all of its oil domestically. Another concern is omitted-variable bias: there may be
other factors besides resource abundance—like having high corruption levels or endemic
conflict—that cause a country to be highly dependent on its resource sector. If so, it might
be these other, omitted factors that are causing resource-dependent countries to have such
bad outcomes.
To circumvent these problems, some scholars are turning to alternative measures, like
the value of oil production per capita (Ross 2008, 2012; Haber and Menaldo 2011) or global
price shocks (Besley and Persson 2011; Ramsay 2011), or are using instrumental variables
204 Michael L. Ross
to identify the exogenous component of the resource variable (Brunnschweiler and Bulte
2009; Busse and Gröning 2011; Tsui 2011).
Unfortunately, one of the most potentially important measures is also among the most
difficult to obtain: government revenues from the extractive sector. States collect these
revenues in a variety of ways: through royalties, corporate taxes, concession fees, transit fees,
signing bonuses, in-kind payments, and revenues from state-owned companies. Different
types of revenues may accrue to different arms of the state—like oil and finance ministries,
state-owned oil companies, and local governments—and may or may not be transferred to
a central account. Governments can also hide their revenues by understating the value of
the fuel they sell domestically to their citizens.10
Resource Wealth and Democracy
A first branch of the resource-curse literature—since the early 2000s, there have been
dozens of books and articles—has analyzed the effects of resource wealth, especially petro-
leum wealth, on government accountability. A large majority are broadly consistent with
the claim that oil wealth makes autocratic governments more stable, and hence less likely
to transit to democracy.
Figure 12.1 summarizes the global relationship between oil wealth and democratic
transitions. It includes all countries that, since 1960, could have made transitions from au-
thoritarianism to democracy—including all sixty-four countries that were under authori-
tarian rule in 1960, plus the fifty countries that became independent after 1960 and were
under authoritarian rule in their first year of independence. The values on the horizontal
axis represent each country’s mean oil income per capita between 1960 and 2006; the values
on the vertical axis denote the percentages of the time (since either 1960 or their first year
of independence) that these initially authoritarian countries dwelt under a democratic gov-
ernment. Those that were continuously authoritarian have a score of 0, while those that
transited to democracy early and stayed democratic have scores approaching 1.
The downward-sloping line suggests the overall relationship between oil and the persist-
ence of authoritarianism: the greater a country’s oil income, the less likely the transition to
democracy. Countries that transited to democracy early, and remained democratic—like
the Dominican Republic, Turkey, Portugal, and Spain—had little or no oil. A handful of
countries with modest oil and gas wealth, like Bolivia, Romania, and Mexico, had more
recent (and sometimes more erratic) transitions to democracy. However, no country with
high levels of oil and gas income has successfully become democratic since 1960. Most
countries on the far right edge of the horizontal axis—states with lots of oil and no dem-
ocratic transitions—are in the Middle East and North Africa; but the group also includes
Russia, Angola, Gabon, Brunei, and Malaysia.
The connection between petroleum wealth and autocratic rule has long been explored by
scholars of resource-rich countries, particularly in the Middle East.11 Many of their insights
were drawn together by Ross (2001a), who reported a negative statistical association be-
tween a country’s level of dependence on oil (and mineral) exports, and its democracy
level, measured by the Polity index. The core finding that more oil wealth is associated with
less democracy has been replicated many times, using better data and more sophisticated
100
TUR
DOM
80
Time under Democratic Rule, 1960–2006 (%)
PRT
ESP
60 BOL
BGD THA
GHA POL
HUN ROM
40
PAK
ALB
IDN
20 MEX
RUS ARE QAT

IRN LBY IRQ
0 BRN
DZA BHR SAU
OMN GAB KWT
0 2 4 6 8 10
Oil Income per Capita (log), 1960–2006
Figure 12.1 Oil and Transitions to Democracy

Each point represents a country that was under authoritarian rule in 1960 or (if it became independent after 1960) in
the first year of independence. The vertical axis shows the percentage of its subsequent history that it dwelled under
democratic rule. Countries with higher percentages made early transitions to democracy and remained democratic.
Countries at the bottom never made democratic transitions.
methods; recent studies suggest it is robust to the use of country fixed effects (Werger 2009;
Aslaksen 2010; Tsui 2011; Andersen and Ross 2014) and instrumental variables (Tsui 2011;
Ramsay 2011). An extreme bounds analysis identified oil dependence as one of the few ro-
bust correlates of regime types (Gassebner, Lamla, and Vreeland 2013). A statistical meta-
analysis of the oil–democracy question, which integrated the results of 29 studies and 246
empirical estimates, concluded that oil had a negative, nontrivial, and robust effect on de-
mocracy (Ahmadov 2013).
Much of this research has tried to clarify the conditions under which petroleum wealth
has antidemocratic effects. There are two broad possibilities: oil could strengthen authori-
tarian governments and prevent them from transiting to democracy, and it could weaken
democratic governments and push them toward authoritarianism. Most studies have come
to similar conclusions: oil’s most robust effect is to help prevent autocratic regimes from
democratizing.12
These findings are also consistent with research on the survival in office of authoritarian
leaders, rather than authoritarian regimes. Both Cuaresma, Oberhofer, and Raschky (2010)
and Andersen and Aslaksen (2013) show that oil wealth lengthens the survival in office of
authoritarian rulers; Andersen and Aslaksen also find that kimberlite diamonds have a sim-
ilar effect, while alluvial diamonds and other types of minerals can reduce the longevity of
206 Michael L. Ross
authoritarian leaders and parties. Looking exclusively at African states, Omgba (2009) finds
that oil, but not other mineral resources, helps incumbents remain in office.
The impact of oil wealth on democracies is more ambiguous. One set of studies reports
that oil has pro-democratic effects in democracies, either by making the governments more
stable (and hence less likely to become autocracies) or by improving their democracy scores
(Smith 2004; Morrison 2009; Tsui 2011; Dunning 2008).13 If this is true, as Smith (2004)
argues, oil might be better characterized as “pro-regime stability” than “antidemocratic.”
But a second group of studies finds no evidence that oil helps stabilize democratic regimes
(Al-Ubaydli 2012; Caselli and Tesei 2011; Wiens, Poast, and Clark 2012) or rulers (Andersen
and Aslaksen, 2013); and a third group suggests that, even if oil has no aggregate effect on
democratic stability, under certain conditions it can promote the breakdown of democratic
regimes—for example, among the states of sub-Saharan Africa (Jensen and Wantchekon
2004) or, more generally, among low-and middle-income states (Ross 2012). It should not
be surprising that this issue is unsettled: there are relatively few oil-rich democracies, es-
pecially outside the OECD, making it hard to draw strong inferences about their stability.
New insights on this question have emerged from subnational studies in democracies—
including in the United States (Goldberg, Wibbels, and Mvukiyehe 2009; Wolfers 2009),
Brazil (Brollo et al. 2013; Monteiro and Ferraz 2010), and Argentina (Gervasoni 2010)—all
of which find that oil windfalls (or in the Brollo et al. and Gervasoni studies, windfall-
like federal transfers) tend to lengthen the terms in office of elected local officials. The
Brazilian studies are particularly interesting: Brollo et al. found that windfall-like federal
transfers reduced the education levels of mayoral candidates and increased the incidence
of corruption detected by the federal government’s random audit program; Monteiro and
Ferraz report that oil windfalls gave incumbents a strong re-election advantage, but only in
the short-run. All five studies suggest that windfalls had pro-incumbent effects; whether
this should be seen as “antidemocratic” is subject to interpretation.
The antidemocratic (or pro-incumbent) powers of oil might also be conditional on the
ruler’s ability to capture the rents it generates (Snyder and Bhavnani 2005; Greene 2010).
According to Andersen and Ross (2014), oil only gained strong antidemocratic powers in the
late 1970s, after most oil-rich developing countries nationalized their petroleum industries
and were able to capture the bulk of the rents. Dunning (2008) argues for a different type of
conditional influence: that oil impedes democratization in countries with low levels of ine-
quality, but hastens democratization in countries with high inequality levels by alleviating
the concern of wealthy elites that democracy will lead to the expropriation of their private
wealth. This is why, according to Dunning, oil had pro-democratic effects in Latin America
but antidemocratic effects in the rest of the world.
Many studies dwell on the mechanisms that link more oil to less democracy. Perhaps
the most common argument is for the “rentier effect”: an abundant flow of oil revenues
enables incumbents to both reduce taxes and increase patronage and public goods, allowing
them to buy off potential challengers and reduce dissent (Mahdavy 1970; Crystal 1990; Ross
2001a). An important assumption is that taxation and democracy are closely related: when
governments try to raise tax revenues, they are often met with demands for greater account-
ability (Bates and Lien 1985; Ross 2004a; Brautigam, Fjelstad, and Moore 2008).
Several studies have tested versions of the rentier mechanism with cross-national data.
Morrison (2009) reports that nontax revenue is associated with enhanced regime stability
in both autocracies and democracies, but through somewhat different avenues: it leads to
greater social spending in autocracies, but to the reduced taxation of elites in democracies.
According to Ross (2012), there is statistical support for the rentier mechanism in the avail-
able cross-national data, but the correlations are somewhat fragile, perhaps due to inaccu-
rate and missing data.
A handful of studies has scrutinized the rentier effect with subnational data.14 McGuirk
(2013) uses micro-level survey data from fifteen sub-Saharan countries and finds strong
within-country correlations between increased sums of natural-resource rents, decreases
in the (perceived) enforcement of taxation, and declines in the demand for democratic
governance. One of the few field experiments on this topic—carried out by Paler (2013) in
Indonesia’s Blora district—found that a “taxation” treatment led to increased monitoring of
public officials, while a “windfall” treatment did not.
The rentier model assumes that resource wealth does not affect the preferences of rulers,
only their fiscal capacity to act on these preferences. An alternative set of approaches—
explored formally by Robinson et al. (2006), Morrison (2007), and Caselli and Cunningham
(2009), and informally by Fish (2005)—suggests that resources affect the value that leaders
place on remaining in office, rather than their capabilities. According to these models, the
availability of resource rents heightens the value that an incumbent places on remaining in
power, thereby inducing him or her to invest more on regime-preserving activities.
There are many additional theories that connect oil to either autocracy or incum-
bency: oil-rich autocrats may invest more heavily in repression (Ross 2001a; Cotet and
Tsui 2013);15 oil might give undemocratic leaders the foreign support they need to fend off
challengers (Rajan 2011); the fixed quality of mineral resources could make it harder for
elites in authoritarian states to transfer their wealth abroad, which could lead them to more
vigorously oppose democratic reforms (Boix 2003); or oil rents could spur immigration,
which may enhance the government’s capacity to block democratic movements (Bearce
and Hutnick 2011).
There have been two types of challenges to the claim that oil prolongs autocracies. The
first is about the net impact of petroleum wealth: even if oil has a harmful direct effect on
democratic transitions, this might be counterbalanced by a positive indirect effect, brought
about through the higher incomes that oil wealth tends to bring. Herb (2005) first articu-
lated this problem, and suggests that these two effects may effectively cancel each other out,
leaving oil with no net effect on democracy. Alexeev and Conrad (2011) address the same
question but use a different empirical strategy; unlike Herb, they conclude that oil’s harmful
direct effect on “voice and accountability” is greater than its beneficial, indirect effects.
Resolving this issue is difficult because the impact of oil wealth on incomes is not
straightforward; many argue it is conditional on other factors, like the ex ante quality of
the government’s institutions (Mehlum, Moene, and Torvik 2006), the type of democratic
institutions (Andersen and Aslaksen 2008), openness to trade (Arezki and van der Ploeg
2011), the level of human capital (Kurtz and Brooks 2011), the “survival function” of political
leaders (Caselli and Cunningham 2009), or other factors (Torvik 2009). Oil could also have
other indirect effects—positive or negative—that further complicate our ability to deter-
mine its net impact.
The second challenge is causal identification: conceivably, the correlation between oil
wealth and autocratic governance might be endogenous or driven by omitted variables.
Haber and Menaldo (2011) emphasize this problem, and develop a series of models that use
historical data stretching back to 1800, controlling for country and year fixed effects. They
208 Michael L. Ross
show that together these strategies cause the oil–democracy correlation to lose statistical
significant or even reverse signs. Gurses (2009) uses more recent data, again with country
fixed effects, and reports a similar finding.16
Yet these critics also have critics. Andersen and Ross (2014) argue that Haber and
Menaldo decline to test the most credible version of the resource-curse hypothesis (e.g.,
that more oil revenues helps autocracies stay in power); that they draw invalid inferences
from their longitudinal data; and that they fail to account for changes over time in the
global distribution of petroleum rents. According to Andersen and Ross, oil wealth only
became a hindrance to democratic transitions after the expropriations of the 1970s, which
enabled developing country governments to capture the oil rents that were previously
siphoned off by foreign-owned firms. They show that the statistical results of both Haber
and Menaldo (2011) and Gurses (2009) can be overturned—even when using their data and
specifications—by simply adding to their models a term that interacts their “oil” measures
with a dummy variable for the post-1980 period.
Resources and Institutions
The second branch of the resource-curse literature looks at the relationship between re-
source wealth and the quality of institutions, meaning the effectiveness of the government
bureaucracy, the incidence of corruption, the rule of law, and more broadly, the state’s ca-
pacity to promote economic development. Once again, petroleum is typically associated
with harmful outcomes, while other mineral resources are not. Most of this research falls
in one of two categories.
The first looks at the ways that institutional quality may condition the effects of resource
wealth on economic growth. Tornell and Lane (1999) develop a model showing how a state
with weak institutions, upon receiving a positive fiscal shock (like a resource boom), may
suffer from a “voracity effect” in which powerful groups struggle for and squander the
windfall. Mehlum, Moene, and Torvik (2006) argue that the effects of natural resources on
economic performance are conditional on the ex ante quality of state institutions: where
institutions are “grabber friendly” (and more prone to corruption), resource wealth tends to
lower aggregate income; where they are “producer friendly” (and less prone to corruption),
it will raise aggregate income. Robinson et al. (2006) develop a parallel argument, suggesting
that when institutions are weak ex ante, resource booms will be dissipated through exces-
sive public employment and patronage.
The second body of research asks whether natural-resource wealth can damage (or
stunt the beneficial evolution of) institutions themselves. There are many theories about
how this could occur: revenue volatility could shorten a government’s planning ho-
rizon and subvert major investments (Karl 1997); windfalls could cause a government’s
revenues to expand more quickly than its capacity to efficiently manage them (Hertog
2007; Ross 2012); high levels of resource revenues could forestall a state’s capacity to ex-
tract taxes from its citizens, leaving the government “weak,” vulnerable to rent-seeking,
and unable to develop sound economic policies (Beblawi 1987; Chaudhry 1989; Karl
1997); discourage politicians from investing in the state’s bureaucratic capacity (Besley
and Persson 2010); encourage lower-quality candidates to compete for public office; and
induce politicians to dismantle the institutions that govern the allocation and use of nat-
ural resources (Ross 2001b).
Several empirical studies report that resource wealth is inversely correlated with measures
of institutional quality (Bulte, Damania, and Deacon 2005; Isham et al. 2005; Anthonsen
et al. 2012; Sala-i-Martin and Subramanian 2003). According to Beck and Laeven (2006),
variations in institution-building in the transition countries after 1992 can be partly
explained by variations in initial levels of mineral exports. Knack (2009) finds that revenues
from fuel exports are strongly associated with (and revenues from nonfuel minerals exports
are weakly associated with) inefficient tax systems.
Scholars have made special efforts to scrutinize the association between natural resources
and corruption. Several studies, using either cross-national or panel regressions, find strong
correlations between natural-resource dependence and perceptions of corruption (Leite
and Weideman 1999; Sala-i-Martin and Subramanian 2003; Arezki and Brückner 2011). To
better measure corruption, Andersen et al. (2012) uses a unique data set from the Bank of
International Settlements of foreign deposits in the banks of countries that traditionally
serve as tax havens, like Switzerland, Cayman Islands, and Bahamas; it shows that when
autocracies (but not democracies) experience a rise in oil and gas rents, there is a corre-
sponding rise in deposits held by their citizens in these tax havens. They estimate that at
least 8 percent of the petroleum rents in autocracies are transferred into these foreign, per-
sonal accounts.
Subnational studies also report evidence of an oil–corruption link. Vicente (2010) uses
household surveys to compare changes in corruption in São Tomé and Príncipe, where oil
had been discovered, to Cape Verde, where there were no discoveries; it finds a large in-
crease in perceived corruption in São Tomé across many public services. Brollo et al. (2013)
employs a regression discontinuity design to identify the effects of transfers from the fed-
eral government in Brazil to municipal governments; it concludes that a 10 percent rise in
these windfall-like transfers are associated with a rise of 10 to 12 percentage points in the
corruption found by the federal government’s random audit program. A second study of
Brazilian municipalities, by Caselli and Michaels (2013), found that plausibly exogenous
increases in oil revenues were associated with increased spending on public goods and serv-
ices; yet much of this money went “missing,” and was most likely absorbed by a combina-
tion of increased patronage and embezzlement by top officials.
The impact of resource wealth on institutions may also be conditional: Bhattacharya
and Hodler (2010), for example, offer evidence from panel data that natural resources only
lead to greater corruption in nondemocracies. Government ownership might also be im-
portant: Luong and Weinthal (2010) study five petroleum-rich states of the former Soviet
Union (Russia, Azerbaijan, Kazakhstan, Turkmenistan, and Uzbekistan), and conclude that
oil wealth only leads to weakened state institutions when the government has a dominant
role in the petroleum industry; when the private sector (especially foreign investors) has a
dominant role, governments are likely to have stronger fiscal institutions.
Claims about the causal effects of oil wealth on institutions have faced the same two
questions discussed previously: whether the direct, harmful effects are offset by indirect,
beneficial ones, and whether the observed correlations are produced by omitted variables
or endogeneity. According to Alexeev and Conrad (2009, 2011), once the countervailing
effects of oil on income have been fully accounted for, the net effects of resource wealth on
institutions disappears; only the perverse effects of oil wealth on democracy remain. When
210 Michael L. Ross
Busse and Gröning (2011) use instrumental variables to mitigate endogeneity, and country
fixed effects to account for omitted variables, they find that measures of resource wealth are
associated with heightened corruption, but not with other institutional weaknesses.
Resources and Civil War
The third major branch of research looks at the effects of natural-resource wealth on civil
war.17 In some ways it resembles the other branches: it brings together qualitative research—
usually country-level, theoretically informed case studies18—with cross-national quantita-
tive work; most published studies identify a harmful effect, albeit a conditional one; and
scholars disagree about the causal mechanisms.
There are four important differences, however, between the study of resources and con-
flict and the rest of the field. First, its claims have a different lineage. Other branches of
the resource-curse literature grew out of research on primary commodities and develop-
ment in the 1950s and 1960s and on the rentier state in the 1970s and 1980s; the study
of resources and civil war is based on economic theories of conflict from the early 1990s
(e.g., Hirschleifer 1991; Skaperdas 1992; Grossman 1994). It was also inspired by more re-
cent events. The other branches can be seen as efforts to explain the perverse effects of
the 1970s oil shocks; the study of resources and civil war was motivated by a wave of vi-
olent conflicts in the 1990s—in Angola, Cambodia, Colombia, the Democratic Republic
of Congo, Liberia, Sierra Leone, Indonesia, and Sudan—that appeared to be linked to re-
source wealth. Qualitative studies by Keen (1998), Reno (1995, 1998), and Le Billon (2001),
as well as Collier and Hoeffler’s (1998) influential cross-national statistical study, touched off
a flood of research on whether and how natural resources might be connected to the onset,
duration, and intensity of civil war.19
The second difference is that other kinds of natural resources seem to matter: only pe-
troleum is consistently correlated with less democracy and more corruption, but both
petroleum and alluvial diamonds are statistically associated with the onset or duration
of civil war (Ross 2003, 2006; Lujala, Gleditsch, and Gilmore 2005). Other studies find
that different types of minerals (Collier, Hoeffler, and Rohner 2009; Besley and Persson
2011), other “contraband” goods such as alluvial gemstones (Fearon 2004), and coca leaves
(Angrist and Kugler 2008) have similar effects. The role of timber in several violent conflicts
has been explored at the case-study level (Price 2003; Harwell, Farah, and Blundell 2011).
Still, the salience of nonfuel resources is far from settled: Ross (2006) notes that the corre-
lation between alluvial diamonds and civil war is based on a handful of conflicts and sta-
tistically fragile.
The third difference is that the effects of resource wealth appears to be non-monotonic.
The associations between oil wealth and authoritarian rule, and between oil wealth and
corruption, seem to be approximately linear: the greater the value of petroleum resources
per capita, the worse the outcome. But the relationship between natural-resource wealth
and the onset of violent conflict instead resembles an inverted “U”: as the value of re-
source wealth increases, the risk of conflict first rises, then falls, (Collier and Hoeffler
1998; Collier, Hoeffler, and Rohner 2009; Basedau and Lay 2009; Bjorvatn and Naghavi
2011; Ross 2012). Large amounts of oil wealth per capita (comparable to Nigeria or Iran)
are dangerous, but very large amounts (comparable to Saudi Arabia or Equatorial Guinea)
are not.20
Interpretations of this pattern vary, but most bear a close resemblance to Collier and
Hoeffler’s original argument: when resource wealth reaches very high levels, it becomes a
stabilizing force, by enabling the central government to buy off potential rebels and invest
more heavily in security (Collier and Hoeffler 1998). In other words, the conflict-inducing
properties of the resource are eventually offset by the rentier effect.
The fourth and most important difference is that location matters. The likelihood that re-
source wealth will trigger, prolong, or intensify a conflict seems to depend on where, within
a country’s boundaries, it is found. Indeed, the unconditional correlation between oil and
conflict has been strongly challenged (Cotet and Tsui 2013; Bazzi and Blattman 2014) and
does not appear to be robust.
Studies that take location into account, however, show different results: when it is found
offshore, oil wealth has no robust relationship with a country’s conflict risk; if it is onshore,
it has a large effect, as seen in figure 12.2 (Lujala 2010; Ross 2012). Moreover, the precise
onshore location matters: oil is more likely to spark conflict when it is found in regions
that are poor relative to the national average (Østby, Nordås, and Rød 2009) and populated
by marginalized ethnic groups (Basedau and Richter 2011; Hunziker and Cederman 2012);
when the resource is located in a region with a highly concentrated ethnic group (Morelli
and Rohner 2010); and where ethnic entrepreneurs use it to promote collective resistance
to the central government (Aspinall 2007).21 When conflicts take place near regions with
petroleum or alluvial diamond wealth, they also appear to last longer (Lujala, Gleditsch,
and Gilmore 2005; Buhaug, Gates, and Lujala 2009; Lujala 2010) and become more severe
(Weinstein 2007; Lujala 2009; De Luca et al. 2012).22
The salience of location has made it easier for scholars to explore the relationship between
resources and conflict on a subnational level. A study of Sierra Leone’s civil war found that
chiefdoms with diamond mines experienced more frequent attacks and battles (Bellows
and Miguel 2009). Dube and Vargas (2013) use municipal-level data from Colombia to
estimate the effects of both coffee and petroleum price shocks on the severity of rebel and
paramilitary violence; they find that coffee price shocks tend to reduce violence in the
coffee-producing regions (perhaps by drawing labor out of the conflict and into the coffee
sector), while oil price shocks tend to boost violence in oil-rich regions (possibly by creating
more lucrative opportunities for predation). Their findings closely match the predictions of
a model by Dal Bó and Dal Bó (2011) in which exogenous shocks can raise or lower conflict
risks, depending on whether they occur in labor-intensive or in capital-intensive sectors.
It has also made it easier to distinguish among competing explanations for the resource–
conflict correlation. One class of theories suggests that natural-resource wealth leads to vio-
lence by affecting the government—either by making it administratively weaker, and hence
less able to prevent rebellions, or by increasing the value of capturing the state, and hence
inducing new rebellions (de Soysa 2002; Fearon and Laitin 2003; Le Billon 2005).
An alternative class of theories holds that natural resources lead to conflict by affecting
insurgents, not governments: rebels from an ethnically marginalized region could be
motivated by the prospect of establishing an independent state, so that locally generated
resource revenues would not have to be shared with the rest of the country; likewise, rebels
could finance the costs of staging a rebellion either by looting the resource itself (if it is a
“lootable” resource like alluvial gemstones or oil) or by extorting money from companies
212 Michael L. Ross
4
Conflict Rate (%)
0
Onshore & Offshore Onshore Only Offshore Only No Petroleum
Figure 12.2 Annual Conflict Rates by Petroleum Location

These bars show the annual conflict rates, between 1960 and 2006, for countries that produced both offshore and
onshore petroleum, only onshore petroleum, only offshore petroleum, or no petroleum at all.
and workers who operate in their territory (Collier, Hoeffler, and Rohner 2009; Dal Bó and
Dal Bó 2011; Ross 2012).23
If the first approach is right, then both onshore and offshore petroleum wealth should
have the same conflict-inducing effects—weakening the state’s ability to defend itself or
enlarging the size of its honeypot. If the second approach is correct, oil should only lead to
conflict when it is found onshore, where it can be claimed by local separatists, or attacked
by cash-hungry rebels. Since only onshore oil is associated with higher conflict risks, the
first approach is probably wrong. Oil leads to civil war, at least in part, through its effects
on insurgent groups.24
Once again, several studies raise questions about both the net effects of resource wealth
and the validity of the resources–conflict correlation. Brunnschweiler and Bulte (2009)
address both issues. Empirically, they use the World Bank’s measure of “total natural cap-
ital stock” to instrument for resource dependence, finding that instrumented resource de-
pendence is uncorrelated with one measure of conflict onsets. Yet their instrument is only
available for two years and 100 countries, and may itself be endogenous to conflict. Van
der Ploeg and Poelhekke (2010) argue that the Brunnschweiler and Bulte study is flawed
by weak instruments, omitted-variable bias, a violation of the exclusion restriction, and a
misspecified model.25
Cotet and Tsui (2013) also instrument for resource wealth, using a unique measure of
oil discoveries, with much better coverage of countries and years; like Haber and Menaldo
(2011), they also cover an unusually long historical period (1930–2003). Cotet and Tsui
find that instrumented oil wealth is statistically associated with conflict onsets in a simple
pooled cross-sectional and time-series setting, but loses significance once they include
country fixed effects to account for unobserved factors that are country-specific and time
invariant.
By contrast, Lei and Michaels (2011) employ a different measure of oil discoveries as an
instrument, along with country and year fixed effects; they find the discovery of a “giant” oil
field increases the incidence of armed conflict by about 5 to 8 percentage points, compared
to a baseline probability of about 10 percentage points. In countries with recent histories of
political violence, the effect is much stronger.
Looking Ahead
There is considerable evidence to support three broad claims about natural-resource

wealth: More petroleum income leads to more durable authoritarian rulers and regimes.
More petroleum income heightens certain types of government corruption. And moder-
ately high levels of petroleum wealth, and possibly alluvial diamond wealth, tend to trigger
or sustain conflict in low-and middle-income countries, when they are found onshore, in
regions dominated by politically marginalized ethnic groups.
Each of these patterns appears to be statistically robust, and is supported by research
using cross-national data, panel data, and subnational data. Still, these studies are almost
exclusively based on observational data, which makes it difficult to put to rest questions
about causal identification. 26 The issue of net effects must also be taken seriously: oil
wealth affects a country’s economy and governance through many channels simultaneously,
making it important to look at net effects, not merely partial effects.
Research on the resource curse is still constrained by the availability of high-quality data,
much of which is proprietary or obscured by governments; by insufficient attention to dis-
tinguishing between competing hypotheses about causal mechanisms; by an incomplete
understanding of how and why the political effects of resources seem to vary over time;
and by the need to better understand the determinants of resource extraction itself, so that
biases in resource measures can be taken into account.
There are at least three sets of unsolved puzzles about the resource curse. The first is how
and why petroleum wealth affects other dimensions of political and social life. Provocative
studies have linked oil to the status of women (Assaad 2004; Ross 2008; Do, Levchenko,
and Raddatz 2011), demographic trends (Cotet and Tsui 2013), the spread of HIV/AIDS
(de Soysa and Gizelis 2013), international conflict and cooperation (Colgan 2010; Ross and
Voeten 2012; Caselli, Roehner, and Morelli 2013), and levels of government transparency
(Egorov, Guriev, and Sonin 2009; Williams 2011; Kolstad and Wiig 2009).
A second set is why different minerals appear to have different effects—in other words,
why is oil is different than bauxite, copper, or gold?27 The differences could be illusory, or
could simply reflect the industry’s scale: petroleum and its by-products constitute more
than 90 percent of the value of the international minerals trade, which leaves us with many
more oil-dependent than mineral-dependent countries.
Or it could have something to do with the oil itself: petroleum extraction is more capital-
intensive than other types of mining; it probably results in larger rents, and larger revenue
flows to governments; it is more likely than other minerals to be controlled by state-owned
companies; and its liquid state could make it easier to loot. Understanding this issue would
help identify the qualities of oil wealth, or the oil industry, that carry such troublesome
qualities.
214 Michael L. Ross
The final set of puzzles is about what should be done. Many scholars have developed ideas
about policy interventions, including greater transparency, stabilization and savings funds,
community participation, cash payments to citizens, and alternative tax and royalty sys-
tems (Humphreys, Sachs, and Stiglitz 2007; Collier 2010; Moss 2012; Barma et al. 2011; Ross
2012). We have little systematic knowledge, however, about which policies work and under
what conditions. A growing number of low-and middle-income countries—particularly in
Africa—are likely to become oil or natural gas exporters in the next half-decade. The need
for empirically based policy advice is more urgent than ever before.
Notes
1. I am grateful to Jørgen Juel Andersen, Carol Lancaster, Paasha Mahdavi, Ragnar Torvik,
and Nic van de Walle for their helpful and insightful comments on earlier drafts.
2. For reviews of research on the economics of the resource curse, see Wick and Bulte
(2009), van der Ploeg (2011), and Frankel (2012).
3. Adam Smith, The Wealth of Nations (1776/1991, vol. 4, ch. 7, p. 18).
4. Ricardo (1817/1911, ch. 28, par. 10). Beblawi (1987, p. 50) notes that classical economists
had few kinds words to say about rents or rentiers, who were regarded as “unproductive,
almost anti-social, sharing effortlessly in the produce without, so to speak, contributing
to it.”
5. The concept of a “rentier state” dates back to at least the beginning of the twentieth cen-
tury, when Lenin used the term to vilify European governments that earned interest on
their loans to non-European governments (Lenin 1975).
6. Many studies also drew on Corden and Neary’s (1982) work on the concept of the Dutch
disease, although both researchers and journalists came to confuse the Dutch disease
with the resource curse.
7. This earlier literature is discussed at greater length in Ross (1999). Other fields have also
explored the often-baneful consequences of natural-resource wealth; in sociology, early
influences include Delacroix (1977), Bunker (1984), and Peluso (1992).
8. A notable exception are studies that employ the concept of “point source” resources de-
veloped by Woolcock, Pritchett, and Isham (2001), which includes oil, other minerals,
and coffee and cocoa production.
9. I use the term “oil” to refer to both oil and gas.
10. This is why the “nontax revenue” measure in the World Development Indicators does a
poor job of capturing natural resource revenues.
11. See the preceding section for some important examples.
12. See Smith (2004), Ulfelder (2007), Tsui (2011), Bueno de Mesquita and Smith (2010),
Cabrales and Hauk (2011), Caselli and Tesei (2011), Al-Ubaydli (2012), and Wiens, Poast,
and Clark (2012). Resource wealth may have other effects on autocratic regimes: according
to Erogov, Gurviev, and Sonin (2009), it reduces media freedom; Gandhi and Przeworski
(2007) show that it makes authoritarian legislatures less likely to emerge.
13. Morrison (2009) does not focus on petroleum, but on a broader class of nontax revenues.
14. Subnational studies in authoritarian states are difficult to carry out; still, many qualitative
case studies report evidence that is consistent with the rentier effect (e.g., Crystal 1990;
Yates 1996; Fish 2005; Kendall-Taylor 2012).
15. This claim is made harder to evaluate by the underreporting of military expenditures in
some oil-rich countries (e.g., Colgan 2011).
16. More limited critiques by Wacziarg (2011) and Brückner, Ciccone, and Tesei (2012)
suggest that price shocks themselves do not have antidemocratic effects.
17. For earlier reviews of this literature, see Ross (2004b, 2006). Koubi et al (2014) provides a
more recent review.
18. See, for example, Omeje (2008) and Kaldor, Karl, and Said (2007).
19. There is also a separate body of research asking whether the scarcity of renewable re-
sources can trigger violent conflict; see, for example, Gleditsch (2012) and Koubi et al.
(2013). Bazzi and Blattman (2013) correctly emphasize the importance of looking sepa-
rately at the effects of resource wealth on the onset, duration, and intensity of conflict.
20. Not everyone agrees; see Humphreys (2005).
21. Some of these findings also apply to alluvial diamonds. All of these results appear to be
consistent with Esteban, Mayoral, and Ray (2012), who report that resource wealth is
more likely to trigger conflict in countries characterized by heightened ethnic fractional-
ization and polarization.
22. The effects of oil on conflict may be conditional on other factors, too. Ross (2012)
argues that petroleum wealth only became a significant trigger for conflict after the
nationalizations of the 1970s, and grew substantially more important after the end of the
Cold War.
23. Not all theories fall strictly in one of these categories; some focus on the interactions
between governments and rebels. The model developed by Besley and Persson (2011)
suggests that resource rents increase the likelihood of conflict, conditional on the inability
of the state to facilitate peaceful transactions between groups. Fearon’s (2004) model for
the duration of civil war suggests that resource-dependent governments cannot make
credible commitments to redistribute resource wealth to local communities, since the
volatility of resource prices causes the state’s strength to wax and wane; this makes it
harder for them to reach peaceful agreements with insurgent groups, particularly when
rebels can fund themselves by capturing contraband.
24. Glynn (2009) also finds that state weakness cannot explain the link between oil and
civil war.
25. The van der Ploeg and Poelhekke (2010) critique focuses on the Brunnschweiler and
Bulte (2009) claims about economic growth, rather than conflict.
26. Paler (2013), described previously, is a notable exception.
27. It is also unclear whether oil wealth and natural-gas wealth have different political
consequences—a question of growing importance as natural-gas use expands.
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Wick, Katharina, and Erwin Bulte (2009). “The Curse of Natural Resources.” Annual Review
of Resource Economics 1: 139–156.
Wiens, David, Paul Poast, and William Roberts Clark. (2012). “Is There a Political
Resource Curse? A Theoretical and Empirical Re-Evaluation.” Unpublished paper. Ann
Arbor: University of Michigan.
Williams, Andrew (2011). “Shining a Light on the Resource Curse: An Empirical Analysis of
the Relationship between Natural Resources, Transparency, and Economic Growth.” World
Wolfers, Justin (2009). “Are Voters Rational? Evidence from Gubernatorial Elections.”
Philadelphia: Wharton School of Business.
Woolcock, Michael, Lant Pritchett, and Jonathan Isham (2001). “The Social Foundations of
Poor Economic Growth in Resource-Rich Countries.” In Resource Abundance and Economic
Development, ed. Richard M. Auty. 76–92. New York: Oxford University Press.
Yates, Douglas A. (1996). The Rentier State in Africa: Oil Rent Dependency and Neocolonialism
in the Republic of Gabon. Trenton, NJ: Africa World Press.
Chapter 13
Taxati on
and Devel opme nt
Mick Moore
Taxes represent a general claim by a political authority to a share of the resources in the
hands of individuals and enterprises resident or economically active within its jurisdic-
tion. Taxes are compulsory and imply no specific entitlement to a corresponding service.
Public accounts almost universally distinguish between governments’ tax and nontax
revenues. Nontax revenues—like user fees, royalties from exploitation of natural or other
resources, income from state-owned enterprises, fines, and “seigniorage” from the printing
of currency—derive from government’s control over tangible assets. For accountants and
economists, the biggest contemporary problem in distinguishing tax from nontax revenue
relates to compulsory social security contributions, paid by formal sector employees and/
or their employers. Should they be defined and accounted as tax or nontax revenues? They
typically comprise elements of both. For the purposes of this chapter, the fuzziness of the
conceptual, legal, and accounting boundaries between tax and nontax revenues is of little
significance. I define taxation politically as the institutionalized, coercive transfer of income
to rulers from the ruled. Much nontax revenue falls into this category. My concern is with
government revenue generally.
Taxation is one of the most basic and pervasive purposes and activities of states. Although
it has long been a staple concern of political science, there is no consensus on how we
should think about the subject. The diverse ideological and methodological perspectives
that continue to enliven the discipline—for example, on the nature of political power, the
functions of state authority, and the drivers of political action—also animate, and fragment,
scholarship on the politics of taxation.
I illustrate that diversity later in the chapter.1 I begin in section “The Revenues and
Regimes Paradigm” by focusing on the question that has generated the most interest and
original research over the past two decades: whether and in what ways governments’
revenues—variously defined in terms of sources, collection levels, or the urgency of
needs—shape political institutions and patterns of governance. Most work on this question
coheres around a distinct paradigm, comprising a common problematic, some shared
assumptions, and similar analytical frameworks. I label this the “revenues and regimes”
paradigm.2 The more brawny versions maintain that the impacts of the revenue variables
(sources, sizes, or needs) on political institutions and governance are potentially large. If
Taxation and Development 225
valid, such claims would have direct implications for public policy. They imply first a need
to scrutinize revenue policies and practices for possible unanticipated effects on politics and
governance. More significantly, they suggest that changes in revenue policies or practices
might be instruments for improving politics and governance. Accordingly, the paradigm
has generated interest and engagement from policy-makers and from other academic
disciplines, including economics.
I find a great deal to celebrate about the progress of revenues and regimes research.
The claims that revenue sources, sizes, or needs shape politics and governance are plau-
sible and resonate positively with policy-makers dealing with developing countries.
There is some evidence to support these claims, and there has been progress in defining
them more clearly and testing them more adequately. However, there remain consid-
erable challenges for researchers. There is no single, overarching empirical claim to be
scrutinized, but rather a range of overlapping propositions that are not always adequately
distinguished from one another. The data needed to test them rigorously are often un-
available. Although the revenues and regimes paradigm has begun to influence the dis-
course of development policy-makers,3 we should maintain some skepticism about its
explanatory power and policy relevance. As in other cases where institutional change is
involved, the causal mechanisms seem to operate relatively slowly, and produce results
over decades rather than over years. The revenues and regimes paradigm is poised be-
tween the overwhelming plausibility of some of its core intuitions; the supportive evi-
dence generated by empirical research on a small number of cases; and the difficulties
of determining what are the central causal propositions, of defining them clearly, and of
testing them rigorously.
Having cautiously celebrated the revenues and regimes paradigm in section “The
Revenues and Regimes Paradigm”, I list a number of critiques and concerns in section
“Alternative Perspectives”. They in turn lead to attempts to answer four further questions,
each addressed in subsequent sections: Why do governments tax? How is tax collected?
What determines levels of tax collection? Does tax-collection performance indicate “state
capacity”?
The Revenues and Regimes Paradigm
The core of the revenues and regimes paradigm is the claim that state revenue (sources,
levels, or needs) significantly shape politics and governance institutions. It is a claim about
“state-building” and therefore is potentially in competition with—or perhaps also comple-
mentary to—a range of other theories, propositions, and literatures about state-building
processes. There is space here only to evaluate the revenues and regimes paradigm in its
own terms, not to explore how it might relate to other approaches to the state-building
issue.4
The propositional core of the revenues and regimes paradigm was embedded in polit-
ical theory and discourse centuries before it received a contemporary social scientific for-
mulation. In particular, the claim that parliamentary—rather than Crown—control over
revenue-raising was the basis of “liberties”—the rule of law, representative government,
constitutional monarchy, strong private property rights—had almost mythic status in
226 Mick Moore
seventeenth-and eighteenth-century Britain; this was diffused widely to Western Europe

and the overseas Anglophone world. The central intuition, embodied in a more normative
form in the slogan “No taxation without representation,” was that rulers were more likely to
use power responsibly and in the collective interest if constrained by the need to negotiate
their finances with the taxpayer-citizens who provided the money and were most affected
by the ways in which it was spent.
Why and how was this intuition recently translated into a set of more extended social
science propositions? On the basis of the quotations in the recent literature, it might appear
that a key role was played by the rediscovery of the founding work on fiscal sociology done
by Rudolf Goldscheid and Joseph Schumpeter a century ago. The following phrases from
their work are now widely cited:
“[T]‌he budget is the skeleton of the state stripped of all misleading ideologies.”
“The spirit of a people . . . is written in its fiscal history, stripped of all phrases. He who
knows how to listen to its message here discerns the thunder of world history more clearly
than anywhere else.”
“In some historical periods the immediate formative influence of the fiscal needs and
policy of the state on the development of the economy and with it on all forms of life and
all aspects of culture explains practically all the major features of events; in most periods it
explains a great deal and there are but a few periods when it explains nothing.”
“Our people have become what they are under the fiscal pressure of the state.” (Schumpeter
1918/1991, pp. 100–101)
The work of Goldscheid and Schumpeter was animated by their study of the fiscal evolu-
tion of European states from rulers’ dependence on domain revenues (i.e., income from
their own properties) to reliance on broad general taxation. Goldscheid and Schumpeter
considered the emergence of this high-spending tax state to be a defining feature of mod-
ernization in Europe, key to the emergence of effective states, and an intrinsic component
of the rise of bourgeois society and of democracy. It was on this basis that they made these
ambitious claims about the political, economic, and societal impact of fiscal variables.
Their words are inspiring and rhetorically appealing to those of us who think were on to
something important. Analytically, their general claims are thin. Their work is best viewed
as a meta-theory about grand patterns of societal evolution intended to compete with
Marx’s claims about the driving role of class and capitalism and Weber’s on bureaucracy
and rationalization.5 Its value lies in foregrounding, for the first time, the potential role of
governments’ financial activities in driving political, economic, and societal change. The
weakness of the original was that it lacked any explicit basis in behavioral theory: there are
no behavioral micro-foundations, and no clear propositions to test.6 As we shall see below,
contemporary political science has begun to remedy this.
Because it embodies so few identifiable propositions about how fiscal variables impact
on politics and governance, the fiscal sociology of Goldscheid and Schumpeter was not
foundational to the recent development of the revenues and regimes paradigm. It provided
rather rhetorical and symbolic support—some very quotable purple passages, and the im-
pression that a separate field of fiscal sociology was in existence—for scholars who came to
similar ideas through other routes.7 Whatever the path taken by individual contributors, it
seems clear that the revenues and regimes paradigm began to emerge in the 1980s prima-
rily in response to perceptions of major changes in sources of government finance in many
developing countries.
The Shift away from Tax States in the Global South

Around 1960, the rich states—that is, member countries in the Organisation for Economic
Co-operation and Development (OECD)—and some Latin American states were what
Schumpeter termed “fiscal states”: advanced tax states that could borrow heavily from com-
mercial sources on the strength of assured future tax revenues. Basic tax states, with limited
access to private capital markets, were the norm in most of the rest of the world. Most state
revenues came from broad, general taxes—as opposed to grants, royalties, other nontax
revenues, or taxes derived from concentrated resource extraction enterprises. Two regions
of the world provided the main exceptions: One was the communist sphere covering China,
Eastern Europe, and the Soviet Union. Here governments mainly financed themselves di-
rectly through their ownership and control of most productive enterprise under the central
planning system—a system that has now disappeared almost entirely. The other exception
was small in scale in 1960: Some Middle Eastern rulers were already living—some very
well—from oil export revenues.
From the 1960s onward, a combination of three factors meant that, in the noncommunist
developing world, states became less reliant for revenues on broad general taxation, and
more dependent on other revenue sources (Moore 2008b). First, many newly independent
governments, especially in sub-Saharan Africa, began to extract large volumes of financial
resources from private exporters of agricultural commodities, including cashews, cocoa,
cotton, coffee, groundnuts, palm oil, rice, sisal, sugar, and tea. They did this mainly through
heavy export taxes, state marketing monopolies. and maintaining overvalued exchange rates
(Bates 1977, 1983; Harriss and Moore 1984; Lipton 1977; Varshney 1993).8 Second, the volume
of international development aid not only expanded steadily, but also became increasingly
concentrated on the poorest countries. By the end of the century, it was a major source of
income for several dozen governments, mainly small, many of which were in sub-Saharan
Africa.9 Third, the export of oil, gas, and minerals became a big source of revenue for an
increasing number of governments in low-income areas outside the Middle East. Several
factors interacted to bring this about. The global demand for energy and mineral resources
has trended unsteadily upward, as have world market prices and the rents that governments
can obtain from the control they exercise over resource-extraction sectors. The exploration
and extraction frontiers have expanded, notably into Central Asia and sub-Saharan Africa
and into offshore areas within the territorial waters of poor countries (Moore 2011).
Back in the 1960s, a few Middle East scholars had begun to argue that the lavish financing
of states like Saudi Arabia through oil revenues was giving rise to a distinct, problematic
type of polity: the rentier state (Mahdavy 1970). Unlike governments that were financed
through broad general taxation, rentier states enjoyed incomes that were “unearned” in
the sense that they needed to make little organizational or political effort to obtain them
(Moore 1998). There was increasing evidence that rentierism was associated with as se-
ries of adverse outcomes—low rates of economic growth; economic mismanagement; fiscal
waste; and exclusionary, authoritarian, and militarized rule—that are collectively labeled
the “resource curse.”10 It was then virtually inevitable that, as oil and other types of rentier
revenues like development aid became increasingly important in other developing coun-
tries, area specialists would be drawn to the Middle Eastern literature on the perverse po-
litical and economic consequences of rentierism.11 Taxation became interesting to political
scientists working on development partly through theories that attributed significance to
228 Mick Moore
its absence.12 The interest in taxation developed in tandem with the interest in rentier states
and the resource curse. Those latter issues are treated elsewhere in this volume. I focus here
on the taxation side of the coin.
The main intellectual foundations of the revenues and regimes school were laid down in
the 1980s. I comment here on three scholars who were individually influential and who col-
lectively represent the school: Charles Tilly, Margaret Levi, and Kiren Chaudhry.13
Interpretations of British history—and historical comparisons between Britain and
other European states, especially France—have played a central role in the emergence of
the revenues and regimes paradigm. Control of revenue was a major focus of a long se-
ries of political and military struggles between the British Crown and Parliament in the
seventeenth century. The victory of Parliament, most often associated with the political
settlement that followed the Glorious Revolution of 1688 (Pincus 2009), enshrined in the
national political culture the notions that the unconstrained fiscal authority of the polit-
ical executive led to absolutism; that legislative control of government expenditure was
grounded in control over revenues; and that the active participation of taxpayers in fiscal
policy through representative institutions was the source and guarantor of liberty, the rule
of law, representative government, constitutional monarchy, and strong private property
rights. It is several decades since political scientists interested primarily in state formation
and political order in contemporary developing countries began mining the comparative
histories of taxation politics and policies in Europe for material that could be used to model,
in a more or less formal way, the consequences of the political interactions between rulers
and taxpayer-citizens (Bates and Lien 1985; Finer 1975; North and Weingast 1989; Zolberg
1980). These attempts to model and draw general conclusions from history fed back into
the ways in which the historians of Europe approached the subject. There has been an im-
pressive engagement between them and contemporary political scientists over regimes and
revenues issues (e.g., Brewer 1989; Daunton 2001; Dincecco 2011; Herb 2003; Hoffman and
Norberg 1994; Kwass 2000; Levi 1999; Moore 2004; North and Weingast 1989; Rosenthal
1998; Stasavage 2010).
The late Charles Tilly, who was both historian and social scientist, has been especially
influential, especially with his Coercion, Capital and European States A.D. 990–1992 (Tilly
1992). This book caught the imagination of social scientists working on contemporary poor
countries for two reasons: First, Tilly provided a simple, dichotomous analytic framework
that transcended the complexities and nuances of his historical cases. He argued that there
were two stereotypical paths to state-building in historical Europe, each with distinctive
revenue dimensions. The coercion-intensive path involved the extraction of financial re-
sources for the state through tangible force. It had a strong elective affinity with agrarian
economies and with more absolutist and authoritarian forms of rule, and was especially
prevalent in Central and Eastern Europe. The capital-intensive path tended to predomi-
nate where there were concentrations of mobile merchant capital that could be shifted to
other political jurisdictions in response to failures of or threats from governments. In these
environments, of which Britain and the Netherlands were the most prominent large cases,
rulers had strong incentives to negotiate with controllers of this mobile capital and to offer
them stable tax regimes, some control over the revenue-raising process, and perhaps also
public expenditure in order to ensure that their capital (and thus their revenue generating
potential) were not relocated to other, more attractive political jurisdictions. These
bargains were both encouraged by, and in turn tended to strengthen, stable representative
institutions, like the British Parliament, which provided fora for rulers and taxpayers to
negotiate, procedures for reaching binding agreements, and modes of policing them.
“In capital-intensive regions, the presence of capitalists, commercial exchange, and substan-
tial municipal organizations set serious limits to the state’s direct exertion of control over
individuals and households, but facilitated the use of relatively efficient and painless taxes on
commerce as sources of state revenue.” (Tilly 1992, p. 99)
The second reason that Tilly engaged the development specialists was that his final chapter
was devoted to exploring the implications of his historical analysis for contemporary poor
countries. His broad message was that their extensive international entanglements, in-
cluding development aid, military assistance, state control of commodity exports, transna-
tional corporate investors and religious organizations rooted overseas, made less likely the
kinds of centralized bargains or elite compacts involving taxes between nationally rooted
actors—rulers, organized taxpayers, militaries, churches—that had played such an impor-
tant role in state formation in historical Europe. Binding agreements were less likely if
there were a larger number of significant actors, many with their vital interests located
elsewhere. Tilly was interested primarily in state-building, and in taxation only to the ex-
tent that it contributed to that project. He did however believe the tax deficit in contempo-
rary developing countries to be sufficiently consequential that he advised the “. . . creation
of regular systems of taxation, equitably administered and responsive to the citizenry. . .”
(Tilly 1992, p. 223)
Margaret Levi’s Of Rule and Revenue (1988) focuses more directly on the ways in which
states extract resources from their subjects. She has been influential above all through pro-
viding a conceptual framework for analyzing the interactions between rulers and taxpayer-
citizens that significantly influenced other scholars. In her words:
I hypothesize that rulers maximize the revenue accruing to the state subject to the constraints
of their relative bargaining power, transactions costs and discount rates. Relative bargaining
power is defined by the degree of control over coercive, economic and political resources.
Transactions costs are the costs of negotiating an agreement on policy and the costs of
implementing policy. The discount rate refers to the time horizon of a decision maker. (Levi
1988, p. 2)
The key components of the framework are: the expectation that revenue politics hinge
around interactions among two main categories of collective actors—rulers and (various
categories of) taxpayer-citizens; the assumption that those actors generally pursue rational
self-interested strategies within the constraints set by the institutional environment; the use
of the language of institutional economics; and the belief that governments exercise suffi-
cient control over tax policy and the tax-collection process that outcomes, such as levels
of collection of different types of taxes, could be understood as the intentional product
of political decisions. Like other rational choice political economists seeking to explain
national-level political action, Levi tended to gather most of her evidence from the study
of observable political debate around taxation and from statistics on taxation outcomes at
national level. I argue in section “How Is Tax Collected?” that greater familiarity with the
tax-collection process directs attention to variables that receive little attention from the
revenues and regimes school, including organizational and logistic constraints, organiza-
tional inertia, and the gaps between formal tax policy and actual practice.
230 Mick Moore
Kiren Chaudhry’s (Chaudhry 1989, 1997) contributions to the revenues and regimes
paradigm are founded on detailed historical and comparative research on the political
responses to changing sources, levels and needs for state revenues in Saudi Arabia and
the Yemen. Her investigations date back to the early the nineteenth century, with the em-
phasis on changes in the 1970s and 1980s. The work on Saudi Arabia focuses on how the
state apparatus dealt with major changes in its revenue levels stemming from long-term
fluctuations in the international oil price. For the Yemen, those fluctuations made the
difference between small or large inflows of its only major source of external capital—
remittances from the many Yemenis employed in Saudi Arabia and other oil states of the
region. Chaudhry’s research lies at the intersection of the rentier state, state-building and
taxation literatures. Relative to Tilly and Levi, she deals less with the political economy of
interest groups and more with the organizational economy of capital flows and of the tax-
raising process. She appreciates the difficulties all tax agencies face in maintaining revenue
flows in low-income environments; the contribution of the intelligent coordination of di-
verse sources of information to effective tax collection; the extent to which effective tax
agencies need the cooperation of other public agencies to do their job well; and the ways
in which they can in turn contribute to the effectiveness of those other agencies, including
those working in policing and security.
She points out that the regulatory and information-gathering dimensions of the state
get formed in the process of extending the taxation apparatus, implying that actual tax
collections reflect more broadly on the development of these other bureaucracies.
(Lieberman 2002, p. 93).
How Do Revenues Affect Regimes?

So far, I have paid more attention to the analytical frameworks that characterized the
revenues and regimes paradigm, and the context in which it emerged, than to its propo-
sitional core. What exactly are its proponents claiming? The most modest claim is simply
that “taxation engages”—that is, taxpayers will tend to react politically to attempts to
relieve them of some of their income or assets. A proposition as basic as this can gen-
erate very significant insights into specific cases, as evidenced by Deborah Brautigam’s
analysis of how sugar export taxes in Mauritius contributed to a process of institution-
alized bargaining between socioeconomic interests and the state, and eventually to the
formation of something like a model social democracy (Brautigam 2008b). The more
ambitious claims of the revenues and regimes paradigm are more diverse. They comprise
in effect a range of connected propositions that are not always adequately specified or
distinguished one from another. Insofar as there is a common propositional core, it has
three main elements:
1. States’ revenue sources, collections, or needs tend to have significant impacts on

patterns of politics and governance.
2. These impacts derive above all from the extent to which political executives are
constrained by a need to negotiate and bargain for their key financial resources with
the resource providers.
3. These impacts will be significant to the extent that they are institutionalized.
Beyond this, we have considerable diversity. There are three main alternative
conceptualizations of the independent variable.14 For research purposes, each could be
operationalized and measured in different ways:
1. The source concept: the proportion of total state revenue coming from different
sources. This is the definition embodied in rentier state theories, which began by
contrasting the “unearned income” from oil wells—whether formally garnered
through royalties, taxes, or direct state ownership of parts of the oil industry—with
income from broad general taxation. Other major sources of “unearned income”
that have become significant for states in the global South, notably develop-
ment aid, logically should—and have been—suspected of having similar political
consequences.15 In general, source definitions focus the analysis initially and pri-
marily on the implications of revenue variations for the behavior or incentives of
state rather than societal actors.
2. The collection concept: some measure of the amount or proportion of the total in-
come of (various categories of) taxpayers that is taken by the state. This definition
focuses the analysis primarily on potential societal (mainly taxpayer) responses to
taxation, and therefore on taxpayer perceptions of the process. But there are many
ways of conceptualizing and measuring the tax burden. Even the mythical rational
and fully informed taxpayer might evaluate it either in gross absolute terms (“How
much do I pay in total?”); in gross relative terms (“How much of my income or assets
do I hand over?”); or in net terms (“How much do I pay relative to the benefits I re-
ceive from public expenditures of tax revenues?”) (Ross 2004).
3. The needs concept: the extent to which the state is under pressure to increase the
amount of revenue raised, or to prevent a likely decline. While it is relatively easy to
produce quantitative measures of the two previous concepts, this one is particularly
hard to measure objectively or quantitatively. It may however be the only way to cap-
ture some key elements those aspects of the political process that really matter to the
theory (Prichard 2010).
This heterogeneity of the independent variables represents only one aspect of the po-
tential propositional diversity of the revenues and regimes paradigm. What about the de-
pendent variables? What is it that the paradigm seeks to explain? There are no clear or
simple answers to these questions, and no authoritative attempt even to collate all the causal
propositions found in the literature.16 Table 13.1 is a starters’ guide for researchers. It does
two main things: First, it illustrates some potential causal sequences and the ways in which
actions taken by either states or citizen-taxpayers might in turn generate constructive in-
teraction and bargaining between the two. Second, it suggests three main categories of po-
tential dependent variables17—that is, three main impacts of revenue variables on political
variables—state bureaucratic capability, state responsiveness, and state accountability:
State bureaucratic capability. Broad general taxation—to a far greater extent than
1.
“point” revenues that come from a few concentrated sources like aid donors,
mines, and oil wells—obliges the state to invest in the creation of a relatively reli-
able, uncorrupt, professional career public service to engage widely with the public,
collate information from many sources, assess and collect dues, and then hand them
232 Mick Moore
over to the state treasury. At some points in history, an elite revenue service has
been a training ground and reservoir of high-quality staff for the public sector more
broadly.18
State responsiveness. Of the causal links suggested in Table 13.1, the most important
2.
is the claim that high levels of dependence on tax revenues give states a strong stake
in economic prosperity. The more that governments are dependent for their funding
on broad general taxes, the greater their incentives to promote the general economic
prosperity of their country and citizens. That in turn might have implications for
modes of governance.
State accountability. This is the largest, most widely cited, and most complex cate-
3.
gory. There is convincing evidence that, over the last few decades at least, depend-
ence on oil and mineral revenues has had consistently antidemocratic consequences,
fostering unaccountable, exclusionary, militarized regimes. However, that informa-
tion does not justify going to the other extreme—that is, suggesting that high levels
of tax collection or urgent state needs for additional revenue are likely to contribute
in any consistent or significant way to democratization (Herb 2003; Levi 1999;
Mahon 2006).19 Excluding cases where governments are funded from large nat-
ural resource rents, the debate should not be about whether revenue variables affect
Table 13.1 The Effects on Governance of State Dependence on Broad Taxation

Immediate Effects Intermediate Effects Direct Governance Outcomes
A. The state becomes focused on 1. The state is motivated to More state responsiveness
obtaining revenue by taxing promote citizen prosperity.
citizens. 2. The state is motivated More state bureaucratic
to develop bureaucratic capability
apparatuses and information
sources to collect taxes
effectively.
B. The experience of being taxed (Some) taxpayers mobilize More state accountability
engages citizens politically. to resist tax demands and
monitor the mode of taxation
and the way the state uses tax
revenue.
C. As a result of A and B, 1. Taxes are more acceptable and More state responsiveness,
states and citizens begin to predictable, and the taxation and state political and
bargain over revenues and process more efficient. bureaucratic capability
exchange willing compliance 2. Better public policy results More state responsiveness
by taxpayers for some from debate and negotiation. and political capability
institutionalized influence 3. There is wider and more More state accountability
over the level and form of professional scrutiny of how
taxation and the uses of public money is spent.
revenue (i.e., public policy). 4. The legislature is strengthened More state accountability
relative to the executive
(assuming one exists).
Source: Adapted from Moore (2008b).

democracy and democratization, but whether they affect the extent of institution-
alized accountability of governments to taxpayer-citizens. Mahon (2006) probably
is right in suggesting that, to the extent that revenue variables do have an impact on
governance, they are less likely directly to affect the degree of democracy and more
likely to impact on the extent to which governments are liberal in the classic sense—
that is, limited, constrained by the need to govern with the consent of at least their
wealthier subjects, and obliged to respect at least the property rights of their citizens,
if not their civil rights.20
Beyond this, Mahon (2006) and other researchers who have examined the issue make
a strong case that these causal connections between revenue sources and regimes are
mediated by contingent, location-specific political processes. A very important dimen-
sion of these processes is the extent to which various categories of taxpayers are able and
motivated to engage in unified collective action to confront the state in the national political
arena. Relatively centralized national political institutions appear to be almost a precondi-
tion for the activation of any of the causal sequences linking taxation to improved govern-
ance (Brautigam 2008a; Herb 2003; Levi 1999; Moore 2008a; Timmons 2005; Gallo 2008;
Dincecco 2011). We can be sure that the causal connections between revenue sources and re-
gime types are not mechanical—but how do we know that there are any causal connections
at all? There is no solid proof, but a growing body of supportive evidence.
Much of the quantitative evidence comes from comparing subnational governments
within individual countries. One of the most widely cited papers demonstrates that the
levels of competitive democracy are consistently lower in those Argentinian provinces that
are blessed with higher levels of fiscal transfers from Buenos Aires. Local political leaders
who enjoy fiscal patronage from outside—and thus do not have to tax much within their
jurisdictions—are able in various ways to buy off or suppress their rivals (Gervasoni 2010).
An area of Nigeria where the local government under colonial rule depended on broad
local taxes has developed better local political institutions than an adjacent and similar
area, located in a different political jurisdiction, where local taxes were not levied under
colonialism (Berger 2009). Using data from over 5,000 local governments in Brazil over the
period 1999–2008, Lucie Gadenne (2012) finds that additional incomes raised through local
taxation were more likely to be spent on citizens’ needs and were less prone to corruption
than equivalent increases in transfers from higher levels of government. Employing the
techniques of the growing field of experimental economics, Laura Paler (2013) finds that
Indonesian citizens who believed that they were directly funding their local government
through tax payments were more likely to monitor its use of money than people who un-
derstood that their local government was funded by transfers from central government.
At the national level, single-country contemporary narratives that seem to confirm
the revenue and regimes story (e.g., Eubank 2012; Soliman 2011) are unlikely to sway the
skeptics. It is however very difficult to test the theory quantitatively with data from a large
number of countries. All extant data series measuring the quality of governance are prob-
lematic, and revenue data for low-income countries are neither abundant nor very reliable.
There is a strong correlation between levels of national income and the quality (and quan-
tity) of fiscal data (Moore 1998).21 Fiscal data are notoriously incomplete and inaccurate for
many of the countries that are of most interest from the revenues and regimes perspective—
energy-and mineral-exporting countries, whose public accounts may be designed to hide
234 Mick Moore
the greed of political elites, and those heavily dependent on foreign aid, because not all aid
appears in official budgets. Nevertheless, on the basis of analysis of panel data on thirty-one
sub-Saharan African countries over the period 1990 to 2005, Baskaran and Bigsten (2013)
claim that governments that tax more have higher-quality political institutions. Taken in
isolation, their claims are not very persuasive: The statistical associations are not strong,
and it is not clear that they have dealt adequately with questions of causality. But weak
evidence is still evidence—and small national comparisons point the same general direc-
tion. In the postcommunist era, the dependence of the Polish government on broad general
taxation motivated state–society bargaining and strengthened democratic institutions; by
contrast, the Russian government continued to depend on revenues extracted from a few
concentrated large-scale activities, notably in resource extraction, and Russia remained
essentially authoritarian (Easter 2012). Wilson Prichard (2010) traced the politics associ-
ated with episodes of urgent state fiscal needs or major revenue policy changes in Ethiopia,
Ghana, and Kenya over three decades. Major fiscal events tended to stimulate political
mobilization of taxpayers and, in most cases, constructive engagement with the state that
contributed to improving the quality of political institutions.
The revenues and regimes paradigm is poised between (a) the overwhelming plausi-
bility of some of its core intuitions, especially those concerning the adverse consequences
of rentier incomes; (b) the supportive evidence and insights generated by an increasing
range of empirical research; and (c) continuing difficulties in determining what are the
central causal propositions, defining them clearly, and testing them rigorously across
a wide range of cases. However, scholars are slowly sorting out the plethora of poten-
tial propositions, and fiscal data series relating to the poor world are being steadily
upgraded. We can reasonably hope for some advance in our understanding in the next
few years.22
Alternative Perspectives
There is much to celebrate about the revenues and regimes paradigm. It addresses signifi-
cant questions that engage the interests of many people outside the ranks of academic po-
litical science. Those questions seem answerable to some extent through careful research.
After a long period in which “public finance” seemed to have been relegated to the status
of a rather boring technical subject, the debate around revenues and regimes has drawn a
large number of researchers from political science and related disciplines into the public
finance field.
There are, however, grounds for complaint as well as for celebration. As I explain sub-
sequently, the rapid recent growth of interest in taxation has led social scientists of all
stripes to publish on the topic without an adequate understanding of the more technical
issues. They sometimes fail to take sufficient account of the knowledge of the accountants,
administrators, economists, and lawyers who specialize in taxation. The revenues and
regimes paradigm is based on an understanding of—and methodological approach to—
taxation that, while valuable for particular purposes, is rather stylized and partial, and has
little basis in broadly sociological studies of tax-collection processes. Some characteristic
features of the work of the school that also constitute limitations are:
• an expectation that the purpose of taxation systems is solely to raise revenue;

• focus on political and policy interactions between rulers (or states) and taxpayer-
citizens, in what is imagined essentially as a two-actor game;
• reliance on evidence about institutional processes of tax collection and tax policy for-
mulation that is derived from relatively “external” and public sources—public policy
debates, changes in laws, revenue-collection statistics—rather than from direct access
or insight into those processes; and
• a belief that the levels and composition of tax collections largely reflect government
intentions and decisions.
The reasons why these assumptions and expectations also constitute limitations are
explored in the following four sections.
Why Do Governments Tax?
It seems very reasonable for Margaret Levi (1988, p. 2) to have hypothesized that “rulers max-
imize the revenue accruing to the state subject to the constraints of their relative bargaining
power, transactions costs and discount rates.” Governments tax to raise money. But if that
were the sole motive, how can we explain the extent to which, even in low-income countries
where governments find it hard to raise revenues (see section “How Is Tax Collected?”),
they routinely give away one-third or more of their potential annual tax income by granting
large numbers of tax exemptions or tax holidays of various kinds?23 Tax exemptions are not
restricted to low-income countries, but, relative to actual revenue collections, they seem to
be especially prevalent there. Some tax specialists fear that exemptions are becoming more
rather than less common (Cleeve 2008; Gauthier and Reinikka 2006; Gordon and Li 2009;
Madies and Dethier 2010). Exemptions, of course, derive in part from globalization and
the threats of potential (overseas) investors that they will take their money elsewhere if not
offered a special deal by governments. But that alone does not explain why governments
should be so eager to give away current and future income. I believe that the answer is
revealed in the daily realities of tax collection in low-income countries. The power to tax—
and therefore the power to grant tax exemptions—is not just a means of raising financial
resources for the state. It is also—and especially in polities characterized by low levels of
democratic institutionalization and legitimacy—a basic and direct instrument of rule. It
can be used as both carrot and stick: to generate support and to discourage oppositional
activity.
The information we have is almost entirely anecdotal. But the use of tax systems as an
instrument of rule seems systemic. The threat of a special tax audit is a coercive means of
aligning wealth to power. The more visible tax exemptions are the sweeteners. They typi-
cally are granted by the political executive, often through informal channels and without
reference to tax-collection agencies—making it more difficult for the latter to meet their
annual revenue-collection targets.24 Economists and tax-policy specialists have produced
a mountain of literature explaining that these tax exemptions are generally harmful, and
should at a minimum be limited, time-bound, transparent, and institutionalized. Few po-
litical scientists have investigated their political rationale in a consistent fashion. We mostly
236 Mick Moore
have to guess the extent to which exemptions are granted in exchange for broad political
support, party and political funding, or simple bribes. A recent paper by Ole Therkildsen
(2012) constitutes an interesting exception: He finds that a major driver of the spread of
tax exemptions in Tanzania is increasing group competition within the ruling party and,
thus, an ever-widening trawl for political finance to fund that competition. This raises the
question of whether the widening of electoral competition in sub-Saharan Africa helps ex-
plain the apparent increase in the frequency of tax exemptions.
The general point here is that tax systems are political institutions; whatever the reasons
they were originally created, they can, like virtually any political institution, be used for
other purposes. This is true of local as well as national tax systems. For example, Pierre
Englebert (2009, pp. 72–74) argues that one of the instruments used by national political
authorities in Africa to purchase a degree of tactical loyalty to the regime on the part of
potentially separatist local elites is to hand them unregulated local taxing powers. Those
powers are often employed arbitrarily and coercively to extract rents for the groups that
control local government (Fjeldstad and Therkildsen 2008; Prud’homme 1992).25 The
revenue-collection function in the normal sense of the term is subordinated to licensed
rent-taking. This perhaps helps explain why subnational revenue systems in many African
countries seem so resistant to reform.
Serious research into these “nonrevenue” dimensions of tax collection should be fruitful.
Until proven wrong, I will suspect that, in some developing countries, the function of di-
rectly rewarding influential friends and intimidating influential opponents is scarcely less
significant in animating tax systems than is the revenue-collection function.
How Is Tax Collected?
For the purposes of the kind of macro-historical theorizing in which she was engaged,
Margaret Levi, like other contributors to the revenues and regimes paradigm, imagined
and modeled taxation as a political game involving two main categories of actors: polit-
ical executives (“rulers”) and (various categories of) taxpayers (sections “The Revenues
and Regimes Paradigm” and “Alternative Perspectives”). That is not how the process
is experienced by those involved. Nor does it very accurately reflect the actual flows—
and leakages—of revenues. A cursory look at the actual money flows in any contempo-
rary tax system suggests that we should assume at least four main categories of actors
and interests: taxpayers, tax intermediaries, rulers, and revenue-collection organizations
(Table 13.2).
Table 13.2 The Main Categories of Actors in the Taxation Game

Supply Side Demand Side
(1) Taxpayers (3) Revenue-collection organizations

(2) Tax intermediaries (4) State executives/Rulers
Before taxes reach revenue-collection organizations, most pass through the hands of
tax intermediaries of various kinds: tax lawyers; accountants; clearing agents, forwarding
agents, brokers and managers of bonded warehouses (for customs); formal associations
of any of the previous; support staff employed directly and unofficially by official tax
collectors;26 and the many taxpaying organizations authorized and required to collect
tax from others and pass it to formal tax agencies, which include banks responsible for
collecting withholding taxes on the interest they pay their depositors, the companies who
do the same for dividend payments, the employers who collect their employees’ pay-as-
you-earn personal income taxes and social security taxes, and the larger companies that
effectively function as agents for the collection of value-added taxes. With the exception
of local and property taxes, most tax payments, in poor and rich countries alike, involve
some kind of intermediary. Taxpayers and collectors typically do not confront one an-
other directly.
Tax intermediaries perform many functions. The use of employers, banks, and large
companies to collect pay-as-you-earn personal income taxes, withholding taxes, and value-
added taxes is largely an issue of efficiency. To some degree, intermediaries help protect less
experienced and influential taxpayers against high levels of extortion. To some extent, their
role simply reflects the economic advantages of specialization (i.e., knowledge of tax law
and organizational procedure). But a major reason that intermediaries are so abundant in
developing countries27 is that tax-collection processes there typically exhibit high levels of
the kinds of pathologies that are always latent in the tax relationship: extortion, corruption,
and various kinds of bargains that advantage tax collectors and their informal networks and
that also provide employment to intermediaries at the expense of both taxpayers and the
public treasury. A number of pieces of recent detailed and often quantitative anthropolog-
ical and survey research collectively throw significant analytical light on these processes,
albeit mainly in respect of customs in West Africa (Amin and Hoppe 2013; Likeng et al. 2011;
Cantens 2012; Cuvelier and Mumbunda 2013; Titeca 2009; Titeca and Kimanuka 2012). The
following findings recur:
1. Almost all illegal payments to customs staff are made by intermediaries on behalf of
their clients.
2. Relationships between intermediaries and customs staff are to a significant de-
gree driven by incentives on both sides to minimize the potential adverse effects
(on the flow of business) of the high degree of friction and conflict that is intrinsic
to the operation. While customs staff have the power to inflict very high costs on
“noncooperative” customers by detaining or confiscating goods, or by exercising
discretion about classifications and valuation, they also need, on pain of various
kinds of administrative punishment, to keep business running smoothly in order to
meet their regular revenue-collection targets.
3. There are corresponding pressures for all parties to reach understandings—possibly
independently of formal procedures and policies—and to assist one another where
possible. For example, individual customs officers or units might rely on their larger
customers to pay dues very quickly—or even in advance—in order that they do not
fall behind their schedule in remitting collections to the public treasury.
4. There are high levels of informal organization on both sides. Networks of customs
officers, in which power and authority do not always accord to the formal hierarchy,
238 Mick Moore
organize the flow of collective informal earnings, both internally and externally to
powerful politicians. Associations of intermediaries might receive some of these in-
formal earnings to meet their collective expenses.
5. While there exist collective mechanisms to regulate the collection and redistribu-
tion of informal earnings, these are neither comprehensive nor fully transparent to
all participants. Individual customs officers may also collect on a personal basis.
Because of incomplete information and competition over informal earnings,
conflicts may erupt periodically.
6. Moving staff between posts with different potentials for informal earnings is a major
mechanism for the internal exercise of authority.
7. Different border posts within the same country are often in competition with one
another for business. They try to attract traders with combinations of lower charges,
predictability, and efficient service.
8. On land-border posts in particular, customs agencies may both compete and co-
operate with one or more other state institutions (the military, environmental-or
health-regulation agencies) to collect money from traders.
9. These various collection agencies may routinely use local nonstate agents—criminal
gangs, taxi drivers—to obtain information on attempts to bypass border posts and to
punish offenders.
The organizational sociology of tax collection is similar to that of policing: both types of

organization enjoy considerable legal coercive power over citizens, and both find it difficult
to exercise control over the interactions between their field agents and “clients.” Strong in-
formal networks quickly emerge to pose major challenges to formal authority structures.
Corruption is always latent: in the absence of effective discipline and oversight in revenue
organizations, the individual collector and the taxpayer can always do a deal on a reduced
tax bill that advantages them both relative to the public treasury.28 In some cases corruption
is widespread.29 Research of the kind cited above takes us beyond a corruption narrative
to insights into intra-and interorganizational politics. Most tax collection is the outcome
of gaming and more or less explicit bargaining between taxpayers, intermediaries, and rev-
enue officers.30 While the law to varying degrees sets the parameters for these interactions,
actual collection involves negotiation about what rules apply, how far queries and requests
for further information should be pursued, and when disagreements should be put aside
and compromise reached. Collectors always enjoy discretion vis-à-vis taxpayers. However,
this may be offset by their institutional obligations to deliver revenue to the treasury on
target and by their consequent dependence on cooperative relations with at least some
of their (larger) customers. The character of the relationship is captured in one Russian
businessman’s words:
“I come to my inspector and she says explicitly to me: ‘Look, I know I am accepting a piece
of bullshit from you. I know you fake cashier’s receipts. Don’t you?’ I say, ‘I do.’ Of course, but
I do it reasonably. Because in the previous year I tricked it so blatantly that they said to me,
‘Oh dear, let’s be reasonable and show some more.’ I said, ‘How much?’ They said, ‘Let it be at
least 18,000 rubles ($600) more.’ I have friendly relations with my tax inspector. When I come
to her, she says to me, ‘Would you please make some mistakes. I am required to impose some
additional taxes on you, if I am checking you.’ So, when I am filing my tax declarations, I write
down some mistakes.” (Easter 2012, pp. 121–122)
The relationships between revenue agencies and governments involve similar

combinations of intrinsic friction with strong interdependence. This is especially true for
the governments of poorer countries, which find it difficult to borrow money commercially
in international markets in a flexible fashion. Governments need money continuously.31
Revenue-collection targets, specified by month or even shorter periods, are the main or
sole standard by which revenue-collection agencies are monitored and judged throughout
the poorer parts of the globe. While tax-collection agencies are under very strong pressure
to meet those targets, they also have the power seriously to embarrass their governments
by their failure to do so. That in turn helps explain why it is often so difficult to reform tax-
collection agencies to improve their performance.32 The potential revenue and economic
costs to government of whispered “tax strikes” are very high. The richness of tax collectors’
informal knowledge and networks makes them irreplaceable outside situations of extreme
crisis. The iconic cases of radical reform of tax administration in poor countries in recent
decades—notably Peru in the early 1990s (Durand 2002), Uganda in the later 1990s and
early in the 2000s (Therkildsen 2004), Rwanda over a similar period (Land 2004), and to
some extent Russia at various points (Easter 2012)—happened when state power was effec-
tively reconstituted after near-collapse, including the breakdown of revenue collection. The
tax collectors had already lost their bargaining power. In more normal circumstances, and
for analytical purposes, revenue organizations may better be understood as distinct polit-
ical actors rather than the obedient agents of the state executive.
In these more normal circumstances, it may be hard for governments to reduce the de-
gree to which tax collection is perceived to be corrupt and coercive—or to increase the ex-
tent of quasi-voluntary tax compliance by trying to persuade their citizens that paying their
taxes is either a civic duty or a means of enhancing collective welfare. To use current jargon,
“tax morale” remains low (Cummings et al. 2005; Torgler 2004; Torgler 2005). This is one
reason why the governments of poor countries currently raise much lower proportions of
their GDPs in tax than do governments of rich countries. There are, however, more tangible
and immediate reasons.
What Determines Levels of Tax Collection?
Governments of richer countries enjoy a much higher tax take—the ratio of revenue
collections to GDP—than do their counterparts in poor countries (Table 13.3, first line).
Why? One set of reasons was presented in the previous section: Their revenue-collection
agencies often have significant objectives beyond efficiently supplying the public treasury.
Another part of the explanation, which cannot be explored in any detail here, lies in the
difficulties faced by the revenue authorities of many poorer countries, especially the smaller
ones, in extracting a reasonable revenue yield from local subsidiaries and affiliates of large
transnational corporations—especially mining companies. The companies have superior
accounting and legal resources, the capacity to use mispricing to transfer profits to the po-
litical jurisdictions of their choice, and access to secretive tax havens or offshore finan-
cial centers.33 The weakness of revenue authorities relative to transnational companies has
been exacerbated by various aspects of economic globalization: the increased ratio of for-
eign trade to global production; the growth of international trade in intangibles and in
Table 13.3 Summary Statistics on Sources of Government Revenue, by Country Category
Country Category (Number of Countries)
Low Income Lower-Middle Upper-Middle High-Income High-Income
(37) Income (48) Income (41) Non-OECD (18)* OECD (30)
a. Government revenue (% GDP) 18 26 29 34 42

b. Government revenue, excluding grants (% GDP) 15 26 28 34 41
c. Government taxes (i.e., excludes nontax revenue) (% GDP) 13 18 21 16 35
d. Taxes (% total government revenue) 71 67 73 46 85
d. Income taxes (% GDP) 4 5 5 6 13
e. Corporate income taxes (% GDP) 2 3 3 2 3
f. Personal income taxes (% GDP) 2 2 2 3 10
g. International trade taxes (% GDP) 4 5 5 3 1
h. Taxes on goods and services, including VAT (% GDP) 5 6 7 5 11
i. Corporate income taxes (CIT) (% total government revenue) 12 11 12 7 7
j. Personal income taxes (PIT) (% total government revenue) 9 7 8 8 23
k. Ratio of CIT to PIT revenue 1.4 1.5 1.5 0.9 0.3
* These are mainly countries with high levels of income from energy or mineral extraction.
Note: The numbers show the means within each category and relate to recent years.
Source: IMF (2011, appendix table 2).
internet-based trading; increased levels of foreign investment in poor countries; longer and
more complex global value chains; and the general financialization of the global economy.
But it would be completely wrong to attribute the relatively low tax takes in poor countries
exclusively to this unequal relationship. The phenomenon has a long history. The proposi-
tion that the proportion of national income collected as taxes tends continually to increase
as countries become richer was formulated as Wagner’s Law in 1877. It has proven to be one
of the most robust and longstanding empirical propositions in social science. It holds today,
both within individual countries over time and cross-sectionally. The major reason that tax
takes are low in low-income countries is that the structure of their economies makes taxing
difficult.
The average level of per capita income in a country is a powerful predictor of the tax take.
But it is not only income levels that matter. Higher tax takes are consistently associated
statistically with national economies that are (a) urban/commercial or industrial, rather
than rural, agrarian, or subsistence and (b) more open to international trade.34 It is clear
why a high incidence of imports and exports leads to a high tax take: International trade
is the classic, core, default source of state revenue.35 But why do high incomes and urban
and industrial activities boost tax collections? Wagner believed that the motive force lay in
steadily increasing popular demands for public spending to allay the adverse effects of in-
dustrialism and urbanization. These factors play some role, but the more evident and prox-
imate causes lie in the greater taxability of more commercial economies, especially those in
which financial transactions are routed mainly through formal financial institutions. These
economies generate large quantities of written and electronic records for the tax collector to
exploit, notably through cross-checking data from different sources (Moore 2008a; Ardant
1975; Gordon and Li 2009; Kleven et al. 2009). Further, the high tax takes characteristic
of the wealthier nations are achieved only through the widespread use of the withholding
principle (i.e., when tax liabilities are withheld by a private economic agent and handed
over directly to the state, without ever passing through the hands of the nominal taxpayer).
Banks are withholding agents for the taxable element of the interest they pay depositors.
Company registrars do the same for dividend payments to shareholders. Even more impor-
tant, employers are the withholding agents for—and very efficient collectors of—the largest
single source of public revenue in high-income economies: personal income taxes and so-
cial security charges levied on employees (Kleven et al. 2009). While the near-ubiquitous
value-added tax (VAT) is not technically classified as a withholding tax, it has the same func-
tional features, and the main collection agents are large companies. Withholding requires a
formally organized economy: Enterprises should be registered, maintain audited accounts,
and use banks; employees should have contracts and be on the records of social security
organizations; substantial economic transactions should routinely generate receipts. The
informality of the economies of poor countries is a major obstacle to revenue-raising. This
is especially true in respect of the labor market. Because the governments of the wealthier
and more capitalist OECD countries require employers to operate PAYE (“pay as you earn”)
systems to collect personal income taxes from employees, personal income taxes are the
largest single source of public revenue. Social security contributions, mostly also collected
and paid by employers, are also significant. By contrast, the governments of low-income
countries depend more on taxing companies. The ratio of corporate to personal income tax
revenues is 0.3:1 in the high-income OECD countries, and 1.4:1 in the low-income countries
242 Mick Moore
(Table 13.3, row k). That makes all the more perverse the high incidence of tax exemptions
for companies in many developing countries (section “Why Do Governments Tax?”).36
In low-income countries without substantial energy or mineral exports, tax takes are
low because, for a combination of reasons deriving from economic structures, patterns of
economic transactions, and the organizational politics of the revenue-raising, it is hard
for governments to raise revenue. There is, of course, also political resistance to tax from
taxpayers. That seems to be especially intense and effective in Central America, where
policy-making is heavily dominated by powerful elites who largely exempt themselves from
taxes (Best 1976; Schneider 2012). But resistance from taxpayers is universal. It seems not
to be the major reason that tax takes are low in developing countries. Political scientists
are predisposed to seek and find political explanations for differences or changes in rev-
enue variables. I have made the case here for a more multidisciplinary perspective, which
draws attention to the more structural determinants and which better accounts for the fact
that, except in response to major short-term shrinkages or increases in state authority, most
major national-level revenue variables tend to change only very slowly.37 It follows that
we should be skeptical of claims that changes in revenue variables are valid indicators of
changes in underlying political variables.
Does Tax Collection Performance

Indicate “State Capacity”?
Revenue collection generates some of the deepest historical records and most consistent
and detailed statistical series that we have on the activities of states. Those records tell us
that, over the long term, as states have become more powerful, tax takes have increased,
as has the proportion of revenues collected through direct taxes (Mann 1993, pp. 60–61).
Given that broad-brush historical scenario and the fact that political science as a disci-
pline has little quantitative data available (Dunleavy 2010), political scientists are tempted
to use revenue data series as indicators of underlying political structures that are not di-
rectly measurable, especially the concept of “state capacity” (Lieberman 2002; Slater 2010).
Unfortunately, once we shift from the grand historical time frame toward either short-term
comparisons of individual states over periods of a few years or cross-sectional comparisons
among states at one point in time, the scope for drawing conclusions about state capacity
from revenue variables narrows almost to zero.
Many social scientists fail to appreciate the point made in the preceding section about
the extent to which national tax takes are shaped by features of the national economy. They
continue to suggest that the total tax take is a valid measure of what is sometimes termed
“extractive capacity.” For reasons explained in section “What Determines Levels of Tax
Collection?”, the total tax take is far from a valid measure of either the effort or the inge-
nuity that particular states or regimes make to raise revenues. If any measure of total rev-
enue collection is a valid indicator of state capacity, it is not the raw tax take, but what is
sometimes termed “tax effort”—that is, the actual tax take as a ratio of the “expected” take.
For any particular country, the expected level is predicted from cross-national regression
analysis of a large sample of countries. It is a response to this question: On the basis of the
revenue collection of all states in any particular data set, what would be the predicted tax
take for a country with the same economic structure?38
Is “tax effort” then a valid indicator either of “extractive capacity” or of some more
encompassing concept of general “state capacity”? In the absence of any independent
measure of “state capacity,” or even of coherence in the literature around this much-
used and rarely defined term (Fukuyama 2013; Soifer 2008), we should be skeptical. Why
should “extractive capacity” have priority over the various other dimensions of state ca-
pacity: spending power, which is much larger than revenue raising performance for many
aid-recipient countries; the capacity to organize and deploy coercive force; legitimacy;
organization; or, for the adherents of the notion of “network governance,” the right kind
of political and organizational linkages within the state apparatus itself, across states, and
between state and nonstate actors?39
“Extractive capacity” is clearly a component of state capacity. But, even when formulated
and calculated as “tax effort,” it does not usefully measure or indicate state capacity broadly
conceived. We can similarly reject the idea that the ratio of direct to indirect tax collections
is a proxy for state capacity more broadly. Although frequently employed by social scientists
(Lieberman 2002), this procedure cannot survive the scrutiny of tax specialists. Proponents
typically justify it on two grounds: The first is that direct taxes are harder to collect because
they are more visible to the taxpayer. The second is that direct taxes are more “progressive”
than indirect taxes—that is, fall more heavily on the rich (Lieberman 2002). The argument
is that a government that increases the ratio of direct to indirect taxes is exhibiting both po-
litical and organizational capacity, to face down the rich and take their money.
The conceptual distinction between “direct” and “indirect” taxes is rooted in economics,
not political science. Direct taxes are levied on individuals, organizations, or properties.
They include income taxes, business taxes, property taxes, hut taxes, head taxes, vehicle
taxes, and wealth taxes. Indirect taxes are levied on transactions. They include sales taxes,
value-added taxes, import taxes, export taxes, stamp duties on property sales, and excise
taxes on the production or sale of specific products like tobacco, alcohol, luxury vehicles,
or gasoline. Even if it were true that on average direct taxes (a) are more visible and pro-
voke more political resistance and (b) fall more heavily on the rich, the exceptions are nu-
merous and significant. It is not reliably the case, in poor countries today, that direct taxes
provoke political reactions more than indirect taxes, or that indirect taxes are more re-
gressive in their impact on the distribution of income. The most widespread visible tax
resistance in low-income countries in recent decades has been to the introduction of the
value-added tax. Although nominally an indirect tax, VAT mobilizes small traders both
because it requires them to maintain written or electronic records and because it is hard to
evade (Fjeldstad and Moore 2008, p. 241). Rich people are aroused by the threat of (“indi-
rect”) import or excise taxes on their luxury vehicles and liquors as well as by the threat of
(“direct”) income taxes. It is relatively easy for governments to raise large amounts of rev-
enue from direct taxes on personal incomes, without generating stiff resistance, if they can
induct business enterprises to do the collecting through pay-as-you-earn schemes (Kleven
et al. 2009) (see section “What Determines Levels of Tax Collection?”). Although in prin-
ciple it is a tax on consumption, and therefore potentially regressive in its impact on in-
come distribution, VAT is levied with sufficient intended and unintended exemptions in
most low-income countries that there is no reason to believe that it is generally regressive
(Gemmell and Morrissey 2005).
244 Mick Moore
It would be a great boon to political science if basic revenue statistics were to give us
such reliable and consistent insight into underlying political structures that we could read
off the one from the other. Unfortunately, in anything less than the big historical time
scale, they do not.
Conclusion
In this chapter, I have barely touched on the question of how patterns of governance might
impact what is variously termed “tax morale,” “tax culture,” or “compliance” (i.e., citizens’
predisposition to meet their tax obligations on a quasi-voluntary basis). I have paid little
attention to the literature on tax administration reform.40 I have almost disregarded the lim-
ited, underdeveloped literature on the international dimensions of taxation in low-income
countries, including the role of tax havens and of illicit international capital flows more
generally (section “What Determines Levels of Tax Collection?”). I have ignored a substan-
tial body of comparative work on contemporary Latin America that (a) focuses on distribu-
tional issues within a class or interest group framework and (b) explores the reasons behind
the substantial changes in tax policy and administration—and the significant increases in
the average “tax take”—that have characterized the region over recent decades.41
My focus has been on what is new to political science: the burgeoning revenues and regimes
paradigm; its limitations; some under-asked questions about the political dimensions of the
tax collection process in developing countries; and those technical aspects of taxation that
political scientists working in this area need to understand better. My most general conclu-
sion is that, while the staple questions about the impact of taxation on the distribution of
income and wealth will continue to attract a great deal of attention from political scientists
because they relate directly national and international policy debates, there is a fascinating
range of less obvious questions about the politics of taxation and development that are as
yet barely explored. Unfortunately, there seem to be few low-hanging research fruit. The
scope for usefully exploring the politics of taxation and development with existing data sets
is narrow.
Notes
1. For other recent reviews of the political economy of tax and development, see Brautigam
(2008a) and Easter (2012).
2. With acknowledgements to James Mahon, author of an excellent manuscript titled
“Revenue and Regimes” (2006), which unfortunately was never published.
3. For example, at the inaugural meeting of the African Tax Administration Forum in Kampala
on 19 November 2009, the commissioner-general of the Uganda Revenue Authority, Ms.
Allen Kagina, advised, “We should elevate ourselves from being just tax collectors and tax
commissioners to being state builders.” The role of taxation in state-building has been a
prominent theme in the deliberations of the forum. Similar claims about the nonfiscal, gov-
ernance benefits of taxation have invaded the language of many international aid and de-
velopment agencies in recent years (e.g., see OECD 2008, 2010). Taxation-as-state-building
has become a potent development policy narrative in part because of its imprecision. It is
especially compelling in the context of countries that remain dependent on foreign aid.
It provides national policy-makers with an appealing way of framing aspirations to be
free of aid dependence. The notion that domestic revenue-raising has positive effects on
governance provides Western aid donors with a vision of a credible, responsible strategy
for scaling down their aid commitments. In many countries, the narrative provides one
of the least respected public service cadres—tax collectors—with a sense of an historic
national mission that they otherwise lack.
4. Recent books that stand outside the revenues and regimes paradigm but nevertheless pay
significant attention to the role of revenue issues in contemporary state-building include
Centeno (2002), Chaudhry (1997), Herbst (2000), Slater (2010), and Young (1994).
5. Musgrave’s review puts Schumpeter’s work on the tax state usefully into context. The
contemporary policy issue that helped animate Goldscheid and Schumpeter’s work was
whether and how the tax state and the capitalist market economy could coexist without
one destroying the other. They had different views (Musgrave 1992).
6. Goldscheid and Schumpeter’s fiscal sociology can be viewed as the societal-level equiva-
lent of more recent resource-dependency theory, which is framed at the level of organi-
zations and broadly claims that the structure of complex organizations, and the behavior
and strategies of their managers, are influenced by the location of their key resources and
by the means they employ to access those resources (Pfeffer 1982; Pfeffer and Salancik
1978). In each case, there are strong claims about the causal significance of the resource
variables, but limited guidance as to how far and in what circumstances they have causal
priority.
7. Accordingly, the term “fiscal sociology” is employed in a variety of ways, sometimes
purely symbolically (Campbell 1993; Jinno and DeWit 1998; Martin, Mehrotra, and
Prasad 2009; Moore 2004).
8. There were colonial precedents for these extractive activities in parts of sub-Saharan
Africa. It was the scale that changed after independence. Most of these biases against
agricultural export commodities disappeared in the 1980s and after, generally under the
impact of structural adjustment policies.
9. Adrian Wood (2008) estimated that, in 2006 and taking into account only countries
with a population of a million people or more, seventeen governments (fifteen in Africa)
were receiving at least as much revenue from aid as from tax; for a further thirteen
governments, aid revenues were between 50 percent and 100 percent of tax revenue. For
detailed statistics on foreign aid, see Frot and Santiso (2010) and Tierney et al. (2011).
10. There is a large literature examining the diverse effects of large resource rents on poli-
tics and governance. Among the many sources, see Bulte, Damania, and Deacon (2005),
Collier and Hoeffler (2005), Jensen and Wantchekon (2004), Neumayer (2004), Ross
(2008), Torvik (2009), Tsui (2011), Vicente (2010), Weyland (2009), and Williams (2011).
11. From the later 1980s in particular, the notion that the poverty of developing countries was
attributable to generic “governance problems” became increasingly embedded in the dis-
course and practices of international aid and development agencies (Carothers and de
Gramont 2011). There was a ready market for explanations of why national and subnational
governments in the poorer parts of the world, especially but not only in sub-Saharan Africa,
seem so often to lack the basic capacity to exercise authority or to use such authority as they
have in anything like a public interest. Theories of rentierism helped fill the gap.
12. The significant puzzle is perhaps not why political scientists working on developing
countries became interested in the governance implications of revenues and taxation,
but why they took so long to do so. My experiences suggest that those who engaged
246 Mick Moore
closely with overseas aid business were inhibited, by both personal commitments and by
their funding sources, from putting on the agenda questions about the potential adverse
impacts of aid on recipient countries. Western aid donors have become less uncomfort-
able with these questions only recently, after it became possible for other reasons to talk
openly about “end of aid” scenarios.
13. The numbers of citations of their work recorded in Google Scholar validates the order in
which I list them here.
14. There are other definitions of the independent variable that appear in policy debates,
notably claims that taxation that is “better” in respect of process, incidence, or perceived
fairness will tend to contribute in various ways to political legitimacy. These are impor-
tant policy issues, but the underlying ideas owe nothing to the theories that motivate the
revenues and regimes paradigm.
15. The evidence on whether aid affects the capacity and willingness of recipient governments
to themselves raise tax revenue is inconclusive (Moss, Petterson, and Walle 2006). The
standard expectation, from rentier state theory, is that aid will discourage revenue-
raising. Among others, Knack (2009) and Remmer (2004) find evidence of this from
cross-national statistical analysis. Gupta et al. (2004) found that grants reduced domestic
revenue effort, while loans raised it. More recent research from the IMF suggests that the
revenue-suppressing effect of high aid levels is real, but has reduced over time (Benedek
et al. 2012). It is becoming increasingly clear that the mechanisms are more complex than
originally believed. For example, to the extent that aid finances imports, the immediate
effect of an increase in aid should be an increase in revenue from import duties. And the
available data on aid and public finances for low-income countries are not really fit for the
purpose of cross-national statistical analysis.
16. The situation will be much improved when Wilson Prichard’s (2010) doctoral thesis from
the University of Sussex becomes publicly available in book form.
17. The fourth category in Table 13.1, state political capability, is less significant.
18. Brewer’s (1989, pp. 101–114) account of the organization of the Excise Department in
eighteenth-century Britain illustrates this line of argument vividly. Perhaps the best con-
temporary research on this issue has been done by Kiren Chaudhry (1989, 1997) on Saudi
Arabia and the Yemen. Using cross-national statistical evidence relating to sub-Saharan
Africa, Prichard and Leonard (2010) find some supportive evidence for the period from
1973 until the late 1990s, but not for the more recent decade. My own work suggests that,
for most countries in sub-Saharan Africa, this effect currently is weak (Moore 2013).
19. Michael Ross (2001) seemed to have identified an empirical linkage from revenue to
levels of democracy over rather short time scales through cross-national statistical anal-
ysis. Haber and Menaldo (2011) question the validity of his statistical methods, in a paper
that is vulnerable to a similar critique. My gut feeling is that the Ross results are simply
too good to be true.
20. But see the reference below to Gervasoni’s (2010) work, which does suggest a causal
linkage from revenue sources to levels of democracy.
21. In consequence, many exercises in cross-national statistical analysis of fiscal data exclude
a high proportion of all low-income countries. See, for example, Gordon and Li (2009,
p. 858).
22. There is also a substantial literature, not treated here, that deals with reverse causal
sequences: the ways in which variations in the polity affect the capacity to raise taxes. One
approach is to look at the regime types. Since Cheibub (1998) concluded that democracies
were no better and no worse than nondemocracies at revenue-raising, there seems to

have been little interest in this question. There is a larger and recent literature, generated
mainly by tax specialists, that seeks to correlate taxpayers’ attitudes to their government
with their taxpaying behavior. The main problem with this literature is that in the great
majority of cases it is based on survey responses to questions about attitudes to gov-
ernment and to paying taxes. It is not clear how far we can draw conclusions from the
repeated finding that people who express a more positive attitude to their government
seem more willing to pay taxes (e.g., Torgler 2005). An alternative approach is to see
whether variations in measures of the quality of governance help explain, on a cross-
sectional basis, variations among countries in tax collections as a proportion of GDP.
Bird, Martinez-Vasquez, and Torgler (2008) find that they do. It seems intuitively obvious
that people with better experiences of their government are likely to be a bit more willing
to pay taxes. The research is consistent with that finding.
23. The calculation of the extent of tax exemptions is challenging, both conceptually and
practically. Most estimates are approximate, and many are informal. I derive this figure of
“one-third or more” from a wide range of different sources.
24. Within the constraints facing them, revenue agencies may try to expose and campaign
against exemptions. If they cannot do that, they might use the rhetorical weapons of the
weak. Within the Bangladesh National Board of Revenue, the list of companies enjoying
large tax exemptions is labeled the “magna carta,” after the historic charter of liberties for
the already privileged.
25. Afrobarometer data suggest that Africans have low opinions of their local governments
(Bratton 2012).
26. Blundo (2006) documents the informal employment of assistants by tax field staff in
Senegal. Mujtaba Piracha finds the same in ongoing field research on property tax
collection in Pakistan (private communication).
27. Cantens’s (2012, footnote 5) figures for 2010 suggest that, relative to the volume of cargo
handled, Customs intermediaries were about 22–26 times as numerous in the ports of
Abidjan (Cote d’Ivoire) and Douala (Cameroon) as in Le Havre (France).
28. “Corruption” is the external observers’ term. Participants operate with a wider and more
nuanced range of categories (Cantens 2012).
29. Transparency International does annual surveys of the experiences of the population of
the East African Community countries of being asked for and paying bribes to specific
organizations. In 2011, 115 organizations were listed. The Burundi Revenue Authority
ranked third highest in overall corruption levels; the Uganda Revenue Authority, fifth;
the Tanzania Revenue Authority, thirty-third; and the Kenya Revenue Authority, fifty-
eighth (Transparency International 2012, pp. 1–3).
30. Gaming also takes place within revenue-collection agencies among various categories
of staff. In his current research on urban property tax collection in Pakistan, Mujtaba
Piracha (personal communication) has discovered that, by consistently hoarding in-
formation about what money is collectable and actually collected, field staff can protect
themselves against the arbitrary demands of their organizational seniors.
31. That is partly why the governments of poor countries often seem to score badly in
international league tables purporting to measure their user-friendliness from the
taxpayers’ perspective (World Bank 2011). Governments require taxpayers to make rel-
atively large numbers of annual payments because of the fragility of the public cash-
flow situation.
248 Mick Moore
32. Unless reform offers net benefits to existing staff, they have a high capacity to resist. And
tax intermediaries are generally also quick to mobilize against administrative reform, be-
cause their livelihoods are often under particular threat.
33. The literature on this topic is large and burgeoning. See Palan, Murphy, and Chavagneux
(2010); Shaxson (2011); Reuter (2012); and especially Cobham (2012).
34. For a recent summary of a long series of statistical analyses of these issues, see Gupta
(2007, appendix D); for more recent reconfirmation, Pessino and Fenochietto (2010).
35. This is true to the extent that imports and exports comprise physical commodities. It
is more difficult to tax either international trade in intangible services or transactions
undertaken over the internet.
36. It also suggests that companies that do not enjoy tax exemptions are indeed, as they pro-
test, being treated as milch cows for the public treasury. Gehlbach (2008) argues that,
in immediate post-Soviet Russia, the state was so desperate for revenue that it allocated
discretionary resources to those larger companies it could tax.
37. For example, Mkandawire (2010) found that contemporary variations among thirty-five
African countries in “tax effort”—defined as total tax collections relative to those one
would expect given the structure of national economies—still reflect variations from the
colonial era in economic structure and taxability. Richard Bird’s (2010) practical under-
standing of the business of tax collection in low-income countries provides considerable
insight into the inertial dimensions of tax administration.
38. Among others, Mkandawire (2010) and Pessino and Fenochietto (2010) use this proce-
dure. Note that any calculation of the expected tax take—and therefore of tax effort—
involves a margin of error, deriving from (a) the poor quality of fiscal data for many
developing countries and (b) the choice of econometric models.
39. Network state theorists argue that the mode of exercising state authority currently is
changing: away from one-way command-and-control type activities initiated from within
the formal state apparatus (“Weberianism”), toward more two-way, informal, exchange
relationships that cross formal organizational boundaries. To the extent that they are correct,
the core resources of Weberian states—finance and internal organization—are becoming
less central to state capacity and are being replaced by networks and connections within the
state apparatus itself, across states, and between state and nonstate actors (Ansell 2000).
40. See, for example, Bergman (2003), Fjeldstad and Moore (2009), Joshi and Ayee (2009),
Joshi and Ayee (2008), Prichard and Leonard (2010), and Taliercio (2004).
41. The literature is vast. Papers relating to the region as a whole that I have found particu-
larly useful include Ardanaz and Scartascini (2011), Goni, Humberto Lopez, and Serven
(2011), Hart (2010), Mahon (2004), and Sanchez (2006).
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Chapter 14
How D o Gov e rnme nts

Build Capabili t i e s to D o
Great T h i ng s ?
Ten Cases, Two Competing Explanations,
One Large Research Agenda
Matt Andrews
Governments can play great roles in their countries, regions, and cities, facilitating or
leading the resolution of festering problems and opening new pathways for progress.
Examples are more numerous than one might imagine, where governments led the process
of economic development, built mind-boggling infrastructure, ensured safety and secu-
rity for citizens, and beyond. Academics and development experts have distilled lessons
from such cases, typically focused on what good government or governance looks like.
Studies suggest that countries should deregulate to foster growth, for instance, create a ro-
bust procurement system to ensure successful capital projects, and establish a modernized
judicial system to promote law and order. However, many governments that try to replicate
these what solutions struggle to achieve the same levels of greatness (see Andrews 2003,
2005, 2009, 2011, 2013; Andrews, Pritchett, and Woolcock 2012). They deregulate but do not
see economic growth, employ new procurement systems but still struggle with mission-
destroying corruption in infrastructure projects, and establish modern judicial systems
on paper that are dysfunctional (at best) in practice. These experiences raise an important
question that is different to the commonly asked what question: How do governments build
the capabilities required to do great things? This chapter broaches this question, not to pro-
vide final answers but rather to suggest a research agenda that promises to do so and is dras-
tically needed to better understand the process of state building in development.
The chapter starts by identifying cases of governments that have dramatically ramped
up their capabilities and promoted development in their countries, to answer skeptics who
might argue that there are no examples of this. These are instances where public organiza-
tions have been clearly involved in achieving amazing things, in fairly short periods of time.
These include the stories of economic growth in South Korea and Singapore after 1963 and
1965, respectively; Turkey’s post-2002 economic recovery; India’s 2012 eradication of polio;
How Do Governments Build Capabilities to Do Great Things? 257
South Africa’s transition to democracy in 1994; civil rights reforms in the United States; the
establishment of the United States’ aeronautical industry (and successful lunar expedition);
Medellín, Colombia’s recent revival after decades of violence; Botswana’s outstanding anti-
corruption record; and Sweden’s emergence from 1992 crisis to have one of the most sought-
after public finance systems in the world a decade later.
Although they differ in many respects, these cases are commonly called “miracles” by
observers. Stories and studies have already been written about them as a result, often fo-
cusing on the policies or personalities that seemed to yield success. Lessons from South
Korea and Singapore often center on the importance of having an effective planning mech-
anism and civil service regime in government, for instance, and the roles played by Park
Chung Hee and Lee Kuan Yew. These lessons seldom explain how such governance and
leadership solutions emerged, however, which leaves many unanswered questions about the
way great governments actually come about.
After raising a variety of these concerns while introducing the cases, a second section in
this chapter proposes four questions that are key to better understanding how governments
transform into entities that facilitate and promote great achievements:
• What kinds of interventions or changes help governments improve capabilities?

• Who leads these interventions or changes, and how?
• When do the interventions occur, and why?
• How are these changes sustained and implemented to ensure they yield results?
The section suggests two sets of answers to these concerns, combining such into two po-
tential theories that explain how governments ramp up their capabilities to facilitate or lead
great achievements.
• The first theory is called “solution-and leader-driven change” (SLDC). It posits that
governments build their capabilities to lead development when the right policies are
introduced in times of crisis by top-down leaders who then have stable power for a
long-enough period to drive implementation. This is arguably the dominant way of
pursuing change in the international development field, resembling what some termed
the common “blueprint” approach many development organizations rely on when
structuring and implementing projects (Brinkerhoff and Ingle 1989; Hulme 1994). It is
an approach that is implicit in many popular academic products as well, including an-
alytical studies like Why Nations Fail (Acemoglu, Robinson, and Woren 2012), which
identifies a set of what solutions that seem to influence state capability, but offers very
limited views on how these emerge (resorting to simple comments about good leaders
making the right choices). A similar approach is particularly evident in the recent
Commission on Growth and Development studies, led by David Brady and Michael
Spence (2010). This is cited throughout the chapter as an example of SLDC because it
is recent and was a high-profile study intended to influence the way development as-
sistance flowed to less well-off countries.
• A second theory is called problem-driven iterative adaptation (PDIA) (Andrews 2013;
Andrews, McConnell, and Wescott 2010; Andrews, Pritchett, and Woolcock 2012).
This approach to thinking about development builds on other ideas including the
process methods introduced in the 1980s (Brinkerhoff and Ingle 1989; Hulme 1994).
258 Matt Andrews
It holds that capable and effective governments emerge when agents interact in new
ways—led by distributed groups—in gradual, iterative processes that yield locally de-
termined responses to problems (that mature with time as more agents get engaged
and buy in to the changes). It is an approach that is being touted in various domains
as a way of thinking about governance in the face of complex challenges in complex
settings (like those found in many developing countries).
This chapter concludes with a proposal to use these two theories in future research about
how governments build capabilities and foster the kinds of achievements one could call
great. It suggests that this research employs a version of theory-guided process tracking
(TGPT) called systematic process analysis, as introduced by Harvard University’s Peter
Hall (Falleti and Lynch 2009; Hall 2006). This approach requires building narratives about
how change processes emerge and progress in each case, based on historical analyses of
documents that are explicitly structured to test the competing theories. A comparative
set of these commonly structured narratives could go a long way to understanding which
theory—or which parts of each theory—helps most in explaining past experiences of great
government and thinking about how more governments might pursue greatness in future.
The conclusion argues in favor of developing cases that are as diverse as the ten introduced
in this chapter, because governance challenges are as diverse as this sample suggests—
ranging from growth challenges to health challenges to technological challenges and social
challenges. One can only get a full understanding of how governance and state capability
emerge by looking across this kind of diverse sample. This understanding could suggest that
SLDC methods are relevant for some kinds of challenge but not others, for instance, and
help the development community recognize the fit of different how modalities to different
challenges. This understanding could help the governments of poor countries looking for
ways to improve their capabilities and promote development across the full spectrum of
governance activities.
Ten Cases
One may ask why a full chapter is needed about how governments build capabilities to
foster effectiveness. One may even ask if any governments are great enough to study in
such a research agenda. In response to such questions, this section aims to show that
there are many stories to tell about governments that defy odds as positive outliers or
examples of what other countries might also achieve. These stories have been told to
some degree in work like Dani Rodrik’s (2003) compilation of growth narratives and the
Commission on Growth and Development’s Growth Report (2008), concerning successful
economic development experiences; however, the focus of such studies is typically on
what governments did, not how they did it (Rodrik 2003; Brady and Spence 2010). For
instance, the Growth Report tells a lot about the kinds of policies that governments in
high-growth countries employed, but is less insightful on how these policies came about.
When the commission broaches the how question by asking about leadership, it offers
a similarly simplistic answer, identifying high-profile individuals as the key to getting
things done.
The current section aims to draw attention to brief stories behind ten cases like those
discussed by Rodrik and the commission, but with a broader ambit (not just focused on
growth). These are cases where governments led or facilitated an impressive transformation
for their people. The cases represent areas where governments commonly struggle to effect
change and ramp up performance—fostering growth, political transition, advances in in-
dustrial development and social service provision, and facilitating clean and stable public
sector operations.
The first two cases focus on economic growth miracles in South Korea and Singapore.
Both experiences symbolize the potential developing countries have to grow and progress,
often against the odds. South Korea was one of the poorest countries in the world in the
1950s, coming out of a nasty war with per capita incomes below US$200 a year—equal
at the time to Sierra Leone and lower than Bolivia, El Salvador, Zambia, and Zimbabwe.
The country grew rapidly over the next few decades, however, and in 2012 the average in-
come of a South Korean was above US$20,000, rivaling countries in the European Union.
Singapore’s economy grew similarly from a low base, with average incomes of about US$500
in 1965. The country was expelled from the Malay Federation in 1965, vulnerable to all
sorts of development disasters, given intractable challenges that included “a hodgepodge
of mutually antagonistic ethnic groups pressed together on an island with insufficient ar-
able land, no significant natural resources, a dearth of potable water, and potentially hostile
neighbors on all sides.” (Jensen 2010). The country has overcome these hurdles, and its cit-
izens now enjoy per capita incomes of over US$40,000—among the world’s highest. These
incredible results are the envy of countries across the world. There are many unresolved
questions, however, about the kinds of processes that led to the achievement of these results
and about the role government played in such processes: Was the growth simply a result of
good policy decisions? Do you need to have strong top-down autocratic leadership to make
such achievements possible? Do you need a crisis to prompt the change?
One could ask similar questions about the more recent story of Turkey, which provides
a third case about the economic growth possible in developing nations and the way coun-
tries can recover from crisis. The country experienced a two-part financial meltdown be-
tween August 2000 and early 2001. A low point came on February 19, 2001, when Prime
Minister Bülent Ecevit told journalists there were problems at the heart of government.
Markets responded dramatically, causing an overnight interest rate hike from 43 percent to
2,057 percent. The crisis saw Turkey’s economy contract by 3.5 percent in 2001, spawning
political upheaval and generating a spike in unemployment. Turkey came out of this hole
quickly and strongly, however, recording sustained economic growth of about 6 percent per
annum between 2002 and 2007, surviving the 2008 global crisis, and rebounding recently
to achieve growth rates of above 7 percent in 2010 and 2011. Simple, but powerful questions
abound about how this was achieved and how Turkey’s government emerged as an impor-
tant part of the story: Who leads such transition? What do they do? How do they start the
change process and how do they sustain it over more than a decade?
India provides a fourth case for discussion. While the country has its own informative
and inspirational economic growth story, the focus here is on the nationwide eradication
of polio between 1990 and 2012. Officially reported annual cases of polio stood at 24,000
in 1988, making India one of relatively few countries where this disease was still especially
prevalent. India was removed from this list of countries on February 25, 2012, a date that
marked twelve months in which no Indian child was paralyzed by polio. The achievement
260 Matt Andrews
of zero infections was remarkable, given what has been described as “a unique combi-
nation of biologic and epidemiological challenges, as well as the classic speed bumps
of India’s bureaucracy” (Schaffer 2012, p. 1). One wonders how these challenges were
overcome to foster success, and how government facilitated such process. These kinds of
questions are particularly salient given that there are many areas of social service delivery
where such constraints still hinder Indian government performance—and that in other
countries.
The fifth case concerns how the U.S. National Aeronautics and Space Administration
(NASA) led a seemingly impossible mission to put a man on the moon in the 1960s,
sparking various new industries in the process. The achievement was particularly note-
worthy given that it was the product of only an eight-year project. When President John
F. Kennedy proposed the goal of “landing a man on the Moon and returning him safely to
the Earth,” NASA was hardly even in existence as an agency. It took an amazing model of ad-
ministrative and political engagement to achieve the president’s goal. The Apollo program
ultimately succeeded in six moon missions that saw twelve men walk on the lunar surface.
The mission also spawned a multi-billion dollar aerospace industry in the United States
and stimulated many technological breakthroughs (the flight computer design influenced
early research into integrated circuits, for instance, and computer-controlled machining
was pioneered in the program). As with other cases, the questions posed in this case are
simple: How was this achieved? How was government involved? What did it take to create
a government that could foster such great achievements?
A sixth case, also from the United States, focuses on the role government played in
facilitating and leading civil rights reforms between 1945 and 1975. The period saw far-
reaching social change, often credited solely to the work of nongovernment movements led
by people like Martin Luther King, Jr. However, political, bureaucratic, and judicial agents
played key roles in pushing the agenda ahead throughout the period. These agents ensured
that laws were changed and that new laws were enforced, for instance, including the his-
toric 1964 Civil Rights Act. This and other government-led interventions furthered social-
transformation goals that were introduced in the 1860s and 1870s but had subsequently
been undermined by other social and political objectives. The process by which reform
was reinvigorated is important to understand for many countries. A variety of questions
are relevant beyond the borders of the United States: How do movements like this emerge
and prevail? How can government be positively engaged in fostering and implementing
the resulting change? How do government and nongovernment agents collaborate to foster
change?
The seventh case reflects on South Africa’s peaceful transition from apartheid and civil
war to constitutional democracy. The apartheid system had disempowered the country’s
majority black population for many decades. Efforts to replace this system resulted in an
armed struggle that started accelerating in the late 1970s. The 1980s saw growing casualties
of soldiers and civilians, and many observers felt that all-out civil war or violent revolution
was inevitable. Amazingly, the country had escaped such calamity by 1994, when a new
nonracial democracy was established that brought the rule of law to all South Africans.
This achievement would have been considered highly unlikely five years earlier, when na-
tional elections were still race-based and black citizens had no voting power. Interestingly,
however, 1989 is commonly seen as the starting point of South Africa’s peace process, given
that it marked the first meeting between then-president F. W. de Klerk and future president
Nelson Mandela. Both men received Nobel peace prizes for the way they led the nation
to peace, but Mandela’s example is particularly emphasized in other countries attempting
to deal with recurrent conflict. While many might be satisfied with an explanation that
says “Mandela and de Klerk made the change happen,” others might ask more penetrating
questions: Were there more pieces to the puzzle—people, processes, and events—that fi-
nally led to South Africa’s 1994 elections? Did parts of the apartheid government actually
help in the process of transformation? What kinds of collaborative structures existed be-
tween those in power and those out of power to ultimately facilitate a transfer of such power
through peaceful means?
The eighth case comes from Medellín, Colombia. The city had been a violent caul-
dron since the 1980s, when it was home to the internationally notorious drug cartel
run by Pablo Escobar. Even though crime had declined since the early 1990s, there
were still 185 homicides per 100,000 people in 2002 (nearly four times the rate in
New Orleans, then the United States’ murder capital) (Cerdá et al. 2012, p. 1046).
Paramilitary groups and gangs held sway, causing Robert Lamb to call the city
“Fallujah before Fallujah was Fallujah” (Lamb 2010, p. 1). Things began changing in
2003, however; by 2006, the city’s murder rate was 32.5 per 100,000, lower than that
in Washington, D.C., and Miami (Hylton 2007). Such successful transformation was
rapidly termed the “Medellín miracle” and credited to the policies of the city’s mayor,
Sergio Fajardo. This miracle is the outcome of interest, and the question this chapter
asks is simply how such miracle was achieved, and with what governmental role?
Surely city leaders around the world, especially those beset by violence and crime, are
interested in the answer.
Two final cases center on Botswana and Sweden, which introduced reforms that
have made parts of their public administrations the envy of other countries. Botswana’s
story is about the way it achieved the status of “Africa’s least corrupt nation.” The
government introduced a range of reforms in the years following major corruption
scandals in 1991 and 1992. These included a new anticorruption law, commission,
and ombudsmen. Botswana commonly scores as high as many Western countries on
corruption indexes because (it appears) these mechanisms are actually functioning ef-
fectively and corruption is being effectively addressed. One wonders how such success
was achieved—especially given that these mechanisms often prove dysfunctional in
many other African countries.
Similarly, one wonders how Sweden’s public finances have been stable through the 2008
financial crisis that wrought havoc on many other developed countries’ budget regimes.
Governments in countries like the United States have recently been examining the Swedish
model because its recent stability is so unique. The focus is often on fiscal rules and other
mechanisms the Swedes adopted between 1997 and 2008, all of which are rapidly being seen
as potential “best practices” other countries should adopt. It is important to understand,
however, that these mechanisms emerged from a multiyear process of change following
a 1992 financial crisis. The question that many studies fail to answer is how the Swedish
solutions emerged in this period: Are crises required to foster far-reaching change? Is the
story about how reforms emerged in Sweden similar to stories about how governments
achieved greatness in other areas?
262 Matt Andrews
Two Competing Explanations
The ten cases are presented here in extremely shortened form, as foretastes of the full
stories of governments that achieved amazing things in bounded periods of time, building
capabilities to foster growth, negotiating peace, expanding service provision, and dealing
with corruption and financial calamity. All of the stories start with a poor-performing
government and end with a high-performing government. The challenge for researchers
is to examine what happened between these terminal points and to identify—within and
across the cases—if there are generally relevant lessons about how governments build the
capabilities needed to change into leaders or facilitators of great achievements. The variety
of cases may lead one to think that there are no constructive generalizations to be made
about lessons learned—surely, one might think, the processes of change and solutions in
different contexts and areas of interest will look quite different. The question is whether
one can get past policy-specific answers and peculiar, situation-specific explanations for the
outstanding achievements in these cases. Are there common patterns across the cases about
the way change emerges that stand out as strong evidence for any research conclusions
about how governments can build capability and foster dramatic change, regardless of spe-
cific contexts (Aminzade 1993, p. 108)?
Interestingly, many explicit and implicit theories of change are offered in just such a
general fashion. Theories of organizational change seldom specify if they pertain to changes
in mission or just organizational structure, for instance, and theories of movement-based
change often employ similar ideas as theories about organizational change (suggesting that
explanations of how change happens do have some generic quality). Further, it is hard to
discern different implicit theories of change when one looks at the way development organ-
izations like the World Bank work. These organizations are in the business of change and
use the same project and management mechanisms to foster change in extremely different
areas of governmental engagement—including governance reform, infrastructure creation,
agricultural innovation, health and education improvement, and beyond. The implicit ap-
plication by such organizations of the same change models across different areas of engage-
ment suggests that models of change can be generalized and that we should expect that the
factors explaining successful change in one context would overlap with those explaining
change in very different contexts.
This is not to say that there is no variation in the explanations of successful change.
In fact, the literature on change in organizations, societies, and governments can be
frustrating because of the many different theories proposed about how change happens.
Two such theories are offered here as potential explanations about how governments get
great. The first is called “solution-and leader-driven change” (SLDC), and the second is
called “problem-driven iterative adaptation” (PDIA). Both arguments are presented here
in simplified form, emphasizing the differences between perspectives and allowing clear,
contrasting predictions of what one would expect to see if either theory were strongly
supported in any given case.1 The perspectives and predictions center on four key questions:
• What kinds of interventions or changes help governments ramp up capability?

• Who leads these interventions or changes, and how?
• When do the interventions occur, and why?

• How are these changes sustained and implemented to ensure they yield results?
What Kinds of Interventions or Changes Help

Governments Ramp up Capability?
It is logical to ask what causes any great achievement, and—as already mentioned—
many studies focus on such question when explaining successful change experiences in
governments. Many development theorists and practitioners have a common answer to this
question as well: The change emerged because the right policy solutions were introduced.
The 2008 Commission on Growth and Development represents this view when explaining
that rapid and sustained growth in countries like Singapore and South Korea resulted
from “the choice of a correct model” (Brady and Spence 2010, p. 6). The commission uses
Turkey’s post-2002 growth experience as another example, arguing that government be-
came a facilitator of great growth after adopting nineteen new policies in 2002 (Brady and
Spence 2010). South Korea’s five-year development plans are similarly identified as the
mechanism through which government fostered its growth miracle, given that the plans
embodied many policy solutions considered necessary to foster growth (like economic
openness, savings, and responsive government).
The idea that great governments emerge because the right policies are adopted and
implemented has driven many scholars and development experts and organizations to
identify “solutions” for governments to adopt. The solutions are technical, hatched out-
side of target governments, and presented as largely generic and widely applicable. For
instance, governments are commonly told to promote business and industry by adopting
policies that yield better scores on Doing Business indicators. An example comes from
East Africa, where donor agencies recently advised governments that such policies could
help foster growth like that seen in countries like Malaysia (a country that has made great
strides).2 The solutions come from outside and (apparently) need only to be adopted
and implemented according to plan, by technically savvy managers, to facilitate trans-
formation. Similarly, the World Bank’s Country Policy and Institutional Assessment in-
dicator identifies “policy and institutional dimensions of an effective poverty reduction
and growth strategy.”3 The act of constructing this indicator implies that these are the
solutions governments should adopt to foster great achievements (like reducing poverty or
promoting growth) (Andrews 2008a). Governments are rewarded for getting high scores
on the indicators, bolstering the message that the indicators embed relevant solutions nec-
essary to foster effectiveness. Such thinking leads to the prediction that any great achieve-
ment by government would be predicated by some “right” policy solution that researchers
should be able to clearly identify as the basis of change.
Various authors have criticized this belief and message and offer a different predic-
tion as to what one would find in stories of great achievements by governments. They
question the existence of routine “solutions” and “right policies” and point to many
instances where governments have adopted these kinds of solutions without seeing pos-
itive results (Andrews 2013; Pritchett and Woolcock 2004; Rodrik 2003). They argue that
routine, externally designed “solutions” often create new problems in many contexts or
264 Matt Andrews
prove un-implementable because they do not fit local realities. They emphasize the im-
portance of understanding where successful solutions—that address real problems and are
implementable—come from in the first place. They argue that the processes through which
these policies emerge are what turns poor-performing governments into high-performing
governments. According to such thinking, Singapore did not become great because it did
the right thing, but because it introduced processes that helped it find and fit the right thing
to do (which often was not the thing that outsiders deemed “right”).
Advocates of this approach often draw (implicitly or explicitly) from complexity theory.
This portrays governments (and broader governance mechanisms) as complex sys-
tems comprised of multiple, diverse agents that interact in nonlinear ways (Cilliers 1998;
Lichtenstein et al. 2006). Many problems and challenges in this kind of system are also
considered complex—involving multiple moving parts and interdependent players and
defying technical solutions. Theorists argue that the degree and type of interaction between
agents determines how creative these systems are and what potential they have to solve their
complex problems and become facilitators or leaders of great, transformative achievements.4
More controlled systems (that are smaller or more contained, less heterogeneous, and have
rules limiting internal and external interaction) provide fewer opportunities for agents to
engage in new ways (Bradbury and Lichtenstein 2000; Goldstein 1994; Lichtenstein et al.
2006). They are hence less adaptive or capable of tackling complex problems or producing
necessary change. Observers hold that many governments look like this, and are actually
organized to be controlled in this manner (Andrews 2013). This strategy has its costs, how-
ever, especially in the way it limits creativity needed in complex settings. The cost of such
control is particularly problematic when the status quo is one of nonperformance in the
face of complex problems.
According to this theory, transformative change emerges when such systems open up,
foster heterogeneity, and adopt rules that promote new forms of interaction between agents.
Agents in these more open systems start to engage in new combinations and ways, often
around locally defined problems, to create opportunities for learning, distributing knowledge,
and expanding capabilities. The new interaction mechanisms range from teams to networks
to meetings in which agents explore problems, identify new options for change, experiment
with these options, and learn about what works and why (Bradbury and Lichtenstein 2000;
Goldstein 1994; Lichtenstein et al. 2006). Novelty that emerges from these interactive processes
makes the system more adaptive and capable of dealing with pressing problems and meeting
new opportunities. This novelty is seen as a hallmark of great governments. The novelty could
include fresh policy or organizational solutions, but these solutions are not what foster the
great governments. The processes through which these solutions consistently emerge are what
really make the difference.
In a practical reference to this line of thinking, former British prime minister Winston
Churchill is famously quoted as saying that “[p]‌lans are of little importance, but planning
is essential.”5 Given such sentiment, one would not look at South Korea’s plans as the key
to its growth records, but rather at its planning processes. Theory would lead one to expect
that these processes facilitated new interaction, generated new ideas, learning, action, and
results. Similarly, one would expect that Turkey’s nineteen policy solutions were not what
got the country out of financial crisis; one should rather look at the processes by which
these and other solutions emerged. One would expect to find new ways of interaction in
these processes, fostering new ideas, lessons, and creative, locally relevant interventions.
One would also expect this to be a continuous process, not a one-off event. The product
would be a stream of new ideas and policies (not singular solutions), reflecting a new
adaptive quality in the government affected. This improved adaptation would be central
to explaining how the government built capabilities needed to foster great achievements.
Who Leads These Interventions or Changes, and How?

Whether one argues that great governments come about because of changes in plans or
because of planning processes, it is clear that people are involved. As a result, it is im-
portant to ask about who leads these people. This section proposes answers at opposite
extremes: high-level individuals or groups of distributed agents.
Adherents of the “right policy” approach often argue that change is driven by high-level
individuals in positions of authority and influence. The perspective is reflected in Benjamin
Jones and Benjamin Olken’s reference to “individual leaders” (2005, p. 835) making a
difference in high-growth experiences. It is also explicit in the Commission on Growth and
Development’s work, which notes that such leaders are central in most of the instances where
governments have fostered high levels of growth over sustained periods. According to the
commission, such individuals facilitate these achievements when they make decisions that
introduce the right policies and then ensure that the policies get implemented (Brady and
Spence 2010, p. 7). Leaders responsible for doing these things are portrayed as having the
vision to adopt the right policies and the presence of mind, knowledge, and skill to ensure
that these policies are implemented and diffused. They are also commonly presented as be-
nevolent, focused on producing value for the broader public over multiple generations (not
short-term private interest). They are also seen as enjoying the authority and power of high-
level position that (by implication) is required to make change happen in governments. This
authority and influence has horizontal and vertical effects, shaping behaviors across and
within the many public and private organizations and political interest groups needed to
support change and implement new policies.
One does not have to look far to find examples of these leaders in prominent stories about
great governments. The Commission on Growth and Development points to Park Chung
Hee as the undisputed leader of South Korea’s growth story, for instance. Similarly, Lee
Kuan Yew is considered the founding father of Singapore (Lee 2000). Both are credited with
introducing growth-enhancing policies in top-down ways, and forcing implementation by
edict. The commission identifies another individual—Kermal Derviş—as the influential
top-down leader of Turkey’s growth narrative (Brady and Spence 2010). Appointed min-
ister of economic affairs in March 2001, Derviş is recognized for leading the country’s re-
vival by introducing new economic policies. Stories of the “Medellín miracle” in Colombia
also credit one man as the transformational leader. He is the city’s mayor between 2003 and
2008, Sergio Fajardo.6 Called the “mathematician of Medellín ” because of his professorial
background, Fajardo is regularly cited as the one who introduced the new policies that
revitalized the city.7
Complexity theorists question various assumptions underlying this picture of top-
down, individual-driven leadership (Lichtenstein et al. 2006). They note that entities like
governments are too complex to function according to the linear model of “top-down”
organizing implied in such approach. They also argue that social complexity defies
266 Matt Andrews
leadership by one individual. This resonates with a new institutionalist critique that
“single-leader” models assume the existence of “supermuscular” agents who seldom (if
ever) exist in practice (Greenwood and Suddaby 2006). According to such theory, few
agents can provide both the ideas required for change and the power and resources to get
these implemented. New ideas are argued to emerge more commonly from disempowered
agents at the periphery of social networks, who have no power. Power and authority are
argued to emanate from powerful agents in more central positions of the network who
should not be expected to “see” the need for change (given that the system works for
them). Leadership in such settings emerges when one connects the different—and differ-
ently located—agents together, allowing adaptive creativity and change to emerge from
the interaction (Andrews 2013; Andrews, McConnell, and Wescott 2010; Bradbury and
Lichtenstein 2000).
Reflecting this thinking, complexity theorist Charles Heckscher argues that “change has
its own dynamic, a process that cannot simply follow strategic shifts and that is longer and
subtler than can be managed by any single leader” (Heckscher 1994, p. 14). As a result, when
complexity is considered, theorists hold that “[l]‌eadership does not mean getting followers
to follow the leader’s wishes; rather, leadership occurs when interacting agents generate
adaptive outcomes” (Lichtenstein et al. 2006, p. 4). As such, “leadership can occur any-
where in a social system. It need not be authority or position based, but is instead a com-
plex interactive dynamic sparked by adaptive challenges. Individuals act as leaders in this
dynamic when they mobilize people to seize new opportunities and tackle tough problems.
As the situation changes, different people may act as leaders by leveraging their differing
skills and experiences” (Lichtenstein et al. 2006, p. 4).
This argument suggests that changes required to foster more capable governments would
involve multiple agents distributed across a social context, not in one organization or posi-
tion of power. Accordingly, one should expect that many agents played leadership roles in
South Korea’s growth story—not just Park Chung Hee. Similarly, one should expect that Lee
Kuan Yew, Kermal Derviş, and Sergio Fajardo were not the only ones who respectively led
change in Singapore, Turkey, and Medellín. One would expect to find groups of agents in-
volved in providing leadership in these and other settings, all providing different functional
contributions. Some would have been motivating the need to change, others offering the
ideas for change, others providing the money and power to implement, others authorizing
the access needed to ensure implementation, and others mobilizing the entire group by
convening, connecting, and coordination.
When Do the Interventions Occur, and Why?

Regardless of who one believes leads transformative change, it is apparent that this type of
leadership and change is not common. Great governments are frustratingly rare, and many
governments that try to copy successful models do not see the same results. This raises
questions about when and why the leadership and change occurs that is needed to generate
great governments. Again, two competing answers are offered: The first proposes that one-
off crises induce the interventions that promote great governments. The second posits that
the leadership and change required to promote great governments emerge gradually, as
agents in the system unearth and address the most complex problems facing them.
The first answer is arguably most dominant in conventional thinking. For instance, or-
ganizational change theorists commonly view crises as key to motivating a sense of urgency
needed to foster change (Kotter 1995). Such perspective is also common among practitioners
in business and politics. It is echoed in a statement made by Rahm Emanual, President
Barak Obama’s first chief of staff, at the height of the 2008 financial crisis: “You never want
a serious crisis to go to waste” (Seib 2008). The sentiment also features prominently in the
2008 Growth Report, which suggests that crises create opportunities for change because they
destabilize contexts and threaten agents within those contexts (Brady and Spence 2010). In
this way, crises can reveal weaknesses in the preexisting policy, political, and organizational
order. They can also spark a discussion about—and a search for—alternative approaches
to organizing people or doing policy. In concert, these effects can reduce the resistance to
change—or even generate an active willingness to change. The Commission on Growth and
Development authors note that such effect was critical in fostering adjustments necessary
to put countries and governments onto high-growth trajectories: “Crises gave leaders from
Deng Xiaoping to President Park an opportunity to change course with a reduced level of
resistance” (Brady and Spence 2010, p. 7).
The crises referenced in commission’s studies— and beyond— are typically specific
moments in time, focal events (similar to what are called “critical junctures” in path-
dependence theory). These events are seen to spawn—almost immediately—the “right
decisions” that ultimately foster great achievements. For example, the key crisis many cite
in Singapore’s story relates to the day in 1965 when the country was expelled from the Malay
Federation. Prominent versions of the country’s success story start with this crisis, and the
way a tearful Lee Kuan Yew responded (Lee 2000). As the story goes, Lee moved to ramp
up his export policies at this point and called his nation to work hard, save, and prove their
detractors wrong. Similarly, Kermal Derviş is said to have emerged as a leader of Turkey’s
growth story in the midst of financial crises in 2001 and 2002. According to Brady and
Spence, Derviş “used the crises as an opportunity to get legislation through the Turkish
parliament, which probably could not have been passed under normal circumstances.
The nineteen major reforms that were passed during and immediately after the crisis have
helped Turkey grow its economy” (Brady and Spence 2010, p. 7).
The argument is not that crises always result in leaders making the “right choices” and
the emergence of more capable governments; rather, “the more modest hypothesis is that
crises create conditions where leaders have fewer constraints on their choice over both ec-
onomic policy and structural and institutional reform” (Brady and Spence 2010, p. 7). One
would thus not expect every crisis to facilitate better leadership and development. One
could, however, expect a correlation between experiences of improved leadership and de-
velopment and a facilitating crisis. Great governments need a crisis to emerge, but not all
crises produce great governments.
Critics question the idea that change emerges from specific, isolated events. They argue
that crises may be important moments where change becomes apparent, but that the crises
only prove important in contexts that have been readied for change through prior events
(Andrews 2008a; Cinite, Duxbury, and Higgins 2009). This is because, they argue, change
requires more than a shock or disruption to the system. Such disruptions only foster funda-
mental change if extant policies, power structures, and the like are already being questioned,
alternatives exist to give agents something to change toward, and agents are already in place
(and legitimate enough) to push for change (Andrews 2013).
268 Matt Andrews
Path-dependence theorists call the processes by which these conditions emerge—and

by which a context becomes ready for change—“generative cleavages” that emerge from
antecedent conditions (Collier and Collier 1991). Events in this cleavage period can create
new actors and groups and raise issues that are compelling and that compel the reorgan-
ization of political relationships. This can lead often to unseen and latent adjustments
in norms, power relations, and cognition over long interludes. Crisis events, or crit-
ical junctures, bring such latent adjustments to light, but are by no means the trigger of
change. Instead, crises reveal the change that has been emerging. If there is no emerging
change in a cleavage period—establishing readiness—then crises reveal nothing. This,
one could argue, is why many crises do not foster change: Focal moments of crisis only
spawn change when the context has been made ready by a gradual process, as agents in a
system unearth and address their most complex problems and make their context ready
for change.
On the basis of this argument one would expect to see a variety of important, though
underappreciated events leading up to the crises commonly credited as starting points of
change. One would expect to see events and interventions before 1965 in Singapore, for
instance, where agents would have been identifying the future city-state’s problems and
crafting interactive mechanisms and capabilities needed to solve such problems. One would
expect to find similar roots of change in Turkey before 2001 and the entrance of Kermal
Derviş. One would similarly anticipate that the conditions required for civil rights reform
in the United States emerged gradually in the decades leading up to focal crises on the late
1950s and early 1960s. It would be apparent that crises commonly credited for sparking
change in these contexts only had such effect because prior events had readied the contexts
for change.
How Is the Change Sustained and Implemented to

Ensure That It Yields Results?
It is important to examine where the change that produces great governments comes from.
It is equally important to understand how these changes are sustained and implemented.
This is crucial in the development field, where unimplemented or unsustained policy
interventions are common. Given the frequent failures in implementation, it is important to
ask why some succeed and others do not. In particular, it is important to ask how the change
that yields great governments is sustained and implemented to ensure that it yields results.
As with prior discussion, this section provides two potential, but conflicting answers.
A first answer comes from the Commission of Growth and Development’s study on
leadership by Brady and Spence (2010). The authors examined how governments had
implemented difficult policies after crises were resolved—when political conditions had
settled down and created opportunities for reform backtracking. In addressing the issue,
the authors make an observation might seem commonplace: High-level leaders who
introduced the changes centralized their power and influence for sufficient periods to push
the changes through. In making such observation, the authors imply that implementation
requires stable, centralized, and controlling leadership that shepherds new policies and
other changes to completion. The “greatest political stability,” they argue, comes in the form
of a “purely autocratic, one-person, absolute rule,” where there is “only one person to con-
sult, convince, decide” over long periods (Brady and Spence 2010, p. 8).
Brady and Spence note that no country has such a system in reality, but point to ways
in which countries attempt to mimic second-best solutions that ensure consistency in
leadership and provide sufficient centralization to facilitate control over implementation
decisions and actions. Dimensions of this approach include ensuring consistent leadership
by the same agent, bolstering the power and influence of such agent through the creation
of one-party states, and reshaping political processes to lock in policy choices. The im-
plicit assumption is that stable, high-level individual leaders can enjoy authority and influ-
ence over all the horizontal and vertical dimensions of social, political, and organizational
mechanisms involved in implementing policy—even over time. Oft-cited examples of this
include Lee Kuan Yew in Singapore and Park Chung Hee in South Korea, who both held
power for long periods, often by fostering the kind of second-best solutions proposed. Brady
and Spence argue that these long spells of authoritarian rule provided the discipline needed
to get things done. Given such argument, one would expect to find all experiences of great
government resulting from extended-tenure high-level leadership—where one policy idea
that emerged in crisis is pushed through a government by the authority at its head.
There are many critics of this perspective. Authors like Bill Easterly (2014) note that the
experience with extended-term authoritarians is commonly not positive. These leaders
are prone to use their power for personal gain and leave their governments dysfunctional
when they die or are forced out. Complexity theorists even offer an explanation for why
governments might become less functional under such rule, regardless of whether leaders
are corrupt. Their argument is that overly controlled entities become impotent in the face
of complex challenges that typically face governments (Cilliers 1998; Lichtenstein et al.
2006). Top-down “implementation by edict” might foster implementation and sustain-
ability, where one knows the solution to a problem and the path to execution is linear
and predictable (as is the case with simple or even some fairly complicated problems).
However, top-down rule does not work if the problems are sufficiently complex, involving
many unreliable dimensions and defying easy solutions. These kinds of problems are what
great governments address effectively. These problems require interaction, creativity, and
adaptability throughout implementation, such that unique solutions can be found and
fitted to the context.
Given such observations, complexity theorists would suggest that governments fully
implement and sustain great achievements by fostering structured adaptation in the ex-
ecution process. Reformers would set a direction in which to move, but allow flexible
processes to get there, engaging multiple agents in the journey and inviting constant feed-
back about how the process is progressing, what is being learned, and what needs to be
adjusted. Theorists call this implementing at “the edge of chaos,” which is a “constantly
shifting battle zone between stagnation and anarchy” (Waldrop 1993) where organiza-
tions are simultaneously creative and adaptive but also have sufficient focus, commitment,
and grit to complete the task at hand (and not flitter from idea to idea). Leadership plays
an important role in these situations, coaching and shaping the process and ensuring
that the system does not descend into chaos or become rigidly ordered (Goldstein 1994;
Lichtenstein et al. 2006; Linsky and Heifetz 2002).
One would expect these leadership solutions to involve many agents, with multiple
leaders fostering implementation in countries like Singapore and South Korea. Some (like
270 Matt Andrews
Lee Kuan Yew and Park Chung Hee) would have been providing stable authority to the
overall process in these stories. These agents may be the same for long periods, as they
appear to have been in Singapore and South Korea. Their function is to allow and pro-
tect the process of finding and fitting the solutions that ultimately make government great,
which often involves providing cover for iterative experimentation, failure, and learning.
Other agents would be expected to have driven experimentation, implementation, and
learning itself. Others would be providing frontline lessons or resources for implementa-
tion. The number and variation in this last group should grow with time, as governments
scale up or expand activities to yield, sustain, or diffuse great achievements. One would
expect these achievements to unfold iteratively over time, as multiagent leadership groups
take shape and expand the reach of the change process. In practice, this would be manifest
in the emergence of dynamic processes that typify adaptive organizations. These processes
would allow experimentation to find solutions, the adaptation of solutions to context, iden-
tification of new problems, and expansion of engagement.
One Large Research Agenda
The different answers offered above combine into two theories of how governments get
great. The first is shown in the center column of Table 14.1. Called “solution-and leader-
driven change” (SLDC), it posits that great governments emerge when the right policies
are introduced in times of crisis, by top-down leaders who then drive implementation.
The second theory is shown in the column to the right. Called “problem-driven iterative
adaptation” (PDIA), it holds that great governments emerge when agents interact in new
ways—led by distributed groups—in gradual, iterative processes that yield locally deter-
mined responses to problems (that mature as more agents get engaged, adapt, diffuse, and
implement the changes).
The two theories are presented as extremes, and in highly simplified forms, as competing
explanations about how governments change to achieve great things. There is obviously a
lot of detail missing in simplified approaches like this, especially about the deep politics and
political strategies that ultimately color all change processes. There is a large literature on
the politics of change that would help to detail how all cases of reform work, for instance.
Reflections from this literature would ultimately yield different ideas about the fit of polit-
ical strategies used in different contexts. It would be interesting to see whether ideas in this
literature (about the fit of political strategy to challenge, for instance) match better with one
of the two theories—or allow a better understanding of the underpinning mechanisms in
both theories.
The two theories set up two different sets of expectations of what one might find when
analyzing the achievements noted in the ten cases introduced earlier (or in other examples
of governments facilitating great achievements). This kind of analysis is urgently needed,
especially in the development domain, to establish which set of expectations is most valid;
to determine if some parts of the different explanations are more important than others;
and to determine if different explanations have different validity when looking at different
types of change. (For instance, an SLDC explanation might better explain rapid growth
events while a PDIA explanation might better explain social and political transformations.)
Table 14.1 Two Competing Explanations of How Governments Build Capabilities

for Greatness
Solution and Leader-Driven Problem-Driven Iterative
Key Question Change (SLDC) Adaptation (PDIA)
What changes help Solutions, in the form of the New interaction, around locally
governments achieve “right” policies needed for defined problems
greatness? development
Who leads these interventions Influential, authorized top-Groups of distributed agents, all
or changes, and how? down leaders providing specific functional
contributions
When do the interventions In times of crisis, when there Emerge gradually, as agents ready
occur, and why? are more opportunities for the context for change (drawing
change focus on problems, introducing
alternatives, building support for
change)
How are changes sustained Influential, authorized top- Groups find and fit solutions to
and implemented to ensure down leaders hold power context, foster implementation
results? for enough time to drive through diffusion and expanded
implementation engagement
Source: Adapted from Andrews (2013) and Andrews, Pritchett, and Woolcock (2012)
Research that helps us to better understand the promise of these approaches is important
in theoretical and practical terms: It matters because one of the two explanations—SLDC—
is arguably dominant as an implicit theory of change in development literature, even though
it has not really been tested to a meaningful degree (or against an alternative explanation).
Various forms of SLDC thinking is arguably reflected in prominent publications like the
2008 Growth Report (Brady and Spence 2010), and is also arguably dominant in the way
most development organizations pursue their interventions (through linear projects in-
tended to introduce “best practice”). The influence of economists fosters a belief in “right
policies” and solutions in such organizations. The traditional bureaucratic structures of
such organizations reinforce ideals of top-down leadership.
Research in this area also matters because the two explanations inform different strategies
for countries to pursue in their efforts to achieve great government. The SLDC story is
simple, with a specific solution introduced by a specific individual at a specific time, and then
forced through the system by the individual. The PDIA story is more complex, involving
gradual and iterative changes in the way agents interact. These new interactions generate
new ideas and interventions that grow in influence over time, fostered by an expanding set
of leaders. A PDIA strategy thus requires more engagement over longer periods (especially
preceding crises), with more interaction than SLDC, broader engagement, and a higher de-
gree of flexibility. If the PDIA explanation is valid and SLDC is not, then countries pursuing
SLDC strategies are unlikely to experience great governments.
Doing research that tests which theory better explains the kind of change that yields
great government is not easy. Typical case studies alone do not provide enough structured
information to test theory.8 An example is Lee Kuan Yew’s autobiographical book about
272 Matt Andrews
Singapore, From Third World to First (Lee 2000). Although it yields detailed insights, this
kind of work is about a specific set of experiences, and it is hard to know how one should
generalize lessons from it—let alone test theories. A response to this problem is to do large-
sample quantitative analysis, testing whether one or other factor explains positive or neg-
ative performance across a range of experiences. An example of such research is a 2005
article by Benjamin Jones and Benjamin Olken (2005), which examined whether high-
profile leaders like Lee influence growth records. Finding this to be the case, the authors
conclude that leaders matter. However, the study gives none of Lee’s detail about how such
leaders emerge or what they do, how they come up with ideas for change, build support for
change, or maintain support for change. The lesson that strong leaders matter may seem
general, but it has limited value because of the weak detail about what they do and how they
foster transformation.
What one needs is a research method that blends the benefits of detailed qualitative
stories (like Lee’s autobiography) and yet permits generalizations from large-sample
analysis (like the Jones and Olken study). This chapter proposes just such a method
for researchers working on international development: theory-guided process tracing
(TGPT) (Aminzade 1993; Collier and Collier 1991; Falleti and Lynch 2009; George and
McKeown 1985: Mahoney 2001). The method requires first proposing theories expected
to explain outcomes of interest (e.g., positing SLDC or PDIA as an explanation of the
great achievements in the ten cases). One then scrutinizes the causal chain of events
that generated the outcomes in each case, to test how evidence supports the proposed
theories (Hall 2006). The intention is not to provide a full historical rendition of any ex-
perience, but to examine how key causal factors interact to facilitate the outcomes of in-
terest in each story and across the stories. Research findings are strengthened by using the
same approach to look at a varied sample of stories—like the ten cases introduced in this
chapter.9 Many would expect different explanations for the outstanding achievements
in these cases. Common patterns across the cases should therefore stand out as strong
evidence for any research conclusions, suggesting these as broadly relevant lessons
(Aminzade 1993, p. 108).
This chapter proposes using Peter Hall’s (2006) approach to TGPT, called systematic
process analysis, which actually suggests that two theories should be used for this pur-
pose, both intended to explain how governments get to be great. Having two theories
adds a robustness check to the analysis by forcing researchers to reflect on how well the
details in particular stories support ideas in each theory. Hall suggests that this leads to
a more nuanced view of the evidence, which is not used simply to support or negate a
particular theory. Instead, the evidence is used to show how different parts of different
theories might have different kinds of evidentiary support, which could result in crea-
tive and insightful hybrid explanations of how change happens. An example of such work
comes from the Collier and Collier (1991) study on patterns of working class incorpora-
tion in Latin American countries.10 The authors looked at historical developments in the
political structures of eight different countries, testing a variety of theories about how
workers organize. They build narratives around key aspects of their competing theoretical
explanations (e.g., how reforms are conceptualized and who is engaged in the labor incor-
poration process). The flexible TGPT approach allows the authors to reflect on the way in
which varying patterns of institutionalization of social conflicts shaped parties, links to
unions, and other patterns of political engagement.
This kind of TGPT approach could help inform which of the two theories—SLDC or
PDIA—helps best in thinking about how great governments become reality. It is a disci-
plined and constructive approach to telling positive stories that could contribute powerfully
to those currently asking about how political-economy factors impact development, what a
“science of delivery” might involve, how different governance structures emerge, and how
the many struggling governments of the world might strategize to achieve greatness in the
future.
Notes
1. The exercise is meant to provide simplified versions of these existing theories that empha-
size their differences, with simplified and “brittle” predictions that can be “shown to be
false by available data and that are distinguishable from the predictions of rival theories”
(Hall 2006, p. 27).
2. See full report: http://www.doingbusiness.org/~/media/FPDKM/Doing%20Business/
Documents/Special-Reports/DB11-EAC.pdf. Media reference: http://www.vijana.fm/
2011/08/22/report-doing-business-in-east-africa/.
3. http://siteresources.worldbank.org/IDA/Resources/CPIA2007Questionnaire.pdf.
4. Andrews (2008b) discusses this approach in explaining why South African business lacks
creativity.
5. Dwight D. Eisenhower is similarly quoted as saying, “Plans are nothing; planning is
everything.”
6. See Anthony Faiola’s article in the Washington Post, titled, “Sustaining the Medellin
Miracle,” accessed in June 2013, http://www.washingtonpost.com/wp-dyn/content/ar-
ticle/2008/07/10/AR2008071002746.html; see also Forrest Hylton’s commentary titled
“Medellin’s Makeover” in the New Left Review, accessed in June 2013, http://newleftreview.
org/II/44/forrest-hylton-remaking-medellin.
7. Taken from Daniel Kurtz-Phelan’s blog post titled, “Good Times in Medellin,” accessed in
June 2013, http://medellin-colombia.blogspot.com/2008/11/former-mayor-of-medelln-
sergio-fajardo.html.
8. Various cases show this limit, including Andrews and Hill (2003), Montes and Andrews
(2005), Ronsholt and Andrews (2005).
9. This varied set of experiences approximates a randomization of factors that could poten-
tially influence success in the change process.
10. The work is well summarized in Falleti (2006).
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Chapter 15
L eadership a nd t h e
P olitics of Dev e l op me nt
Adrian Leftwich and Heather Lyne De Ver
Introduction and Context
The question of leadership is one of the most undertheorized subjects in the politics of
development and, indeed, in political science more generally.1 While biographies of indi-
vidual political leaders are common, leadership has not been well explored analytically
or empirically as a key part of the political processes that shape institutional and policy
formation and reform, and hence developmental outcomes.2 A recent literature review
(Lyne de Ver 2008) found that most of the work on leadership has been characterized by
definitional ambiguity and pluralism; by a focus on “leaders” as individual actors (rather
than on leadership as a collective and political process); by a preoccupation with the per-
sonal traits or characteristics of leaders; by concern with leadership in a (largely) western
political, business, and corporate context; and by a lack of theory. While work on leader-
ship may be found across a wide range of disciplines (e.g., in management, psychology,
sociology, history, and anthropology), it has been far less prominent in political science
(Peele 2005; Rotberg 2012) and even less so in analyzing the politics of development (Lyne
de Ver 2008).
This is curious since leadership is perhaps one of the central facts of political life. People
everywhere, as individuals and in groups, have different ideas, interests, and preferences
on leadership, and—short of violent civil conflict or war—politics is the means by which
these differences are addressed and negotiated.3 Thus politics in all strata of society
involves the competitive but contained interaction of different ideas and interests that
are commonly aggregated and expressed in any one or a combination of ethnic, class,
regional, religious, functional, sectoral, or gendered collectivities and identities. This in-
teraction is channeled through formal or informal institutions, and it is almost always or-
ganized and expressed through groups, however small, that may themselves be formal or
informal, each deploying different forms and degrees of power. More to the point, most
groups have leaders (and usually groups of leaders) who aggregate, articulate, strategize,
and maneuver for those interests, though not always elegantly, openly, fairly, or even
according to the rules.
Leadership and the Politics of Development 277
These leaders (and the leadership processes in which they are embedded) may, of course,
be formally elected political leaders (e.g., prime ministers, presidents, legislators, cabinet
ministers) in the domains of formal politics. But “leaders” are also found across civil society
in all kinds of organizations, large or small, formal or informal. They may be formally ap-
pointed or elected as chairpersons, directors, secretaries, or chief executives in businesses,
corporations, trade unions, universities, and professional associations; they may be reli-
gious leaders across all faiths; and they may be more or less local leaders of voluntary organ-
izations, social movements, and clubs. All these leaders who operate outside the domains
of formal politics—whether in positions of de jure power (or formalized authority) or de
facto (informal) power, or both, and their various committees—not only play a political
role within their groups or organizations but also sometimes intervene and work actively
and openly in, or below the radar of, the wider politics where they may seek to influence
policy processes and outcomes.
Outside these formal domains of public politics, there are also leaders who owe their
positions of relative power and authority to tradition or hereditary principles (such as chiefs,
headmen, elders, or members of long-standing dynasties). These patterns of leadership may
be expressed in a variety of forms: in the Pacific Islands of Melanesia and Polynesia, for in-
stance, leadership comes in the form of “big men” and “chiefs” (McLeod 2007; Sahlins 1963).
Even the most casual empiricism reveals that all these figures—formal and informal—often
play, or have played, significant if not decisive roles in the wider politics of their societies or
sectors, such as chiefs in Botswana or Ghana (Appiah 2012; Sebudubudu and Botlhomilwe
2011). Customary or cultural principles may also shape how leadership operates in families,
kin groups, or clans in the context of domestic politics.
From the time of Confucius in the east and the Greek philosophers in the west, the role
of leadership in politics has been a topic of constant fascination and focus, exemplified
in Confucius’ discussion of the duties and obligations of “rulers” (Lau 1979; Lee 2001), in
Plato’s notion of “the Guardians” (Plato 1961), and in Machiavelli’s classic early-sixteenth-
century “guidance note” to rulers, The Prince (Machiavelli 2003). The “classical elitists” of
the late nineteenth and early twentieth centuries (Michels 1911/1959; Mosca 1896/1939; and
Pareto 1966) were also concerned (not very optimistically) with the role of leaders and lead-
ership in the context of elite behaviors.
So, despite this attention given to the subject in political theory and in developed
societies, it remains a puzzle why so little analytical and empirical attention has been given
to leadership in the political processes of development in the past half-century. It may well
be that the contingent, unpredictable, and idiosyncratic variables that are thought to be as-
sociated with the idea of a “leader”; the difficulty of inductive generalization from a variety
of different, very individualized cases; the problem of testing deductive propositions about
leadership (apart from some attempt at mapping “traits” and personality factors); and the
positivist attraction of attending to impersonal structural and institutional patterns in pol-
itics all go some way to explain the limited attention given to “leadership” in the politics of
development. As we shall suggest below, it may well also be that the failure to analyze lead-
ership as part of a wider theoretical discourse concerned with the politics of the relationship
of structure and agency also helps to explain why it has been so low on analytical and policy
agendas. Moreover, discussion of leadership gets “political” very quickly, and some of the
major multilateral aid and development agencies become uneasy when approaching poli-
tics. Although many have begun to explore leadership, it has been in a distinctly apolitical
278 Adrian Leftwich and Heather Lyne De Ver
and somewhat technical manner, focusing on issues concerning capacity building, manage-
rial skills, and executive performance.
However, this volume is explicitly concerned with the politics of development, which
refers to the politics of change: but change of a particular kind. For the purposes of this
chapter, “development” will be understood as the promotion of sustainable and equitable
growth, political stability, and inclusive social development.4 Therefore the focus of this
chapter will be on leadership for development, or developmental leadership, and so it will first
set out to redefine leadership in that context. It will then go on to argue that, if leadership
is to be absorbed into the mainstream analysis of the politics of development, it must, first
and foremost, be reconceptualized as a collective political process, not simply or solely as
a function of the attributes, traits, and activities of individuals in the tradition of the “great
man/woman” of history. Second, reconceptualizing leadership in this way also requires us
to locate it within a theoretical context about how change happens, and this goes to the
very core of the politics of development. Third, coming to grips with the role of leadership
in the politics of development requires a framework for political analysis that goes beyond
a fashionable preoccupation with “political economy analysis” that seeks to explain aggre-
gate political behavior—broad patterns and trends—in terms of concepts and categories
drawn largely from economics, especially interests, incentives, and institutions (Becker
1976; Mclean 1987; Mueller 2009), and where the political domain tends to be modeled as a
market (Hudson and Leftwich 2013). Rather, it is necessary to redirect attention to “agency”
(also much ignored in recent political science) and hence develop a much deeper under-
standing through political analysis of how actors—as agents (individual and collective)—
interpret their interests and ideas, make choices, frame and strategize their activities, and
encounter and interact with each other and their interests in the context of very different
structures of power (economic, political, social, and ideological). Such structural features
represent both constraints and opportunities and are often impacted by contingent events
and critical junctures (those windows of opportunity when change is often more possible
and seen to be necessary if not desirable).
In short, leadership as an active and agential element of all politics needs to be analyzed
on the basis of the assumption that “structure” is not destiny—it does not determine
behavior; and that the interaction between agents and structures, organizations and
institutions, conduct and context, and players and games is the central political dynamic
that shapes change and is hence central to the politics of development.
Before considering how to conceptualize leadership, it is worth pointing out that, despite
the general reluctance to engage with issues of leadership for development, there has been a
persistent, important, but minority stream of work from both academic and official sources
that has insisted that “leadership matters.” Some of the path-breaking studies on the politics
of modernization in the 1960s and 1970s discussed this question (Rotberg 2012: 183n 12).
David Apter, for example, in his classic study, The Politics of Modernization (1965), distin-
guished between the forms and roles of leadership in military organizations, in modernizing
autocracies, in “mobilization” systems, in nationalist movements, and more. In the work of
the Commission for Africa (2005),5 the importance of effective leadership was emphasized,
and in a recent econometric study, Jones and Olken (2005) showed that “leaders matter for
growth” when they compared the effects of a change in leadership on subsequent growth
patterns across a range of countries since World War II. More recently, drawing on the ev-
idence from research that led to the report of the World Bank–led Commission on Growth
and Development, Nobel Laureate Michael Spence and his colleague David Brady found
that the leaders of thirteen countries that had demonstrated strong growth trajectories all
chose some variant of a successful growth strategy or approach, put together coalitions of
business, agriculture, labour, and other political segments that were sufficiently stable to
allow the economic choices a chance to attain sustainable growth. . . Thus, it seems clear that
leadership plays a role in generating sustained growth. It has the primary task of making basic
choices and building consensus without which the economic dynamics cannot get off the
ground. (Brady and Spence 2009: 207)
In her important study of the politics of social-sector reform in Latin America, Merilee
Grindle (2002) also drew attention to the significant role played by networks and informal
coalitions of key political and bureaucratic leaders.
Finally, two very recent and important studies by Robert Rotberg (2012) and Melo,
Ng’ethe, and Manor (2012) on the role of leaders in development have again flagged the
significance of this subject.
So, there is evidence of a persistent, long-standing, but minority interest in leadership,
as well as both uncertainty and agnosticism in the contemporary development community
about how—and whether—to deal with it analytically and practically in policy and oper-
ational terms. One of the problems has been the sheer pluralism of understandings about
what leadership means or what it is. To settle this, one must start with clear concepts.
Reconceptualizing Leadership
There are countless definitions of leadership in the standard management, corporate, and
psychological literature (Bass 1990a: 11; Lyne de Ver 2009). Some of these focus on lead-
ership and the group process; some on leadership and personality; some on leadership
and inducing compliance; and some on leadership as influence, behavior, persuasion, goal
achievement, or power. But much of the literature deals with leadership in largely secure, ro-
bust, and well-established institutional and organizational contexts, whether in business or
politics, and little of the literature deals with leadership as an inescapably political process.
Transactional and Transformational Leadership

It is from these generally stable and consolidated contexts that the most widely accepted
(and very useful) distinction is drawn between two broad types of leadership—transactional
and transformational (Bass 1990b; Burns 1978). These need to be treated as ideal types, as
it is rare to find any solid empirical examples of either in a pure form. It is also important
to remember that these concepts are drawn from a discourse that has primarily been about
leadership in corporate or managerial contexts, although they can be usefully applied and
adapted to politics in a developmental context.
Transactional leadership refers to a mode of leadership where “managing” and
maintaining relationships is the key objective, and where rewards and punishments are
deployed to maintain and improve ongoing practices and procedures rather than apply
innovation or structural change. For some, transactional leadership is therefore said to be

a “prescription for mediocrity” (Bass 1990b: 20). In a developmental context, it is unlikely
to promote the kind of institutional and policy change required to promote the rapid, far-
reaching social, economic, and political transformation that is needed to eliminate pov-
erty, establish stability, and provide for inclusive social development. In a recent important
study, Robert Rotberg (2012: 161–167) suggests that transactional leadership is precisely
what has for long characterized much leadership in developing countries. The primary aim
of transactional leaders there, he argues, has been to manage (and extend where possible,
even in new or born-again democracies) their networks of patronage and thereby ensure
that they stay in power. This point, following and updating the Weberian classification of
different forms of authority (Weber 1964), captures perfectly what has been conceptualized
and analyzed by distinguished scholars of African politics as “patrimonialism”6 or “neo-
patrimonialism” (van de Walle 2001: 51–54) and “systematic clientelism” (Bratton and van
de Walle 1997: 65–66).
There are, of course, inevitably degrees of neo-patrimonial transactionalism in all
leadership—few systems of power and politics exhibit in all forms and particulars
only one conceptual ideal-type, and most have a degree of hybridity (Diamond 2002).
However, when taken to its extreme (the case of Zaire under the late President Mobutu
Sese Seko was a paradigmatic case in point, as is contemporary Papua New Guinea),
neo-patrimonial patterns of politics in which this kind of transactional leadership is
predominant can rapidly deteriorate into such pervasive corruption that it becomes pos-
itively antidevelopmental. But, equally, there is evidence to suggest that some forms of
neo-patrimonial leadership can be developmental, a condition conceptualized rather
delicately as “developmental patrimonialism” (Booth 2012: 25), where leadership involves
utilising centralized patrimonial processes to promote developmental outcomes, at least
for a while.
Transformational (or transformative) leadership, on the other hand, refers to a very
different style and purpose of leadership where change (commonly structural change in
the context of economy and society, which some scholars might refer to as “moderniza-
tion”), improvement, and innovation are not only encouraged but are the goals. At the
macropolitical level, this has commonly been driven by the fires of nationalism, usually
triggered and made urgent by some external or internal threat, crisis, or challenge, as in
the case of the Meiji restoration in Japan after 1868, Singapore after its independence from
Malaysia in 1965, and Turkey after World War I. This drive toward structural transformation
has commonly been associated with a vision and a commitment to defend and promote a
“national interest” as well as the provision and extension of public goods and services from
which all (including the leadership) will benefit (Bass 1990b; Rotberg 2012).7
However, this kind of “transformational” leadership cannot be made to order. Indeed, in
societies where the institutional structure is “tight,” as in the west, it may well be the case
that “transactional” patterns of leadership, rather than transformational leadership, are
more likely to be the default form of leadership (whether in civil society organizations or
in the polity more broadly). That is, they are evident where the institutional arrangements
are not only well-consolidated, maintained, and robust but also widely held to be legiti-
mate by the overwhelming majority of the population. Put simply, it is much more dif-
ficult to be “transformational” in a context where radical political, social, or economic
initiatives are sharply constrained and buttressed by a dense network of associated rules
and institutions, checks and balances, relations of power, expectations and obligations,
and embedded agreements and powerful interests that make the room for manoeuvre
very limited indeed.8 This is as true for a polity at the national level as it is for leadership
in specific organisations. Consequently, in developed societies leadership tends often to
be less transformational in practice and more transactional—relying on the skills of bar-
gaining and negotiating, wheeling and dealing, whether in the legislative arena or between
governments and interests in the wider society or beyond. There is less room for maneuver
(and perhaps incentive) to alter the institutional and structural contexts, where the “rules
of the game” are long established and accepted as legitimate. Politics tends to be much
less about the “rules of the game” and more about the “games within the rules.” Generally
speaking, change is incremental and slow (excluding, that is, critical junctures that require
or enable sudden and significant institutional or policy shifts). Moreover, core institutions
largely work for most people (though seldom equally or evenly), and leaders of groups or
interests have to negotiate with each other while keeping their followers. Fundamental
issues do not tend to crop up on a regular basis and—of critical importance—there are
rules for changing rules, so that politics (and change) is generally contained within a rela-
tively orderly process.9
At first sight, the difficulties in building transformational leaderships may seem more
likely in “developed” societies, where the formal institutions (at least) of the polity, economy,
and society are relatively tight (though no doubt subject to inevitable and regular avoid-
ance or evasion). But it applies equally in other societies where the informal institutions
(customary and traditional) are deeply embedded and remain both strong and pervasive,
thus constituting equally significant constraints on transformational change. The situation
is even more complex where hybrid institutional arrangements prevail, that is, where both
informal (customary) institutions, customs, traditions, and norms sit side-by-side with new
formal (statutory and regulatory) institutions. This is especially complex in a context where
rapid and uneven social, economic, and political change (in the forms and relations of
power) also occurs, both undermining existing institutional arrangements and outstripping
innovative institutional constraints or incentives. However, a series of recent papers on in-
formal institutions and democracy (Helmke and Levitsky 2006) show that where there is
complementarity between formal and informal institutional arrangements, rather than
conflict, the chances of political stability are greater.
It is also important to point out that in many countries it may be very difficult, if not im-
possible, to construct a developmentally transformational leadership involving a coalition
of key players and organizational resources (e.g., a tightly organized political party enjoying
strong military support). In geographically large polities, for example, where a wide range
of regional, ethnic, social, class, political, and other particular interests prevail, the best that
might be hoped for is an effective form of transactional leadership that, at the very least, is
able to make enough deals and commitments with particular interests that political stability
is retained.10 There are those who suggest India as a case in point (Bardhan 1984; Herring
1999; Kohli 2004), arguing that the politics of sheer diversity of interests and regions in a
huge federation has not enabled a transformational developmental leadership to emerge
in the same way as it did in China, Korea, or Taiwan, or even—in democratic contexts—in
Singapore and Botswana.
From Transformational Leadership to Developmental

Leadership: Defining the Concept
If development (and especially growth) is the goal, then the role of leadership in the politics
of development needs ideally to be developmentally transformational, not transactional: in
short, developmental (that is structural) change requires developmental transformational
leadership.
But it should be clear from this discussion that leadership—whatever its form or
manifestation—cannot be studied as an isolated variable in the context of the politics of
development. On the contrary, the forms and patterns of leadership need to be explored
through multiple but overlapping frames of analytic reference: the formal and informal
institutional configurations that shape but do not determine behavior; the distribution of
both de jure and de facto power (Acemoglu and Robinson 2006); the room for maneuver
(“political space”) within those structural and institutional constraints; contingent internal
or external threats, challenges, and critical junctures; and the emerging normative and stra-
tegic consensus about developmental priorities.11
Nonetheless, it is unavoidable that individuals matter, and many biographic and other
studies show the importance of such individuals (Melo, Ng’ethe, and Manor 2012; Rotberg
2012). However, when observed and analyzed closely, there is not a single case of transfor-
mational or developmental change where a single “leader” has achieved such results on her
or his own. Inevitably and necessarily, he or she has had to build coalitions—both horizontal
ones and vertical ones—in order to do what transformational developmental leadership is
all about: mobilizing people and resources in support of a particular goal or set of related
goals. The question of the relationship of developmental leaderships with developmental
coalitions is a point we shall return to shortly.
This discussion of transformational leadership in its developmental form should not
be allowed to eclipse the important if seemingly contradictory point that not all “trans-
formational” leadership is necessarily developmental. Predatory, collusive, and corrupt
transformational leadership is common too, and has been identified throughout history—
sometimes called “despotic” leadership and sometimes simply “tyranny.” While some forms
of transactional leadership can lead to this kind of predatory leadership, there are also cases
of transformational leaderships that have “transformed” a potentially developmental state
of affairs into a downward spiral of more or less predation, corruption, economic decline,
political instability, brutality, and social exclusion—and the case of the recent history of
Zimbabwe is an excellent example (Bratton and Masunungure 2011), as was the case of
Cambodia under the Pol Pot regime. But once again—and the case of Zimbabwe exemplifies
this precisely—such antidevelopmental leaderships are never the work of one person, but
require a coalition, that is, a predatory coalition, of support (especially from the military
and security forces, active political supporters, and other key interests) to implement and
sustain it (Frantz and Ezrow 2011).
For the moment it will be useful to outline a conception of developmental rather than
predatory transformational leadership that encapsulates the points above and that will es-
tablish a platform for discussion of the theoretical and analytical framework for under-
standing the role and place of leadership in the politics of development.
In summary, transformational developmental leadership is a political process that

involves organizing and mobilizing people and resources in pursuit of sustainable (and eq-
uitable) growth, political stability, and inclusive social development. Such developmental
leadership (as with any other form) always occurs in given institutional contexts of au-
thority, legitimacy, and power (often of a hybrid kind, formal and informal) that constitute
both constraints and opportunities. Defining and achieving developmental goals is often
made urgent (and sometimes more possible) by contingent internal or external challenges,
threats, crises, or critical junctures. Moreover, overcoming the collective action problems,
which commonly obstruct the achievement of developmental goals, always requires leaders
to build formal or informal coalitions among individuals, interests, and organizations, both
vertically and horizontally.
The Theoretical Context: Collective Action

Problems, Developmental Coalitions,
and Structure and Agency
The account thus far has identified three key points about leadership and the politics of
development. First, leadership needs to be considered as a political process and not as a
matter of individual traits or attributes. Second, the evidence of history is clear that lead-
ership should also be understood as a collective process that goes well beyond the idea of
the “great man” or “great woman” of history as a solitary (or even heroic) agent of change.
And third, while transactional leadership may be the only form of leadership possible in
societies characterized by profound social, ethnic, religious, or regional cleavages, the core
of effective transformational developmental leadership is, as the definition above makes
clear, the mobilization of people (as individuals and in organizations) and resources in
pursuit of stipulated developmental goals, the shaping of locally appropriate institutional
arrangements that attract local legitimacy and support, and the design and implementation
of policies that enable the goals to be achieved. That mobilization is neither easy nor auto-
matic, and how it is done will in some degree be influenced—but never determined—by the
structural and institutional context within which it occurs. That being said, the single most
significant obstacle to achieving it is the existence of pervasive collective action problems
that define most challenges of development.
Collective Action Problems

Collective action problems are those “social dilemmas” that can be said to constitute the
central subject matter of political science (Ostrom 1998) and the core of politics. They
arise almost everywhere in all human groups, when the rational and continued pursuit of
narrow, individual, or sectional interests results in collective irrationality. These problems
require institutional solutions that could be achieved, at least in part, if those involved were
able to devise, agree, and enforce a set of rules that would require each of them to restrain
in some degree their immediate and short-term pursuit of self-interest so that they would
all be better off in the medium and longer term. Traffic rules and regulations that attempt to
restrict CO2 emissions, for instance, are two good, simple examples of attempts to resolve
collective action problems. But collective action problems are pervasive in almost all areas
of social, economic, and political life, especially in a developmental context where critical
institutional and policy changes are needed to achieve key goals. The problem, however,
is always that the presence of different interests, preferences, and ideas, as well as different
perceptions of urgency and timing and different degrees and forms of power, all make it
very difficult to resolve collective action problems, though everyone would benefit from a
solution.
Coalitions and Developmental Coalitions

This is why “coalitions” are both important and relevant here. Coalitions can serve as a key
political mechanism for overcoming collective action problems (Yashar 1997). Coalitions
are usually thought of as those political entities where two or more political parties come to-
gether to form a coalition government—a widespread phenomenon in democratic societies
from India to Italy. But coalitions are much more common; they are widely found features
of everyday political life everywhere, at all levels.
As political phenomena, therefore, coalitions are best understood in this context as groups
of people or organizations that come together to achieve objectives that they cannot achieve
on their own. Coalitions come in a variety of forms. There are reform coalitions, electoral
coalitions, advocacy coalitions, protest coalitions, and even transnational coalitions (Bandy
and Smith 2005; Developmental Leadership Program 2011; Levi and Murphy 2006). They
may be formal or informal; they may be transient and dedicated to achieving one common
goal, after which they disband. They may be short-lived or they may be longer-lasting
(without becoming a new united organization that merges their identities).12 But all dem-
onstrate the same central characteristic: groups or individuals that come together to achieve
a goal (whatever it may be, good or bad) that they could not achieve on their own.
It should be clear why coalitions are so significant in understanding what makes for
effective transformational developmental leadership,13 and why a central task of such lead-
ership is to craft coalitions across a locally relevant series of interests so as to move forward
the developmental frontier (whether social, political, or economic) by mobilizing a range
of resources and groups in pursuit of the goals. As the evidence of the Growth Commission
showed (Brady and Spence 2009), successful growth stories were always associated with the
capacity of leaderships to craft coalitions with key relevant interests and players across the
social, economic, and political divide to forge an agreement around a broad institutional
and policy consensus that facilitated economic growth.
Another very interesting case—from a developed country—is the story of how one “policy
paradigm” (“Keynesian inverventionism [sic.]”) was replaced by another (“New Right Neo-
classicism”) in New Zealand in the 1980s (Wallis 1999: 43). It is a fascinating account of how
a de facto coalition of technocrats in the New Zealand Treasury, key political leaders across
the spectrum, and leaders from the Business Roundtable worked to reduce the capacity of
vested interests to resist change so as not to frustrate the significant policy reforms across a
range of policy areas that the coalition was determined to push through—and did.14
But coalitions of a developmental kind are not restricted to economic, reform, or “growth”
coalitions. They play a critical role, too, in shaping the institutions and political settlements
that provide for, or underpin, political stability in the form of written or unwritten “consti-
tutional” rules that authorize and legitimize the way in which power is gained, used, and
distributed. The transition in South Africa from apartheid after 1990 to an open and non-
racial democratic political system required years of complex private and public negotiation
over a new constitution; formation of a coalition (national unity) government; and attempts
to bring into the informal coalition a series of interests, organizations, and players who had
been active in the liberation struggle (Mandela 1995; Sisk 1995). There can be few better
examples of effective developmental leadership than in this case of the South African tran-
sition (see Rotberg 2012, on Mandela’s role in this); and it is a sharp and telling illustration
of the importance of such developmental coalitions in helping to overcome collective action
problems in the political field and of the central role of leadership in this process.
But there is a second and equally important aspect of the role of leadership in not only
establishing coalitions to resolve collective action problems but also making sure that their
followers support their actions. To this extent the politics of developmental leadership
and developmental coalitions involve a “two-level” game (Levi and Murphy 2006). One
level is the horizontal plane, so to speak, in which leaders negotiate and bargain with each
other in the formation of the coalition to establish agreed rules of the game. The other di-
mension of the “game” is the vertical one, in which leaderships are required to ensure that
their “followership” stays in support of what they are doing in the coalition. This is critical
not only for the endurance of the coalition but also for the position of the leaders of the
movement, group, or organization. A successfully played “two-level” game in this context,
therefore, is a necessary condition for the success of a coalition and a mark of effective lead-
ership in the politics of development.
These considerations help to justify and emphasize the importance of treating leader-
ship as a complex political and collective process. Whatever may be the skills, vision, and
attributes of a “leader,” his or her achievement will be nil without the political capacity to
mobilize both horizontal and vertical support through coalition building in the course of
the two-level game.
Structure and Agency
All this illustrates the need for a much more political understanding of leadership and es-
pecially developmental leadership. And it also raises the final important theoretical con-
text within which leadership, as an active part of the politics of development, needs to be
considered—the question of structure and agency.
The theoretical context of the debate about structure and agency is central to the pol-
itics of development because it addresses a key issue in the social sciences (Archer 2003;
Dressler 1989; Giddens 1979; Hay 2002; Mahoney and Snyder 1999; McAnulla 2002; Wendt
1987). The issue is how to explain political and socioeconomic behavior—and especially in-
novative (or, in this context, transformational) behavior that can have as its aim, or effect,
the transformation of the structural conditions within which it is situated. As with the dis-
cussion of the role of leadership in general in political science, it is remarkable that the
structure-agency issue is so submerged in our analysis of politics and so seldom addressed

in an explicit way, even less so in the study of the politics of development. The debate is also
probably the most significant marker of the difference between the natural and social (or
human) sciences (Bhaskar 1979).
In brief, the structure-agency problem concerns the key issue of how socioeconomic
and political behavior is to be explained. Put simply, at one extreme are “structuralist”
accounts that give emphasis, if not primacy, to structural and institutional factors that
are held to determine, shape, or govern behavior (a view in which there is an element of
obvious truth, as all human activity is shaped by local institutional arrangements, formal
and informal: institutions, after all, are the scaffold of human society). At the other ex-
treme are explanations that place greater emphasis on the capacity of agents to choose,
reform, and innovate (a view in which there is also some obvious truth in that, unlike in-
animate objects in the physical world, humans have and exercise choices). And of course
there have been attempts to bridge the gap between the two (extreme) positions (see Hay
2002; McAnulla 2002) and effect a conceptual integration of structure and agency in the
methodologies of social and political analysis, as in Anthony Giddens’s notion of “struc-
turation” (Giddens 1979). In the view of another theorist who has sought to bridge the
gap between the two extreme positions, both structure and agency have “causal power”
(Archer 2003). That is, both structures and agents can “cause” things to happen and nor-
mally operate in combination—for example, institutions require agents for implementa-
tion of their ‘rules’, and agents can use institutions to pursue their goals. However arcane
some of the debates may seem, the question of structure and agency is nonetheless central
to our understanding of the politics of development and, in particular, how locally legiti-
mate and appropriate institutions—political, economic, and social—are formed, changed,
or decayed.
Simply put, agency may be regarded as the intention, capacity, and ability of agents
(individuals, groups, or organizations) to think and act strategically, to make choices and
take decisions, so as to seek to achieve their objectives and hence shape, reshape, or improve
their environment; whereas structure refers to the combination of formal and informal in-
stitutional arrangements and the distribution of socioeconomic, political, and ideological
power within which such action is framed and undertaken.
The reason that all this is central is that if “transformational developmental leadership”
is to mean anything at all, it must mean (and be expressed as) the capacity to change the
institutional and structural circumstances in which it finds itself—certainly if poverty is to
be overcome, growth initiated, or sustained and political rules of the game consolidated
so that stable societies may prosper. But if structure in some sense “determines” behavior,
then the room for maneuver will be severely limited, and change will somehow have to be
the product of deep, impersonal socioeconomic and political forces, shaped perhaps by
countless individual decisions. If, on the other hand, agents (individuals, groups, organi-
zations, or coalitions) have some degree of power and the capacity to envision something
different and to mobilize people and resources to effect change in that direction, then struc-
ture is not fate.
The answer lies in what must be obvious to all, and this has nowhere been better
expressed than by Marx, in his now classic observation in the The Eighteenth Brumaire of
Louis Bonaparte, that people
make their own history, but they do not make it just as they please; they do not make it under
circumstances chosen by themselves, but under circumstances directly encountered, given
and transmitted from the past. (Marx, 1852/1999)
What this approach stresses is that structure never determines behavior (conduct or
agency): in other words structure is not destiny; there is always room for maneuver, and
people and groups use that room. It is also not assumed that agency is omnipotent, or that
people or their organizations can act in an open plane of limitless possibilities to do what-
ever they want. The point is that it is the interaction of agents and structures, of conduct and
context, and of organizations and institutions that is the core dynamic that shapes politics
everywhere and, especially, the politics of development and change.
The relevance of this for the question of the role of leadership in this process should
be clear. All leaders, the coalitions they may form, and the followers they try to bring
with them in seeking to promote developmental change have to work within and against
given and diverse structural and institutional contexts that constitute both constraints and
opportunities. They have to strategize and “frame” their activities in different ways because
of these social, political, and economic contexts. For example, working politically to secure
or extend civil rights in China is very different from how people work politically in India
on such issues.
These “contexts” (or structural and institutional circumstances) may be geographical or
geopolitical (such as Singapore, sandwiched between Malaysia and Indonesia, or in some
landlocked African or sealocked Pacific or Caribbean island states). The constraints within
which the politics of leadership occurs may be internal, constituted by sharp ethnic or re-
gional divisions and distributions of power in societies roped together by the arbitrariness
of colonial rule and its imposed borders (as in Nigeria); they may be institutional in that
pervasive and deeply embedded (and sometimes diverse) customary and traditional norms
and practices constitute profound restraints on change (such as in Yemen or Papua New
Guinea); or they may be nakedly and openly political in that the legacies (or continuation)
of internal war (as in Afghanistan) or historically gross inequalities (as in Latin America)
make for a context of significant social distrust and animosity. In the worst and most taxing
of cases, many of these constraints may overlap each other.
These are all quite extreme examples, of course, and not all structural and institutional
contexts are that extreme. But the key point here is that there is always room for maneuver
within even the most severe constraints, and it is the role of leadership (or what we have
referred to here as “agency”) to navigate politically these contexts, find room for maneuver,
build horizontal or vertical coalitions, mobilize people and resources, and generally work
politically to achieve their goals. The more locally appropriate such framing and strategizing
is, the greater the chance that it will succeed.
The structure-agency theoretical context is thus a very useful way to think about lead-
ership in the politics of development, but it should not restrict our focus to national or
state-level politics. It may be expressed at the most localized microlevel by women in
villages—and their leadership—mobilizing to gain better access to credit; it may be the
leadership of smallholder or “peasant” farmers seeking to improve their conditions or
access to public resources; it may be at the regional or subnational level, where politicians,
bureaucrats, or campaigners are trying to devise ways of reducing emissions in their state
or province; it may be at the national level, where political leaders are seeking ways to nego-
tiate peace or to forge new constitutions or deals with large multinational corporations over
investment rules, taxation, or mineral exploitation; it may be trade unionists organizing to
protect the health and security of workers in a mine or a factory; and it may be a lawyers’
group campaigning to promote improved access to justice for the poor or better respect and
regard for the rule of law.
This is the real stuff and drama of the contemporary politics of development that is so
damagingly eclipsed by an exclusive focus on structural properties of societies or broad
and aggregate political processes. It is the daily dynamics of the politics of development.
And wherever one cares to dig down analytically one finds that in each of these types of
situations—and a million more—there are leaderships seeking to promote (and oppose)
developmental change; leaderships seeking to build (and defeat) developmental coalitions
across, up, and down the society or community to achieve (or resist) progress on such issues;
leaderships seeking to resolve (or frustrate) collective action problems for their village or
their sector (whether they understand it theoretically or not); and leaderships building links
across regions to promote better regional policies—for example, on trade, economic growth
and cooperation, gender issues, the environment, health and safety issues, human rights, and
much more. All operate in very different regional, economic, political, and social contexts,
but all have and will always find room for maneuver. And leadership is the agential, political,
and collective process through which they can find and exploit such room.
Conclusion
This chapter set out to “bring leadership back in” to the study and understanding of the poli-
tics of development. The key argument here has been that the deep historical and comparative
evidence shows that if we are to understand the inner politics that drive or restrain develop-
mental outcomes, we need to focus far more on the role of agency—that is, how actors, both
individual and collective, use their varying forms and degrees of power in different structural
and institutional contexts to work politically. The chapter has also suggested that we need to
refocus our thinking on this question more around “leadership” rather than on “leaders,” be-
cause it is far less about individuals (though they certainly matter) and more about how they
are able to use coalition politics to mobilize people and resources around developmental (or
antidevelopmental) goals. In short, leadership is not only a political process central to the
politics of development but also a collective one, in which leaders and their coalitions and
networks—whether in or across the domains of both state or civil society—strategize and
frame their way through a complex set of constraints and opportunities to bring about (or
resist) change in the institutional arrangements and policy regimes that will shape develop-
mental outcomes at all levels, in all sectors, and in all issue areas.
Notes
1. Adrian Leftwich was Research Director of the Developmental Leadership Program (www.
dlprog.org) and an Honorary Fellow in the Department of Politics at the University of
York, United Kingdom. Heather Lyne de Ver is Program Manager for the Developmental
Leadership Program (www.dlprog.org) at the University of Birmingham, and leads the
program’s workstream on Leadership. The authors are very grateful to Carol Lancaster,
and Nic van de Walle for very useful comments on an earlier draft of this chapter.
2. “Leadership” does not appear in any of the indexes in three recent, important, and
much discussed books on the politics of development (Acemoglu and Robinson 2012;
Fukuyama 2011; North, Wallis, and Weingast 2009).
3. Where they fail to do so or fail to craft institutions that enable them to do so, the conse-
quence is often terminal, but there is almost always violence, conflict, destruction, and
disintegration of the social, economic, and political fabric.
4. The notion of “development” is inescapably normative. For Joseph Stiglitz (2003: 77), it
involves a “transformation of society,” a move from “traditional” ways of doing things to
“modern” ways, based on a “scientific” way of thinking. But for present purposes, devel-
opment should be taken to mean a systematic process that ensures sustainable and eq-
uitable growth, political stability, and inclusive social development. This, at least, may be
interpreted as the summary consensus of the official positions of most of the major bilateral
development agencies (though some go further on political stability to mean “democracy”).
5. Chaired by the then prime minister of the United Kingdom, Mr. Tony Blair.
6. This notion is crisply identified by van de Walle as a system in which “political au-
thority . . . is based on the giving and granting of favours, in an endless series of dyadic
exchanges that go from the village level to the highest reaches of the central state” (van de
Walle 2001: 51).
7. Analytical biographies of Singapore’s Lee Kwan Yew and Turkey’s Kemal Atatürk are pro-
vided in Robert Rotberg’s recent study, Transformative Political Leadership (2012).
8. While it may be thought that this “default” is a limitation on progressive change (and it
might be), it also can be seen as the foundation of stable politics, where radical change is
treated with caution, if not outright suspicion, and established practices and policies are
preferred to new ones (Burke 1790).
9. Consider the slow but steady change in relations between the units that make up the
United Kingdom that have occurred over the last 25 years, as more and power has
devolved from London to Wales, Scotland, and Northern Ireland.
10. We owe this point to Nic van de Walle and Carol Lancaster.
11. For a useful discussion of these relationships between power, politics, institutions, and
leaderships in East Asia, see Chung-in Moon and Prasad (1994).
12. It could of course be argued that all organizations are, in themselves, forms of consolidated
coalitions. But for present purposes it is best to think of coalitions being constituted by
groups or organizations that retain their independent identities and existence, despite
working together.
13. Of course, coalitions are also at the core of most predatory and antidevelopmental
leaderships. They are not the exclusive property of progressive or developmental groups.
14. Whether one agrees with the reforms or not, the point of the Wallis paper is to show how
a coalition of different individuals and organizations was able to effect change that none
could achieve on their own.
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Pa rt I I I
I N T E R NAT IONA L
FAC TOR S
Chapter 16
C ol oniali sm a nd
Devel opment i n A fri c a
Leander Heldring 1 and James A. Robinson 2
1. Introduction
What is the impact of colonialism on the economic development of sub-Saharan Africa

(Africa) or, more generally, the colonized countries? This is a question that has reverberated
through the social sciences for over a century. In the context of the late-nineteenth-century
“Scramble for Africa,” Marxists like Lenin formed an unlikely consensus with colonial
administrators in believing that European colonization would have very positive effects on
African economic development. By 1926 a British academic was writing of an “Economic
Revolution in British West Africa,” unleashed by the colonial powers on a backward Africa
(McPhee 1926). This consensus among left and right continues to the present, with Lenin
replaced by Birnberg and Resnick (1975), Sender and Smith (1986), and Warren (1980), who
argue that the empirical evidence is consistent with the Marxist view that imperialism has
dragged Africa closer to capitalism, and colonial administrators replaced by Bauer (1972)
and Ferguson (2002, 2011). Interestingly, these scholars refer to many of the same empir-
ical outcomes, though starting from a different set of presumptions about the intentions
of colonizers. Perhaps even more interesting, they often have the same counterfactual in
mind—without colonial intervention Africa would have stayed backward. Opposed to this
eccentric consensus is a vast literature blaming colonization for all the ills of former colo-
nies, including persistent poverty and dictatorship.
Colonialism is not a European phenomenon, nor is it restricted to the Scramble for Africa
(which may itself not have been a completely European phenomenon, since one can argue
that Ethiopia under Menelik II also took part). Modern China is an empire constructed
over millennia, primarily by the Han Chinese. The Ottomans constructed a vast empire in
the late Middle Ages and early modern period, which stretched from the Gates of Vienna
to Iraq, Yemen, and Tunisia. The Russians colonized Siberia and large parts of Central Asia;
and in the hundred years before the conquest of the Americas, the Incas created a huge em-
pire stretching from southern Colombia to Chile and northwestern Argentina. Britain was
colonized by the Angles, Danes, Jutes, Saxons, and Normans.
296 Leander Heldring and James A. Robinson
In this article, we restrict attention to European colonization and focus on Africa, since
this topic has been the crucible of much academic debate and also the basis of an entire
spectrum of answers in the literature. We also restrict our attention to formal colonization
rather than more general “interaction” with potential colonial powers or the type of “in-
formal empires” postulated to exist by Gallagher and Robinson (1953). This means we leave
a lot out. In the context of African development, for instance, we put aside the issue of the
impact of the Atlantic and other slave trades on the development of Africa (Lovejoy 1989;
Nunn 2008), except to the extent that this aspect molds the initial conditions at the time of
colonization. We also set aside the question of whether the adverse health effects of colo-
nialism were really just due to “contact” (and thus would invariably have happened in the
wake of simple trade expansion) or can be attributed to colonialism. We also focus on the
impact of colonialism for the development of the colonies, not the colonizing country, even
though this is an important topic (Acemoglu, Johnson, and Robinson 2005; Williams 1944).
Thus we do not discuss many of the channels that appear in “dependency theory,” which
emphasize how the integration of a poor region into the world economy may perpetuate
different aspects of underdevelopment (see Mahoney and Rodriguez-Franco 2014).
The obvious reason for the very wide dispersion of views about the role of colonialism
is that it is very difficult to construct a convincing research design to examine the impact
of these views. Without such a systematic approach, ideology has much more scope for
allowing scholars to pick and choose facts that fit into their view of the world. The cen-
tral problem is the lack of a well-defined counterfactual to answer the question: for in-
stance, what would the per-capita income of Ghana be today if it had not been colonized?
Though a few countries were not colonized by the Europeans, such as China, Iran, Japan,
and Thailand, one cannot use these as a control group because it is surely not a coincidence
that these countries were not colonized, potentially biasing the findings. In other cases,
such as Barbados or Mauritius, which were uninhabited at the time of colonization, the
counterfactual question becomes exceedingly speculative.
Nevertheless, it is also clear from Acemoglu, Johnson, and Robinson (2001, 2002) that
colonialism had very heterogeneous effects. It seems difficult to believe that in any plausible
counterfactual, Australia or the United States now would have higher per-capita gross do-
mestic product (GDP) than if they had not been colonized.3 At the same time, it is difficult
(for us) to believe that the per-capita income of Botswana or Ghana would not be higher
today had it not been colonized. Even though Botswana has been an economic success
since independence in 1966, this was not because of colonialism, but despite it (Acemoglu,
Johnson, and Robinson 2003; Leith 2005; Parsons and Robinson 2006). Other cases are, of
course, much more ambiguous. Most parts of Africa did not have the types of centralized
political institutions that Botswana or Ghana had, and even when they did they were often
much less accountable and militarized, as in the cases of Buganda, Rwanda, or Zululand.
Because colonialism was such a heterogeneous phenomenon, taking different forms
and interacting with different circumstances, it is not very interesting to inquire as to what
the average effect of colonialism was on development. Of course, this is not true if one’s
approach is normative. We do not believe that colonialism was ever good according to
any coherent, normative criteria. When the focus is on development, per-capita income,
average educational attainment, or average life expectancy, one cannot generally say co-
lonialism was good or bad independent of context. If one accepts this position, then
our inability to propose a definitive identification strategy to estimate “the causal effect
Colonialism and Development in Africa 297
of colonialism on development” turns out to be less of a problem. There is no one causal

effect, but rather different effects working through different mechanisms and channels.
Sometimes the net effect of these in a country is (almost surely) positive (Australia); but
sometimes it is (probably) negative (Botswana and Ghana). The more interesting thing is
to conceptualize the mechanisms via which colonialism influenced development and try to
investigate empirically how these worked. Providing causal estimates of the impact of spe-
cific mechanisms may be much more feasible; subject to issues of external validity, it may
even then be possible to aggregate these as one way to come to a conclusion about the net
effect of colonialism.
That being said, when the focus is on Africa, the types of heterogeneity that charac-
terize colonialism more generally are muted. There is no success story in Africa similar
to Australia or the United States, from which economically dynamic settler economies
emerged. Moreover, we believe that it is possible to make some sensible counterfactual
conjectures. This will be far from a definitive empirical exercise, and it is offered more in
the spirit of focusing the issues where we believe they should be focused. This being the
case, we do not restrict ourselves simply to mechanisms, but also construct what we be-
lieve the developmental consequences of colonialism were in Africa in light of plausible
counterfactuals.4
We emphasize four basic points that are critical in evaluating the African experience.
First, at a purely factual level, the impact of colonialism on development differed greatly
within Africa. The broad pattern of per-capita GDP is that, on average, it increased in places
for which there is reliable data relative to a base year of around 1885. This is quite plausible.
Europeans brought technology, such as railways and mining techniques, and they integrated
their colonies more fully into world trade, taking advantage of existing patterns of compar-
ative advantage. Agriculture and mining exports certainly expanded relative to what they
were at the time of the Scramble for Africa. Nevertheless, the rates of economic growth were
extremely modest. The existing data, while incomplete, also suggest that stature and life ex-
pectancy improved, as did literacy and educational attainment, from very low bases (Prados
de la Escosura 2013 brings together much of the available evidence).
Second, and still at a factual level, the fact that this happened on average does not imply
that everybody’s living standards increased. Of particular relevance is the impact on African
living standards. These effects appear to differ depending on the type of colony affected. In
Southern Africa and the white settler colonies, simple calculations about the immiserizing
impact of land expropriation and the creation of “dual economies” (Acemoglu and Robinson
2012; Bundy 1979; Parsons 1977) on African incomes suggests that Africans experienced a
severe deterioration in living standards as the consequence of colonialism. Indeed, given the
extent of land expropriated from Africans by Europeans, living standards might have fallen
by about 50% due to the process of colonialization. These calculations are supported by ev-
idence on real wages (Bowden and Mosley 2010; de Zwart 2011; Mosley 1983; Wilson 1972).
Evidence of falling African incomes in conjunction with rising average incomes implies
that there was a huge increase in inequality as the consequence of colonialism. Outside of
the settler colonies, the situation was different (though see Austin, Baten, and van Leeuwen
2012). There is evidence that nominal and real wages in the formal sector increased in British
West Africa (Bowden and Mosley 2010; Frankema and van Waijenburg 2012). This evidence,
of course, tells us little about what was happening to the living standards of the mass of the
rural population. However, other evidence on development outcomes is relevant here. For
example, recent research has shown that the stature of military recruits increased in Ghana
and also British East Africa during the colonial period (Austin, Baten, and Moradi 2011;
Moradi 2008, 2009). Since military recruits likely represented a much more representative
cross-section of society than those who were paid formal-sector wage rates, this evidence is
consistent with more general improvements in living standards.
Third, one has to be very cautious in interpreting this evidence as commenting on the
impact of colonialism, because this analysis involves not just looking at the raw numbers
but also considering the counterfactuals. To take this evidence into account, we have to
think about what the trajectories of African societies would have been in the absence of
colonialism. For example, would the immiserization of Africans as documented by Wilson
(1972) have happened if the Zulu state had taken over the rand and developed the gold-
mining industry? The Europeans brought technology or institutions to Africa, but absent
colonialism Africans could have adopted or innovated these developments themselves. In
addition, any element of this data has to be seen in the context of preexisting trends and
international comparisons. Even in the absence of colonialism, technology diffuses across
countries, including medical technology. There are other instruments of diffusion, such as
missionaries, who played a significant role in the spread of education before and during the
colonial period in Africa (Cogneau and Moradi 2014; Frankema 2010, 2012;, Nunn 2014).
It seems plausible that even without the Scramble for Africa, the impact of missionaries
would have been similar. Similarly, many positive trends in human development outcomes
in Africa since the 1960s have been more due to international nongovernmental organi-
zations (NGOs), the World Health Organization, and the World Bank (see Acemoglu and
Johnson 2007 on the impact of this dissemination, which is independent of actions of coun-
tries in Africa). This is brought out quite dramatically in the work of Prados de la Escosura
(2013). For instance, he finds that human development in Uganda increased monotoni-
cally during the murderous dictatorship of Idi Amin between 1971 and 1979, while a similar
outcome arose during the maniacal regime of Jean Bédel Bokassa in the Central African
Republic between 1966 and 1979. That these outcomes arose despite these regimes’ almost
complete disregard for development is an indication that taking into account world trends
or other methods of dissemination is critical in evaluating the impact of colonialism.
To reach any type of conclusion, therefore, we need to be clear about the counterfactuals
we conjecture. To do this, we distinguish three types of colonies in terms of state formation.
The first are those with a centralized state at the time of the Scramble for Africa, such as
Benin, Botswana, Burundi, Ethiopia, Ghana, Lesotho, Rwanda, and Swaziland; the second,
those of white settlement, such as Kenya, Namibia, South Africa, Zimbabwe, and probably
the Portuguese cases of Angola and Mozambique as well; the third type includes colonies
that did not experience significant white settlement and where there was either no signifi-
cant precolonial state formation (like Somalia or South Sudan) or where there was a mix-
ture of centralized and uncentralized societies (like Congo Brazzaville, Nigeria, Uganda, or
Sierra Leone). We believe it is reasonable to assume that all groups would have continued
to experience the type of contact with the rest of the world they experienced prior to the
Scramble for Africa and that impinged on them when they were colonies and afterward.
This implies missionaries would have converted people and built schools, the League of
Nations would have tried to abolish coerced labor, and the World Health Organization
would have tried to disseminate medical technology. Moreover, it implies that African
countries would have continued to export, as many had prior to 1885.
The most important assumptions involve the counterfactual evolution of political and
economic institutions. It seems unreasonable to assume that these would have changed
dramatically in lieu of colonialism. In terms of political institutions in the first set of coun-
tries, we assume that the type of state formation and development that took place in the
nineteenth century would have continued. The evidence clearly suggests that states such
as the Tswana states in Botswana, the Asante state in Ghana, or the Rwanda state were be-
coming more centralized and consolidated. This does not imply that economic institutions
were necessarily becoming better. For instance, economic institutions in nineteenth-
century Rwanda deteriorated sharply as the state enserfed most of the rural population.
Nevertheless, political centralization is a prerequisite for order and public good provision;5
and though states also collapse, once started there are strong forces leading to intensifi-
cation of political centralization. In the second and third sets, we similarly assume that
political institutions would have continued on the path they had experienced in the nine-
teenth century. Absent colonialism, for instance, it does not seem reasonable to assume that
a large centralized polity would have developed in Kenya or Sierra Leone. In the former,
societies like the Masai or Kikuyu would have likely remained largely unchanged. In the
latter, it plausibly follows from Abraham (2003) that even if a single Mende state would not
have come into existence in the south of the country, there would have been fewer, more
centralized and institutionalized Mende polities. In terms of economic institutions, we sim-
ilarly do not argue that radical change would have happened, though we believe that these
would have evolved under the influence of international forces—such as those factors that
led to the gradual abolition of slavery throughout the world in the twentieth century, in-
cluding in places like Liberia and Thailand that were not colonized.6
Finally, to understand the impact of colonialism on development, one has to think care-
fully about what happened after colonialism as well. To judge the impact of colonialism on
development in Africa simply by looking at outcomes during the colonial period is a con-
ceptual mistake, even with a well-posed counterfactual. But interpreting what happened
afterward is just as fraught with conceptual issues as analysis of what happened during
colonization. After independence, most African countries experienced economic decline.
Thus, for example, if the increase in real wages during colonialism in Sierra Leone can be
interpreted as evidence that colonialism improved development, this claim could be further
bolstered by the fact that Sierra Leone is poorer today than it was at independence. Yet just
as with interpreting evidence for the colonial period, to be able to interpret postcolonial
evidence one also needs a counterfactual. Postindependence Africa looked nothing like
it would have appeared in the absence of colonialism. Indeed, we will argue that, in most
cases, postindependence economic decline in Africa can be explicitly attributed to coloni-
alism, because the types of mechanisms that led to this decline were creations of colonial
society and institutions that persisted.
Bringing together all the pieces of information and conceptual issues, we argue that in two
sorts of colonies there is a clear case to be made for colonialism retarding development—
those with a centralized state at the time of the Scramble for Africa and those characterized
by white settlement. In the former, just the assumption that the previous patterns of polit-
ical development would continue is sufficient to argue that these countries would be more
developed today. Colonialism blocked further political development, and indirect rule
made local elites less accountable to their citizens. After independence, even if these states
had a coherence others lacked, they had far more predatory rulers. It is true that the colonial
powers brought technology and institutions that Africans did not have, but Africans in
these types of polities were busy adopting these developments in the nineteenth century, as
they were the most capable of doing so. These polities also suffered from the uniform colo-
nial legacies of racism, involving stereotypes and misconceptions that the Africans did not
have and that have since caused immense problems, most notably in Burundi and Rwanda.
In colonies of white settlement, the most important factor was that colonial rule and land
grabs resulted in severe immiserization of Africans during the colonial period. We know
little specifically about patterns of economic development in Zimbabwe under Ndebele
or Shona rule prior to annexation of the country by the British South Africa Company.
Nevertheless, other sources (e.g., Bundy 1979) suggest that rural Africans in Southern
Africa were quite capable of responding to economic incentives to invest in and adopt new
technology. The evolution of the international dissemination and diffusion of technology,
plus the relative absence of slavery in this part of Africa, makes it likely that, absent coloni-
alism, African living standards would have slowly improved. These developments, plus the
large increases in inequality and racial and ethnic conflicts bequeathed to these colonies
after the end of colonialism, make it plausible that development outcomes in places such
as Zimbabwe would be better today and over the last century had the country not been
colonized.
The third set of cases are more complex because we do not argue that the precolonial
institutions of Somalia, for example, were conducive to development or underwent a pro-
cess of state formation. Yet even in many of these more ambiguous cases, it is difficult to
make a strong case in favor of colonialism actually fostering development that otherwise
would not have taken place. In Uganda, for example, it may be that the British brought
stability by stopping long-running conflicts between the precolonial states of Buganda,
Bunyoro, Ankole, and Tooro; they also brought technology that the Africans would not
otherwise have had. Yet the evidence suggests that even these societies were very ready
to adopt better technology when it appeared (see Reid 2002 on Buganda). Any gains in
terms of stability were reversed when the British left Uganda in 1962, bequeathing to the
“Ugandans” a polity with no workable social contract. The result has been fifty years of
political instability, military dictatorships, and civil war, with the conflicts often, inter-
estingly, mirroring the patterns of precolonial conflicts (on this see Reid 2007, and the
sequel, Reid 2011; and Besley and Reynal-Querol 2014). As for other benefits, such as
infrastructure, the Bugandan state had constructed an extensive system of roads prior to
being colonized (Reid 2002, chap. 5). Though these colonies did not have the same levels
of inequality or problematic race relations as settler colonies did after independence, they
shared many of the other problems. All in all, we find it difficult to bring the available ev-
idence together with plausible counterfactuals to argue that there is any country today in
sub-Saharan Africa that is more developed because it was colonized by Europeans. Quite
the contrary.
In the next section, we summarize briefly our views on the nature of African economic
development at the start of the colonial period as a basis for the main discussion. Section
3 reviews in more detail the basic facts about what happened to various development
outcomes during and after the colonial period (roughly from 1885 to 2010). In section 4 we
discusses mechanisms that have been proposed as connecting colonialism and develop-
ment. Section 5 then proposes our very speculative balance of the evidence in more detail,
and section 6 concludes.
2. African Development on

the Eve of the Scramble
To understand the impact of colonialism, it is important to put it in the context of the level
of African development in 1885. Africa was very poor in 1885 compared to the rest of the
world, with backward technology. For instance, writing, the wheel, and the plow were not
used in Africa outside of Ethiopia (Austen and Headrick 1983; Goody 1971, Law 1980). Some
societies, such as the precolonial Rwandan state, did not even use money. Though it is hotly
debated, some would also argue that Africa did not have economic institutions that were
conducive to development (see the debate between Hopkins 1973 and Dalton 1976). We
would argue (following Acemoglu, and Robinson 2010, 2012) that the preponderance of ev-
idence is more consistent with the view espoused by Dalton. Table 16.1 reproduces evidence
from Dalton (1976) based on studies by the United Nations from the 1950s. It illustrates that
even in the late colonial period, most Africans were engaged in subsistence activities out-
side of the formal economy.
Other evidence on economic institutions comes from the fact that slavery was endemic
in the nineteenth century, with various estimates suggesting that in West Africa the propor-
tion of slaves in the population was between one-third to one-half (Lovejoy 2000 surveys
the evidence). It is also true that the state tended to heavily limit the extent of private enter-
prise, for instance in Asante (Wilks 1989) and Dahomey (Law 1977; Manning 2004). One
could also argue that other types of economic institutions were not conducive to develop-
ment. For example, Goldstein and Udry (2008) show that, in contemporary Ghana, the fact
that land rights are allocated by chiefs means that nobody without political connections has
secure property rights. Though this situation is partly a consequence of the impact of indi-
rect rule, at least to some extent it mirrors the precolonial situation as well.
Leaving aside the influence of economic institutions on development, it is also critical to
examine the nature of state and political institutions. Improvements in health, education,
and infrastructure typically require actions by the state and investments in public goods.
Some African states did provide public goods: for example, Asante, Buganda, Dahomey,
and Ethiopia all built extensive road systems, and many provided legal systems and
methods of conflict resolution (the Kuba state even independently created trial by a jury
of one’s peers; see Vansina 1978). Yet political centralization lagged in Africa relative to the
rest of the world. Consider Abraham’s (2003) depiction of the state system in Mendeland,
southern Sierra Leone, in the second half of the nineteenth century. Mendeland was then
divided into a system of nine competing and warring states. Abraham makes a distinc-
tion between “territorial states,” which had well-defined territories, such as the Sherbro,
Lugbu, Gallinas, Bumpeh, and Kpaa-Mende states, and which were not identified with a
single person, and the “hegemonies,” such as the Tikongoh state of Makavoray and the
Luawa state of Kai Londo, which were. Nevertheless, even the territorial states were not
bureaucratized and did not collect systematic taxes from their inhabitants, though they
did collect tributes and organize compulsory labor and armies. It is very difficult to im-
agine these states providing infrastructure or cooperating to build a railway, for instance
(see Little 1951 for an example of how villages in Mendeland were made inacessible because
of fear of attack). Lack of political centralization clearly had important implications for
Table 16.1 Classification of Area under Indigenous Cultivation (in thousands of hectares)
Crops partly for export and Crops mainly for local
Crops mainly for export partly for local consumption consumption Subsistence employment
Percent of Percent of Percent of Percent of
Territory and period Area total Area total Area total Total area total
Belgian Congo, 1947–1950 49 2 587 27 1,577 71 2,213 41

French Equatorial Africa, 297 21 25 2 1,065 77 1,387 62
1948–1950
French West Africa, 305 3 1,487 16 7,796 81 9,588 77
1947–1949
Gold Coast, 1950 728 45 - - 884 55 1,612 21
Kenya, 1947–1950 – - 18 5 352 95 370 70
Nigeria, 1950–1951 242 3 1,891 2 6,494 75 8,627 57
Southern Rhodesia, 1950 – - - - 912 912 51
Tanganyika, 1952 146 6 81 3 2,209 91 2,436 63
Uganda, 1948–1950 700 28 - - 1,835 72 2,535 59
Total 2,467 8 4,089 14 23,124 78 29,680
Source: See Dalton (1976), Table 1, Table and references therein. The subsistence employment figures refer to the percentage of the male population
over 15 years of age engaged in subsistence agriculture.
development, such as in terms of the provision of order (see Colson 1969; Douglas 1962; or
Speke 1863 for examples). This can be seen empirically using the Standard Cross-Cultural
Sample (SCCS), a database of “premodern” or perhaps “traditional” societies coded by
anthropologists over many decades (see Murdock and White 1969). The SCCS contains a
coding of the extent of political centralization. Osafo-Kwaako and Robinson (2013) show
that this is very strongly positively correlated with the provision of public goods, such
as roads, money, and the existence of written recordkeeping. It is also positively related
to measures of economic development, for example, the existence of loom weaving or
metal smelting (though one has to be very cautious in asserting anything about the causal
relationships between these variables).7
But as we argued in the introduction, trends in these institutions during the nineteenth
century are more relevant to developing counterfactuals that can help us evaluate the
consequences of colonialism. Take economic institutions, for instance. On the one hand,
after the abolition of the slave trade in West Africa there were clear signs of commercial dy-
namism and expansion, such as during the “period of legitimate commerce” (see the essays
in Law 2002). On the other hand, the evidence suggests that this trade expansion went
along with an increased intensity of domestic slavery, as slaves were redeployed to pro-
duce domestically for export (Lovejoy 2000). In the political sphere, in some places there
seems to have been little trending toward greater centralization, for example, in Somalia.
But there were also places where there were positive trends. Abraham (2003) clearly saw
a trend in Mendeland toward greater centralization and stability compared with the first
half of the nineteenth century. Elsewhere there are clear patterns of reform. For example,
in Buganda the Kabaka was gradually in the process of removing the power of clan heads
and replacing them with “the king’s men”—political centralization in action—a process
culminating in the reforms of Mwanga, which were stopped in their tracks by British col-
onization (see Fallers 1964). The situation in Asante is similar, with Wilks (1966) making
a comparison to trends in the bureaucratization of European states in the early modern
period. In Southern Africa, the nineteenth century also saw processes of political central-
ization, most notably that of the Zulu state (see Eldredge 1992), and it also saw processes
of positive change in economic institutions as well, at least in the Ciskei and Transkei
(Bundy 1979).
All in all we believe that the evidence is consistent with the view that development
outcomes, and probably potential in Africa prior to the Scramble for Africa, were bad
compared to the rest of the world.8 The evidence from Table 16.1 is consistent with this view.
Heavy involvement of the state in trade and commerce, along with the incidence of slavery,
meant that economic institutions in Africa were not conducive to the spread of modern
technologies or the basics of economic growth. This situation was further exacerbated by the
relative lack of political centralization, even though clear processes of centralization were
taking place in parts of the continent. Still, the fact that Africa was behind economically in
1885 implies nothing about the impact of colonialism. It does suggest, however, that there
was plenty of scope for colonialism to improve institutions, thus boosting development, but
this does not imply that colonialism actually did so. For instance, even though slavery in
Africa was abolished during colonialism (though it took decades), it was abolished in other
noncolonial places at more or less the same time, suggesting that it probably would have
happened in any case.
3. Patterns of Development during

and after Colonialism
We now present some basic facts about the evolution of development during and after the
colonial period. The natural place to start is with estimates of per-capita income updated
from the work of Maddison (2007), which we reproduce in Figure 16.1. In some places,
such as South Africa or Zimbabwe, one has quite solid numbers; in other places, one has
to rely on more creative approaches, such as that of Szereszewski (1965), who used infor-
mation in colonial Blue Books to produce estimates for national income in the colonial
Gold Coast (see Chaves, Engerman, and Robinson 2014 and Jerven 2014 for extensions of
his approach). Despite problems with some of the specific numbers, the picture offered by
Figure 16.1 is supported by many other types of evidence (see Prados de la Escosura 2013).
This picture is one of gradually increasing levels of per-capita income during the colonial
period, followed in most cases by declines after independence until the year 2000, after
which growth turned positive. The timing of the decline varies. Kenya did quite well in the
1960s, with decline setting in only during the 1980s, while in Ghana decline began in the
late 1960s. The one glaring exception to this is Botswana, which grew very modestly until
independence in 1966 and then exhibited the fastest rate of economic growth in the world
over the subsequent period.
6.000
5.000
4.000
3.000
2.000
1.000
0
1870 1913 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2008
Botswana Egypt Ghana Kenya Nigeria

South Africa DRC Zambia Zimbabwe
Figure 16.1 GDP for selected countries

Source: Maddison (2007). GDP is measured in 1990 International Geary-Khamis Dollars.
50
45
40
35
30
25
20
15
10
0
1870–1875 1880 1890 1900 1910 1920 1930 1935–1940
Ghana Kenya Sierra Leone South Africa Zimbabwe
Figure 16.2 Primary Enrollment ratios

Source: Benavot and Riddle (1988).
A remarkable fact about the figure is that, in 2008, the most recent year from which
Maddison has data, many African countries were poorer than they were at independence;
this is true of Burundi, the Democratic Republic of the Congo, Rwanda, Sierra Leone,
Zambia, and Zimbabwe. It was only in 2005 that Ghana finally managed to return to the
level of per-capita income it had attained at independence in 1957.
Figure 16.2 uses the data from Benavot and Riddle (1988) to look at one of the most
important inputs into income, human capital. In particular it shows data on the primary
school enrollment rate during the period 1870–1940, which covers most of the colonial pe-
riod. The picture is quite similar to the part of Figure 16.1 that covers the colonial epoch.
Just as Africa started with very low income levels—indeed many countries were down at
the $400 a year that is Maddison’s minimum income level—it started out with very low
levels of school enrollment, close to zero. The colonial period saw slow and steady growth
of this, though to extremely modest levels. For example, in 1940 school enrollment was
4.9% of the relevant population in Sierra Leone, 0.6% in Angola, and 3.5% in Tanzania.
Elsewhere the numbers were much higher: 15.6% in Zambia and 47.1% in Malawi. Like per-
capita income, school enrollment improved from very low levels. The situation with literacy
is similar. Prados de la Escosura’s estimates (2013, Table D-2) suggest that adult literacy in
sub-Saharan Africa improved from 3.4% in 1880 to 9.3% in 1938 and 19.5% in 1960. Since
then, there has been a dramatic increase, with average literacy reaching 61.8% in 2007. His
data on primary school enrollment rates is similar, with educational expansion increasing
after 1960 to reach 52.8% in 2007.
The evidence for life expectancy and stature is very similar to that for human cap-
ital, though less comprehensive. Figure 16.3 reproduces data from the influential work of
Riley (2005). Data for Uganda, Sierra Leone, and Zimbabwe, where we have real historical
40
38
36
34
32
30
28
26
24
22
20
1925 1930 1935 1940 1945 1950 1955 1960 1965 1970
Botswana Rwanda Uganda Zimbabwe
Figure 16.3 Life Expectancy

Source: Riley (2005).
studies, also suggest a figure of around 24 in the 1930s for Africans. For Botswana and
Rwanda, also with real evidence, we have a higher figure of around 33 in the 1930s. All
countries experienced sustained monotonic improvements after World War II. Prados de la
Escosura’s synthesis estimates for life expectancy at birth (2013, Table D-1) suggest that life
expectancy was higher historically—25.5 years in 1880 in sub-Saharan Africa, improving
slowly to 31.6 years in 1938. Thereafter improvement was more rapid, with life expectancy
climbing to 41.0 years in 1960 and 51.8 in 2007.
This evidence is supported by a recent wave of important studies using different types
of historical records to examine the trajectory of stature during and after the colonial pe-
riod in various African countries. Cogneau and Rouanet (2011) use cohort analysis from
World Bank Living Standards surveys to show that the height of successive generations
of men went up during the colonial period by about 5 centimeters (cm) in Côte d’Ivoire
and 3 cm in Ghana. For women the numbers are smaller, around 1 to 1.5 cm. Strikingly,
the data from these surveys also show that there was a decrease in the height of people
born in Ghana after 1960. The research of Austin, Baten, and Moradi (2011), using the
heights of military recruits recorded during and after the colonial period, finds evidence
for falling heights in the 1880s and 1890s during the transition to colonial rule, but then
monotonic increases until around 1970, after which heights fell. In Kenya, Moradi (2009)
finds evidence of increasing height after 1920, which lasted until 1980. These scholars all
explicitly interpret their findings as demonstrating that colonialism had positive effects
on development in Africa (see Moradi 2008 for the boldest statement).
To complement this picture of the evolution of different development indicators, let us

finally consider the evolution of real wages for Africans. In the absence of convincing evi-
dence on incomes, the availability of data on wages and prices has encouraged a great deal
of important work on their historical evolution. This is another powerful way to examine
the consequences of colonialism. The seminal study in the African context is that of Wilson
(1972), who used company records to study the wages of gold miners in South Africa be-
tween 1911 and 1969. Wilson showed that the impact of the Native Land Act of 1913 in South
Africa, and the spread of such institutions as the Colour Bar, led to a steep decline in the
nominal and real wages of black gold miners. Figure 16.4 plots his data, illustrating the 20%
fall in real wages after 1911. By the end of Wilson’s sampling, real wages were around their
1911 level despite the fact that average living standards rose in South Africa over that period
(e.g., Feinstein 2005).
We complement this data with earlier information on South African real wages from
de Zwart (2011). De Zwart finds quite severe falls in the real wages of Africans in the half-
century leading up to the period Wilson studied. Since gold miners were something of a
labor aristocracy, one might conjecture that the fall in the real living standards of Africans
was much greater elsewhere in the economy. Bowden and Mosley’s evidence (2010), also
plotted on Figure 16.4, indeed suggests very large falls in African real wages in settler col-
onies. Their data for both Kenya and Zimbabwe suggests a 50% fall in real wages in the
decade after the period 1914–1916, with real wages not returning to the 1914–1916 levels until
the early 1950s.
The falls in real wages and living standards in settler colonies can be substantiated
with a simple calculation. Even leaving aside any existing source of information, the fact
that the Europeans came and evicted Africans from the best agricultural land (e.g., the
Kenyan “white highlands”), implies that Africans must have seen their living standards
deteriorate sharply. A simple way to get a sense of the order of magnitude of this effect
is as follows. Let L be the total stock of land and N be the black workforce. Denote wb
as the living standards of Africans before land expropriation and wa as the level after-
ward. Assume that output is generated by a Cobb-Douglas production function, using
land and labor as inputs and subject to constant returns to scale, and assume that factor
markets are competitive. This last assumption is clearly not the case for the examples we
are looking at, since there was extensive coercion of black labor and wages were no doubt
forced below competitive levels. In this case, however, our estimates will provide some
sort of lower bound for the impact. Under these assumptions, we can say that Africans
ought to be paid the value of their marginal product. Hence, prior to land expropriation
we have
w b = α AN 1− α Lα −1 (1)
where A is total factor productivity and 0 < α < 1 is a constant. Now, using the statistic for
South Africa that the Native Land Act of 1913 allocated 7% of land to Africans, we can show
that after land expropriation African living standards are given by
(
w a = α A (0.07 ) N )
1− α
Lα −1 (2)
250
200
150
100
50
0
1854
1856
1858
1860
1862
1864
1866
1868
1870
1872
1874
1876
1878
1880
1882
1884
1886
1888
1890
1892
1894
1896
1898
1900
1902
1904
1906
1908
1910
1912
1914
1916
1918
1920
1922
1924
1926
1928
1930
1932
1934
1936
1938
1940
1942
1944
1946
1948
1950
1952
1954
1956
1958
1960
1962
1964
1966
1968
Black Labourers Black Mining Labourers
120
110
100
90
80
70
60
50
40
30
20
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
19
19
19
19
19
19
19
19
19
19
19
19
19
19
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Kenya Zimbabwe
Figure 16.4 Real Wages
Source: Top panel: Black Labourers, de Zwart (2011); Black Mining Labourers, Wilson (1972).
Bottom Panel: Bowden and Mosley (2010). These are index figures, set to 100 in 1909 (Labourers)
and 1911 (Mining Labourers) in the top panel; and 1914 in the bottom panel.
Now divide (2) by (1) to derive
wa
= (0.07 )
1− α
w b
If all factor and product markets are competitive, then we can calibrate this equation by setting
α equal to the share of wages in national income. This is a rather heroic set of assumptions
in the context of 1913 South Africa and indeed any colonial economy. Nevertheless, imagine
wa
it were true. Then, for α = 2/3 we get b is approximately 0.41, suggesting that expropriating
w
93% of the land would lead to a 59% decline in African living standards.
Note that this calculation is completely unchanged if one assumes that Africans were
being paid the value of the average product before and after land expropriation.9 The cal-
culation does assume that the level of total factor productivity is unchanged, and to the
extent that settlers brought better technology, this would tend to reduce the impact of the
land grab on African wages. Nevertheless, the resulting figure is quite reasonable, as seen
from looking at de Zwart’s (2011) data. Though his data comes only from the Cape Colony
and is taken before the 1913 Land Act, he finds, using a barebones consumption basket, an
approximate 50% fall in African real wages. As noted above, this number also appears in
Bowden and Mosley (2010). Thus even if Europeans did bring better technologies, this may
not have spilled over into Africa living standards since Europeans were able to extract all
the rents that the new technologies created. Wilson (1972) found a smaller fall, but of course
the reality is that the 1913 act just institutionalized a process that had been ongoing for a
long time. Wilson’s data may therefore reflect more the introduction and intensification of
the Colour Bar, and it is possible that the smaller fall in wages is also due to the fact that
gold miners were a labor aristocracy and in high demand relative to other African workers.
Nevertheless, this calculation is only relevant to places where colonists engaged in large
land grabs. Figure 16.5 plots data from Frankema and van Waijenburg (2012), who used
information on nominal wages and prices extracted from colonial Blue Books to construct
real wage series for a number of British African colonies. These data are quite noisy and
represent only the formal economy, a small part of the labor market. Nevertheless, though
there are examples of quite large falls in real wages, for example in Uganda and southern
Nigeria, there is also evidence of improvements in real wages for the colonial period taken
as whole, such as in Ghana and Sierra Leone (where the large drop in real wages in the 1890s
coincided with the incorporation of the interior [the Protectorate] with Freetown and the
Western Area [the Colony]).
The fact that per-capita income rose in many places but real wages of Africans fell suggests
that there ought to have been very large increases in inequality. Unfortunately there is little
work that reconstructs historical data from Africa. Figure 16.6 shows the data from one
study that does exist, Bigsten (1986, 1987), which indicates that inequality may have risen
by 40% between 1914 and 1950 in Kenya, a quite plausible number. In South Africa and
Zimbabwe, the increase must have been considerably larger. Indeed, van de Walle (2009)
has recently argued that the structures created during colonialism in Africa are the prime
determinant of high levels of inequality.
The final, key set of variables to examine are institutional ones. Here we are able to access
a unique empirical project undertaken by Johannes Fedderke along with his colleagues and
students. In an important series of papers, Fedderke, de Kadt, and Luiz (2001), Fedderke and
Garlick (2010), Fedderke, Lourenco, and Gwenhamo (2008), Gwenhamo, Fedderke, and de
Kadt (2008), Luiz, Pereira, and Oliveira (2013), and Zaaruka and Fedderke (2010, 2011) used
contemporary codings of economic and political institutions and extended these back to
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Figure 16.5 Real Wages
Source: Frankema and van Waaijenburg (2012). Index figures, 1915 = 100.
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GINI coefficient Kenya
Figure 16.6 Inequality in Kenya

Source: Bigsten (1986).
the colonial period for a number of African colonies. Figure 16.7 plots the data for some of
these countries for an index of political freedoms, which has never been coded for colonies
before (since these are not included in datasets such as POLITY). Unfortunately, with the
exception of Namibia and Tanzania, the data do not cover the entire colonial period, and
even there it does not extend into the precolonial period. An interesting question is whether
or not colonialism led to a severe contraction in political freedom. Certainly Africans had
no political power in the early colonial period, but the change has to be compared to preco-
lonial African polities. Indeed, the index is based on such things as voting rights, freedom
of association, freedom of assembly, freedom of expression, the extent of arbitrary executive
power, government secrecy or indemnity, due process of law, and freedom of movement. It
is obviously a tall order to code these variables for the colonial period, let alone the precolo-
nial period, and it is not a priori obvious in what way colonialism changed these variables.
There was a lot of variation in precolonial African political institutions. For instance, the
centralized states in Buganda, Dahomey, or Rwanda were quite despotic and militarized.
Citizens did not vote for the Kabaka, Akhosu, or the Mwami, whose power was unchecked
by counterbalancing institutions. So although the colonial citizens of Uganda, Benin, and
Rwanda did not vote either, perhaps there was no change in political freedom. Yet Buganda,
Dahomey, and Rwanda were probably the exception rather than the rule. Though there
were despotic states in Africa prior to 1885, particularly during the heyday of the Atlantic
slave trade, there were also mechanisms of political participation and accountability in
many precolonial African polities, even the Zulu state. The literature on indirect rule in
British Africa also emphasizes that African political systems were typically far more fluid
and open to talent and upward mobility than the colonial system of chiefs (we discuss this
in more detail later in the case of Sierra Leone). In other cases, such as Somalia or South
Sudan prior to colonialism, there was a democratic structure of political rights that was
common in stateless societies, and adult males made collective decisions for the clans by
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Namibia Malawi South Africa Tanzania Zambia Zimbabwe
Figure 16.7 Index of Political Freedom

Source: Namibia: Zaaruka and Fedderke (2011); Malawi: Fedderke and Garlick (2010); South Africa: Fedderke, De
Kadt, and Luiz (2001); Tanzania: Zaaruka and Fedderke (2010); Zambia: Fedderke, Lourenco, and Gwenhamo (2008);
Zimbabwe: Gwenhamo, Fedderke, and de Kadt (2008).
consensus or something more like majority rule. Thus it is plausible that on average the
political rights of Africans did decline with the imposition of colonial rule. This is an issue
that could be researched using ethnographic information, for, example from the Murdock
Ethnographic Atlas or the SCCS.
Leaving this issue aside, Figure 16.7 shows some very interesting patterns. In the case of
Namibia, political rights fall almost monotonically—from colonization by the Germans in
1884 until independence from South Africa in 1990. In Tanzania, political rights decline
nonstop until after World War II. Interestingly, the takeover of Tanzania by Britain from
Germany after World War I coincides with deteriorating political rights rather than im-
provement. The pattern of deteriorating political rights is quite common and shows up in
the cases of Malawi, Zambia, and Zimbabwe. Improvement in political rights increases rap-
idly around the time of independence, only to fall back again as African leaders consolidated
one-party states and outlawed political competition. Improvements in political rights then
began again in the 1990s with the wave of democratizations that rolled over the continent.
Figure 16.8 shows the data from these studies on the extent of private property rights.
This index is very interesting because it is meant to capture the development of property
rights for the mass of the population. In this case, one can say something more definitive
about the consequences of transition from precolonial to colonial rule, at least in colonies
with significant white settlement. The massive expropriation of land from Africans must
surely coincide with a significant deterioration in the security of property rights for the
vast proportion of the population. Figure 16.8 reveals no obvious general pattern during the
colonial period. In some places, such as Malawi, Namibia, or South Africa, property rights
deteriorate. In other places they stay constant or increase. There does not, however, seem
to be a general positive effect of colonialism on the extent of private property rights, even
when data are truncated and do not include the mass land expropriations that took place in
South Africa or Zimbabwe.
How are we to make sense of these various findings? Some of them seem quite contra-
dictory. For example, how can expanding education and life expectancy after independence
coincide with falling per-capita income? From a production function point of view, these
things must be reconciled by large falls in total factor productivity (see Nkurunziza and
Ngaruko 2007 for such a calculation in the case of Burundi), suggesting that capital was
very inefficiently used. This was precisely the conclusion of Pritchett (2001), who argued
that the most likely reason why expanding educational attainment in the developing world
did not show up as increased income is that poor institutions allocate human capital to un-
productive activities such as rent seeking.
Another puzzle is the simultaneous evidence of increasing stature and falling real
wages for Africans, such as in Kenya. One possibility is suggested by the work of Troesken
(2004), who showed how in the nineteenth century U.S. enfranchised whites were pre-
pared to invest in public health, which benefited blacks and poor whites, to the extent that
whites themselves were threatened by negative externalities created by diseased blacks and
poor people. If blacks came down with cholera, it would quite likely spill over to whites.
This could help explain the simultaneous occurrence of falling real wages and improving
stature. For example, in the case of Zimbabwe, Phimister (1988, 261) quotes a white official
as observing the need to “tackle infectious disease in the native . . . if we want to have a
healthy white nation.” Phimister quotes also from a 1944 report of the native production
trade commission, which said that “drastic and immediate action” was needed with respect
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Namibia Malawi South Africa Tanzania Zambia Zimbabwe
Figure 16.8 Index of Property Rights Protection

Source: Namibia: Zaaruka and Fedderke (2011); Malawi: Fedderke and Garlick (2010); South Africa: Fedderke, De
Kadt, and Luiz (2001); Tanzania: Zaaruka and Fedderke (2010); Zambia: Fedderke, Lourenco, and Gwenhamo (2008);
Zimbabwe: Gwenhamo, Fedderke, and de Kadt (2008).
to appalling public health conditions and that it was “not only humane, it is mere self-
protection.” (1988, 261) Health services for the African had become essential because “as we
want to have a healthy white nation we have got to tackle infectious diseases in the native.
The native is the reservoir of these infectious diseases.” (1988, 261) Though this may have
ultimately been good for the health of Africans, it is not exactly a civilizing mission.
Despite quite a few puzzles, the overall picture is quite clear. Per-capita income increased
after the Scramble for Africa quite steadily during the colonial period, if not at the rates ex-
perienced in countries that autonomously modernized, such as Japan after 1868 or Turkey
after the 1920s. After independence, the general pattern of per-capita income declined from
the mid-1960s until the 1990s, while after 2000 there has been modest positive economic
growth. Human capital, life expectancy, and stature also increased slowly during the co-
lonial period and generally continued to increase afterward. However we have seen that
stature in Ghana did start to fall, reflecting the economic collapse of the 1970s, and Prados
de la Escosura (2013) identifies several cases of falling human development, such as in the
Democratic Republic of the Congo in the 1980s and 1990s and quite a few others during the
1980s. Meanwhile, real living standards of Africans experienced severe deterioration in col-
onies of white settlement, while they slowly increased along with per-capita income in the
other two types of colonies. In the former set of colonies, Africans also experienced a decline
in institutional quality, with mass insecurity of property rights, though elsewhere institu-
tional change was muted. Europeans brought new institutions, forms of rule, fiscal systems,
and financial institutions, but these did not reach the vast proportion of the population.
4. Mechanisms
The literature has proposed various types of mechanisms through which colonialism
influenced development in Africa. On the benefit side, Europeans brought better tech-
nology, such as writing or steam engines. Particularly important was medical technology.
Indeed, Ferguson (2011) argues that if Europeans had not colonized the tropical world there
would not have been the stimulus required to develop cures and vaccines from tropical
diseases. Many have also argued that Europeans improved institutions, (eventually) ending
slavery, introducing modern legal systems and methods of administration, and constructing
modern democratic institutions. They argue that economic institutions improved, not just
because slavery was abolished but also because Europeans made property rights secure—a
dubious claim in general as we have already seen—and brought to an end conflicts within
African society (which they had previously heavily exacerbated by generously supplying
anyone who could pay with firearms; see, e.g., Inikori 1977).10 They also started schools in
places where there had been none.
On the negative side, many different mechanisms have been suggested through which
colonialism reduced development. An earlier generation of scholars (e.g., Rodney 1981)
emphasized the sheer looting of African societies by colonial powers that undoubtedly took
place, particularly in the Congo. More recently scholars have pointed to the perverse effects
of particular colonial institutions, such as agricultural marketing boards (Bates 1981). They
also argue that the arbitrary state system created and defended by the European powers has
led to political conflicts, instability, and dictatorship (Engelbert 2000). Another argument
is that the colonial authorities created “gatekeeper states,” which were only interested in
ruling rather than in developing countries, and these have left a path-dependent legacy in
the state structures of postcolonial Africa (Cooper 2002). Others have proposed that the
political authoritarianism of the colonial state is a direct source of the authoritarianism that
has plagued Africa since independence (Young 1994). Put another way, it is impossible to
conceive of Robert Mugabe, and the way he and his supporters have run Zimbabwe since
1980, without thinking how Ian Smith and the whites ran and structured the society prior
to 1980. Thus the fall in per-capita GDP after 1980 in Zimbabwe is as much a part of the
economic impact of colonialism as whatever increase in real wages Africans may have ex-
perienced after 1950. There are various mechanisms that could generate this. One could just
be a simple reaction to the racism and inequality of the white-controlled regime, enacting
revenge for the immiserization the regime had initially unleashed or to avenge the impact
of mass land expropriations. Alternative mechanisms feature the continuation of the ex-
tractive colonial state. Independence in Zimbabwe saw not the destruction of this state but
rather a transfer of control from the whites to Zimbabwe African National Union Patriotic
Front (ZANU-PF) and President Robert Mugabe. Mugabe was then in charge of a state that
otherwise would not have existed and that he could use with even fewer constraints.
These last ideas point to the importance of the impact of colonialism on civil conflict in
postcolonial Africa. In line with this thinking, Michalopoulos and Papaioannou (2011) show
that the Scramble for Africa had severe implications for the intensity of ethnic conflict in
regions where ethnic groups were separated by a border that was established in the confer-
ence of Berlin (for a general treatment of ethnic violence, see Horowitz 2000). Colonialism
changed the nature of civil conflict even if it did not necessarily change the identity of the
warring parties or the places in which conflict took place (Besley and Reynal-Querol 2014).
In some places, like Swaziland, colonialism seriously warped traditional African political
institutions, making them much less accountable and more autocratic, (This could also be
read as part of an explanation for the Zimbabwe example.) Though the Swazi state in 2012
was not a poster child for development, the Swazi state today is different from what it would
have been if not for the fact that the British ruled Swaziland indirectly (see Mamdani 1996
for the general argument, and Bonner 2002 on Swaziland). Most plausibly, the Swazi state
is much more despotic and unrepresentative than it would have been absent colonialism.
In other places, like Sierra Leone or Nigeria, the system of indirect rule contributed to
power relations that did not reflect the de facto relative power of different groups in so-
ciety (see the examples for Sierra Leone and Ghana below). Finally, and more subtly, there
are arguments about how colonial rule shaped identities and created cleavages where none
existed or hardened preexisting distinctions and identities, as in Rwanda (see Ranger 1985
for an illustration from colonial Rhodesia; and Spear 2003 for an overview of the British
cases). This could easily have become an independent source of conflict and resulted in
underprovision of public goods after independence. To take perhaps the most salient ex-
ample, most academic studies agree the distinctions and conflicts between the Hutu and
Tutsi in Rwanda, though they predated colonialism (Vansina 2004), were made consider-
ably worse by the fact that the German and Belgian colonial administrations recognized the
Tutsis as a governing elite, and after 1932 introduced identity cards that defined one as either
Tutsi, Hutu, or Twa. Though such identity cards were not unique in colonial Africa (South
African pass cards recorded one’s “group”), it seems undeniable that these policies played a
significant role in intensifying Hutu-Tutsi tensions and ultimately leading to a genocide in
which 800,000 people perished (Des Forges 1999; Mamdani 2002). The identity cards were
only abolished in the wake of the genocide. This too is part of the legacy of colonialism for
development.
Doing justice to all of these different mechanisms is impossible in the short space of
this article, and we have tried to introduce quite a few along the way. We have already seen
from the work of Fedderke and his collaborators that it seems there has been no consistent
tendency for basic political or economic institutions to improve during the colonial pe-
riod. Let us restrict attention to just the important issues of slavery. The colonial project in
the nineteenth century was heavily motivated by such apparent goals as the eradication of
slavery; and the fact that slavery did disappear in most African colonies during the colo-
nial period could be chalked up to an institutional improvement that colonialism brought,
which would otherwise not have happened. To assess this argument one has to take into
account several things. First, it took a long time to abolish slavery in most African colonies.
For example, in Sierra Leone it was only finally made illegal in 1928, in Ghana in 1930, and
in Nigeria in 1936 (see Lovejoy and Hogendorn 1993 on northern Nigeria; and the essays
in Miers and Roberts 1988 and Klein and Miers 1998). Second, even then it is not clear to
what extent slavery vanished because of these laws (which had to be enforced) or because
of economic changes. At least in the Ghanaian case, such changes had little to do with the
colonial powers (see Austin 2008). Third, the colonial state extensively used forced labor
to build infrastructure (see Mason 1978; and Thomas 1973 on Nigeria and Ghana). Finally,
slavery was coming to an end everywhere in the world in the twentieth century, and it is
in fact not clear that slavery ended any faster in places that were colonized. For instance,
slavery was abolished in 1915 in Thailand and in 1928 in Iran (see Klein 1993 for these dates).
Even in Africa, the noncolony of Liberia was forced by international pressure in the 1920s
to abolish, if not slavery, then something very close to it. Thus the claim that colonialism
generated a net institutional benefit through the abolition of slavery is implausible.
5. The Balance of the Evidence
So far we have argued that though colonialism had uniform effects, one can make clear
distinctions between three types of African colonies. Those that coincided, usually coin-
cidentally, were precolonial African polities; the colonies of white settlement; and finally
those that had no centralized states, were a heterogeneous mixture (like Nigeria), or lacked
white colonization.
Putting together the evidence and arguments about counterfactuals and mechanisms,
we argue that in the first and second sorts of colonies there is a clear case to be made for
colonialism retarding development. Making this case entails counterfactuals for both co-
lonial and postcolonial periods. In the introduction we proposed some simple ones, based
actually on continuity with the precolonial experience. In colonies that coincided with rel-
atively centralized polities, there were the essentials of order and a public goods provision,
which could have been the basis for development (Warner 1999). Botswana is a perfect
case. Though Botswana has been an African success since independence, it is likely that,
absent British colonialism, Botswana would be a great deal more developed today. Prior
to the colonial period, Tswana elites were already reforming institutions and showing an
extraordinary ability to negotiate with external forces, traits that reproduced themselves
after independence. Yet during the colonial period, institutional reform was held in check
in Botswana, and instead chiefs and elites had to fight a rearguard action to stop such forces
as indirect rule and mining from destroying their polities and the fruits of their previous
institutional innovations.
At the same time, the British provided practically nothing in terms of education, health,
infrastructure, or other types of public goods. After independence, Botswana was able to
benefit from its coherence as a polity because the precolonial institutions that persisted were
ones that promoted accountability. Generally, there is a negative correlation in Africa be-
tween precolonial political centralization and the extent of such accountability institutions
(e.g., using data in the Standard Cross-Cultural Sample, see Osafo-Kwaako and Robinson
2013). The state in Rwanda, for instance, lacked the type of accountability mechanisms that
Tswana had. Nevertheless, it is overwhelmingly plausible that Botswana would be much
more developed today had it not been colonized. Variation in the region supports this claim.
Botswana did better than Lesotho, which had very similar precolonial institutions, because
it was able to preserve its precolonial systems of representation and political institutions
that were heavily distorted by indirect rule and the desire to mobilize labor for the mines in
South Africa in the latter country (Ashton 1947; Acemoglu, Johnson, and Robinson 2003;
Eldredge 2002).
Another polity in this first set, Rwanda, is very plausibly less developed than it other-
wise would have been. The dominant mechanism at work is that the country suffered the
most extreme example of colonial powers shaping identities in ways that guaranteed intense
conflicts for power after independence. In Rwanda, this situation tragically interacted with
what were already highly hierarchical class relations by African standards to completely
discredit the traditional political system and create intense conflict.
In Ghana, also in this class, it would not have been possible to create the type of cleavage
that tore Rwanda apart, but instead colonialism created a situation where a large centralized
state, Asante, was placed into a “nation-state” consisting of a plethora of groups who lacked
a national identity and working social contract and saw Asante dominance as the main
threat. The arrival of British colonialism stopped Asante expanding, and Asante chiefs
were made into the tools of indirect rule; and to the extent that they were accountable to
their people, they became less so. At independence, politics became dominated by Kwame
Nkrumah and his Conventional People’s Party, which found a common cause in opposing
Asante. Nkrumah moved to emasculate the Asante chiefs (Rathbone 2000) and initiated a
cycle of anti-Asante and pro-Asante regimes. The fight for power after 1957 led to political
instability, coups, military rule, and the expropriation of cocoa farmers who were at the
heart of the most dynamic sector of the economy. The nature and structure of this conflict
was entirely a legacy of the colonial state. In the absence of colonialism, a plausible coun-
terfactual is that Asante would have expanded and formed a nation-state. This might not
have been developmental, but it certainly would have avoided the perverse institutional
dynamics of indirect rule (moving the traditional leaders further from being accountable),
and it would not have led to political instability that plagued the country and undermined
the economy for 25 years. Today the two main political parties revolve around this cleavage.
In Uganda the situation is quite similar, with pro-and anti-Buganda cleavages, while in
Burkina Faso there are pro-or anti-Mossi cleavages.
Accepting these arguments, could it have been that colonialism brought enough to
Ghana to offset these negative mechanisms? We believe the answer is no. The economic
growth of Ghana during the colonial period was not because of the British colonial
states but in spite of them (Austin 2005; Hill 1963). The export dynamism was a wholly
African development that would plausibly have occurred without British intervention
since the area had seen export dynamism before in the nineteenth century, for example,
in the export of slaves and then kola nuts and other tropical products. Other economic
institutions, such as the allocation and regulation of land, were probably made less effi-
cient by colonialism since indirect rule made the chiefs in charge of them less account-
able (Colson 1971; Goldstein and Udry 2008). It is true that the British built railways and
roads, and though these did bring some economic growth (Jedwab and Moradi 2011),
their location was often determined more by the desire to rule, not to develop (evidence
for this is presented in Chaves, Engerman, and Robinson 2014, who show that the colo-
nial states had to force Africans to move their goods on the railways because they were
not in the right place from an economic point of view). The only reason that Asante
had not previously built a railway to the coast was because the British colonial office
had blocked it (Chaves, Engerman, and Robinson 2014). Is it possible that the British
brought education where it otherwise would not have existed? Possibly, but as Frankema
(2010, 2012) has shown, missionaries were the driving force behind educational expan-
sion in the British colonies. A reasonable counterfactual is that, absent colonization, the
missionaries would have come and started schools since prior to 1885 missionaries were
already fanning out over Africa, converting and educating. It is hard for us to locate the
enduring counterbenefits of colonial rule.
It is possible that the Zulu state could have developed in the diamonds of Kimberly and
the gold of Johannesburg in just as predatory manner as the apartheid state. But we think
this is unlikely. No indigenous African state would have had the massive coercive, military,
and ideological dominance over its people that the white state of South Africa had over the
black population.11 Moreover, the Zulu state would not have had such a well-defined subject
population to repress and discriminate against.
The other clear case for colonialism retarding development is evident in colonies of white
settlement. Here, as we have documented, the extractive nature of colonial rule and mass
expropriation of land manifested itself in serious immiserization of Africans during the co-
lonial period, followed by a massive increase in inequality. There is conflicting evidence in
some of these cases, as we have pointed out, and clearly important research is needed to rec-
oncile these different sources of information. It is possible that in settler colonies, because
whites came en masse, they actually brought more potential benefits. We discussed one in-
stance earlier, when we questioned how falling real wages for Africans could be reconciled
with Moradi’s evidence for increased stature in Kenya. Having a lot of whites might have
created positive externalities for Africans that were absent in colonies such as Sierra Leone.
We accept that this might be the case, so that ultimately there were offsetting benefits for
Africans once they recovered from the immiserization. By the 1950s African wages were
rising in Zimbabwe, as they were in South Africa by the 1970s. From this point on, and
especially after independence, they might have benefited from the legacy of more intense
colonization (though in fact Fedderke’s research thus far does not suggest great institutional
benefits in these colonies relative to others).
Yet these examples suggest that there are far more powerful countervailing mechanisms at
work. Since 1980, Zimbabwe has not experienced the benefits of white rule but, instead, the
consequences in terms of inequality, conflicts, and a legacy of racial discrimination. These
cases therefore demonstrate some of the most perverse postindependence dynamics. Van de
Walle (2009) and Bowden and Mosley (2010) argue that this is precisely due to very high
levels of inequality in such countries, which were directly a result of the way that they were
colonized. Despite some contradictory facts, to argue in these cases that colonialism promoted
development, one would have to keep in mind a completely implausible counterfactual where
colonialism stopped an even worse immiserization. This seems very difficult to believe.
The final set of cases are more complex. It is plausible, for example, that places dominated
by acephalous societies, such as Somalia or South Sudan, would have similar levels of de-
velopment today absent colonialism. To get a sense of what might be a credible line of
argument for the other mixed cases, let us focus on Sierra Leone. It is likely that the lack
of political centralization and instability in Sierra Leone inhibited development prior to
colonialization and stopped the creation of public goods or the adoption of better tech-
nology. Colonialism led to the construction of railways, the cessation of hostilities between
African polities, and the creation of administrative structures such as courts and a modern
fiscal system. It also led to the construction of the first school in the interior in Bo (out-
side of Freetown and the western peninsula, which had been a British colony since 1806).
Had the British not annexed the interior, it is quite plausible that the political instability
would have continued and the basic state structure would have been unchanged (though
one could use the evidence in Abraham 2003 to argue that there was a trend toward more
bureaucratized and stable polities, at least in Mendeland). Do these clear benefits from co-
lonialism imply that Sierra Leone is more developed today than otherwise it would have
been? Though one could argue either side, we believe the probable answer is again no.
Yes, railways were constructed, but as in Ghana, they were positioned not to develop the
country but to rule it. Indeed, after the Hut Tax Rebellion of 1898 the route of the railway
was changed with a view of controlling Mendeland, the heart of the rebellion. And while
schools were built, little pretense was made to educate the population. The Bo school was
focused on educating the sons of the Paramount Chiefs and the elite, which the British
had themselves created, who were used to governing the colony indirectly. As in Ghana,
it was missionaries who did what little educating there was. Similarly, the system of indi-
rect rule in essence created a hierarchy and indigenous elites that had not existed before
in Sierra Leone. The Paramount Chiefs were elected for life by majority vote of the Tribal
Authority, an electorate made up of elites. To become a Paramount Chief one had to come
from a “ruling family,” basically a short list of elites recognized, and sometimes created, by
the British. This was a classic case of indirect rule creating a type of political despotism that
had not previously existed and that likely had adverse effects on development. For example,
Acemoglu, Reed, and Robinson (2014) show that places within Sierra Leone that have more
powerful Paramount Chiefs have worse development outcomes today. Sierra Leone gained
independence as a salutary example of a state lacking a national identity and working social
contract, where the electorate was polarized into a north (Temne and Limba) versus south
(Mende) cleavage. As elsewhere this led to military coups, political instability, and eventu-
ally a one-party state. All this disintegrated in 1991 into a horrific 10-year civil war, in part
motivated by animosity against the local despotism of chiefs and political exclusion (Keen
2005; Richards 1996). Certainly in 2012, development outcomes in Sierra Leone are better
than they were in 1896 when the colony was formed, but little of this was due to the direct
intervention of the British during the colonial period. Much more was due to missionaries
or other forms of dissemination, while the very negative development dynamics experi-
enced after 1961 are closely related to the way the British formed and governed the colony.
It is clear moreover that colonies of this type had independent dynamics that might have
offset the potential benefits. The fact that they lacked centralized political authority prior to
colonization created opportunities for colonial rule to bring benefits, as we have observed.
Yet at the same time this created a more intense indirect rule, which persisted after inde-
pendence precisely because there was no large precolonial polity. Whereas in Ghana the
remnants of the Asante state were too threatening to Nkrumah to allow him to rule in-
directly, this was not true in Sierra Leone, where to this day indirect rule is the favored
method for national politicians to rule the rural areas (see Acemoglu et al. 2014). Though
no doubt every case is different, even this apparently ambiguous case does not support an
optimistic interpretation of the impact of colonialism on development in Africa.
6. Conclusions
In this essay we have tried to evaluate the impact of European colonialism on develop-
ment in the case of sub-Saharan Africa. Though this is only a very small part of colonial
experiences in world history, it covers all of the methodological problems involved in an-
swering this question and spans many of the potential mechanisms. As we emphasized right
at the start, at our current level of understanding it is impossible to make general strong
claims about the causal impact of colonialism on development because of the absence of a
well-defined counterfactual. This is not much of a drawback, because colonialism was such
a heterogeneous phenomenon that it is not very interesting to be able to identify the average
effect of colonialism; and in any case, examining specific mechanisms may be more produc-
tive and easier to identify econometrically.
Nevertheless, we have also argued that the extent of the heterogeneity of the colonial
experience in Africa is much less than in the entire colonial world. This being the case, we
have not restricted ourselves simply to the important task of giving an overview of some of
the facts and mechanisms that have been suggested. We have also attempted to give a very
subjective and speculative view of what we believe the balance of evidence says in light of
what we argue are plausible counterfactuals. We do this without any pretense of being de-
finitive and merely to try to move the debate forward. To evaluate the impact of colonialism
on development, it is not enough to show that development outcomes improved during
the colonial period. This is so for at least two reasons: first, we do not know what would
have happened in the absence of colonialism; and second, a full evaluation of the impact of
colonialism must take into account how development outcomes after independence were
shaped by the way colonialism structured society.
Our conclusions are that the case for the pessimists about the impact of colonialism on
development is far stronger than the case for the optimists. There are clear cases, such as the
settler colonies or colonies that coincided with established precolonial centralized states,
where the preponderance of evidence and plausible argument supports the idea that coloni-
alism retarded development. Other cases are more ambiguous, but even there we argue that
it is difficult to come up with convincing scenarios under which colonialism promoted de-
velopment. Though colonialism was indeed heterogeneous, it is very likely that if one could
estimate the average effect of colonialism on development in Africa, it would be negative.
We make these arguments accepting that Africa was poor, technologically backward, and
poorly developed in the first half of the nineteenth century. Nevertheless, other parts of the
world were also poor and underdeveloped in this period, such as Japan, Thailand, and most
parts of Latin America, and they are much more prosperous than Africa today. It is possible
for societies to change their institutions and move onto better development paths, though
it is not of course inevitable that they will do so. European colonialism did bring some
proximate benefits in terms of technology, a sort of peace, and access to and implantation
of modern institutions. Yet little attempt was really made to make such benefits endure, and
many of which, like peace, were restricted to the colonial period. Europeans also brought
racism, discrimination, and inequality, and they seriously warped many African political
and economic institutions. Once the European powers left, much of what was positive was
ephemeral and went into reverse, while many of the negatives endured.
Acknowledgments
We are grateful to Jan Vansina for his suggestions and advice and to Carol Lancaster and
Nicolas van de Walle for comments. We have also benefited greatly from many discussions
with Daron Acemoglu, Robert Bates, Philip Osafo-Kwaako, Jon Weigel, and Neil Parsons on
the topic of this research. Finally, we thank Johannes Fedderke, Ewout Frankema, and Pim de
Zwart for generously providing us with their data.
Notes
1. University of Oxford, Department of Economics, Manor Road Building, Manor Road,
Oxford, OX1 3UQ; e-mail: lean-[email protected].
2. Harvard University, Department of Government, IQSS, 1737 Cambridge Street N309,
Cambridge MA 01238; e-mail: [email protected].
3. This is not a statement about welfare since it is easy to argue that indigenous people are
much worse off than they would have been absent colonialism. In both Australia and
the United States, the vast majority of indigenous people were wiped out by diseases
imported by the Europeans, and their ancestors today experience levels of human devel-
opment far below the average of their societies. In Australia, for example, life expectancy
of aboriginal people is 17 years less than nonindigenous people, and average income is
about 62% of the nonindigenous level (see Australian Human Rights Commission 2008).
4. See Austin (2010) for a rare attempt to tackle the same question.
5. It is not a coincidence, for example, that it is countries like Ethiopia and Rwanda that are
now able to experience by far the fastest growth rates in Africa.
6. We do not attempt here to explain why there existed such variation within Africa in
political and economic institutions in 1885, a topic on which there are few compelling
hypotheses or any consensus (see Osafo-Kwaako and Robinson 2013 on the dearth of ex-
planatory hypotheses on comparative political centralization). This issue would have to
be tackled if our aim were to produce real causal evidence of the impact of colonialism.
We do not pretend to do that here. Our aim is rather to provide a way of thinking about
the issues and draw some preliminary, highly speculative conclusions in order to provoke
future research.
7. Gennaioli and Rainer (2007), Heldring (2014), Michalopoulos and Papaioannou (2013),
and have further shown that precolonial political centralization is positively correlated
with public good and development outcomes today in Africa.
8. Ths view is definitely not uncontroversial; see Thornton (1992) and Jerven (2010).
9. Of course Africans were working in the “European economy” as well, not just the “African
economy” (the Bantustans), but the idea here is that the value of the marginal produc-
tivity of labor in these economies pinned down the wage in the European economy since
it was the outside option (Lundahl 1982).
10. Bates (2014) makes the opposite argument, that warfare in precolonial Africa was impor-
tant in state formation, so that by stopping warfare the colonial powers inhibited state
formation.
11. To give a Latin American example, the Spanish took over the tribute systems of indige-
nous states such as the Incas, by far the most organized in the Americas, yet the evidence
is that they were able to make the institutions considerably more extractive than they had
been during the Inca period.
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Department of Economics, Working Paper 236.
Chapter 17
Investment a nd De bt
Layna Mosley
Like trade liberalization, financial liberalization has distributional consequences within de-
veloping countries: some groups within society gain from an increased capacity to access
international capital markets, while others—especially owners of scarce domestic capital—
earn lower returns when international capital is available. Financial openness also can subject
governments, who often aim to issue debt on global markets, to stronger market discipline;
such discipline may prevent profligate monetary and fiscal policies. But, should investors’
policy expectations differ from those of political parties and domestic citizens, this market
discipline can serve to restrict the autonomy of national governments to pursue domestically
oriented goals. Moreover, financial openness exposes governments, firms, and individuals to
externally induced volatility: when global markets are flush with capital, this can mean lower
costs of borrowing and fewer constraints on policy choice. But, when global capital markets
contract, or when crises spread from neighboring countries, developing countries can face
sharp increases in interest rates or dramatic decline in the supply of credit.
Both the causes and the consequences of financial integration are, therefore, of interest
to scholars of international and comparative political economy. In this chapter, I discuss the
political determinants as well as the effects of financial openness in low-and middle-income
economies. In discussing the determinants of openness, I note how the general trend toward
financial liberalization has its roots in external as well as domestic factors. In considering
the effects of financial openness, I focus mostly on the autonomy of national governments,
rather than on other important outcomes, such as economic growth and development. I also
point out that the effects of financial integration vary with the type of capital flow (e.g., short-
term versus long-term investment), as well as with the domestic interests and institutions
that exist in recipient nations. I conclude by discussing several research questions that relate
to global capital flows, but that have not been adequately addressed by researchers.
Trends in Financial Openness in the

Developing World
Contemporary capital markets are, especially by historical standards, quite liberalized: many

types of investment easily flow from one country to another, and many governments pursue
Investment and Debt 329
policies aimed to attract, rather than to limit, foreign capital inflows. These governments
also allow their citizens to invest not only at home, but also abroad. This movement toward
liberalization, which began in developed nations in the 1970s,1 has been facilitated by tech-
nology (which enables the rapid movements of assets across national borders, and which
can make restrictions on capital flows more difficult to enforce) as well as by governments’
policy choices. In the late 1980s and 1990s, many governments of low-and middle-income
countries liberalized their rules regarding international capital flows, making it easier for
investors to enter and exit. These liberalizations came not only in response to economic
crises and external pressures for structural adjustment, but also in response to domestic
ideational changes and political incentives.
Partly in response to these regulatory changes, private capital flows to developing
nations have increased markedly during the last two decades. In most regions of the
world, private flows outstrip official flows. In many instances, the composition of these
capital flows has shifted away from debt and toward portfolio equity and foreign direct
investment (FDI). At the same time, particularly in the first half of the 2000s, spreads
on developing country sovereign debt declined markedly, facilitating lower-cost public
sector borrowing.
Empirical Patterns
A brief summary of the trends in financial liberalization, both de facto and de jure, illustrates
this trend (also see IMF 2012, fig. 1). Figure 17.1 illustrates the trend in legal openness to in-
ternational capital flows, across groups of countries.2 This figure displays the average level
of openness, by country-income category, according to the Chinn-Ito index. The measure
(Chinn and Ito 2008) is based on the binary coding of restrictions in the International
Monetary Fund (IMF)’s Annual Report on Exchange Arrangements and Exchange
Restrictions. The Chinn-Ito index focuses on four dimensions of restrictions: the existence
of multiple exchange rates, restrictions on the current and capital accounts (where the latter
are measured as the proportion of the last five years without controls), and requirements to
surrender export proceeds.3 The index has a mean of zero and ranges from –2.66 (full cap-
ital controls) to 2.66 (complete liberalization).
Figure 17.1 illustrates the general movement away from capital controls, and toward fi-
nancial liberalization, during the last four decades.4 While the move toward liberalization
has gone furthest in high-income countries, there also has been a significant shift toward
openness in middle-income nations. Among low-income countries, financial liberaliza-
tion has, on average, occurred at a slower rate and to a lesser extent. In 2009, then, the
average openness score for OECD nations was 2.1 (where 2.66 is full openness to capital
flows), compared with 1.3 for high-income non-OECD countries, 0.46 for upper-middle-
income nations, 0.03 for lower-middle-income, and –0.45 for low-income countries. In all
cases, this represents increased liberalization since 1970 (where, for instance, the average
low-income country score is –0.81); but it also highlights the fact that legal capital account
liberalization has occurred unevenly across countries. Indeed, within these broad groups
of countries, we also observe significant differences: the 2009 Chinn-Ito scores for low-
income countries range from –1.8 (including Angola, Burma, Burundi, and Guinea) to 2.5
(including Haiti, Liberia and Uganda), with a standard deviation of 1.47. The variation is less
330 Layna Mosley
2.5
1.5
1 High income OECD

High income non-OECD
0.5 Upper middle income
Lower middle income
0 Low income
–0.5
–1
–1.5
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
Figure 17.1 Legal capital account openness 1970–2009
pronounced (standard deviation of 0.87) for high-income countries, but scores still vary,
from –1.1 (Iceland) to 2.5.
It also is important to note that general trends in financial liberalization obscure differences
across countries (as well as across different types of capital flows, as I will discuss). Despite
China’s large and growing role in the global economy, its government continues to im-
pose numerous investment restrictions, especially where shorter-term portfolio market and
banking flows are concerned. These restrictions may have served to insulate China from the
regional financial crises of the late 1990s, and they can render the government’s efforts at
economic management more effective. But they also stand in contrast to the more general
trend in developing nations, as well as to China’s engagement with global trade markets and
with longer-term investment.
Additionally, while the long-term policy trend has been toward the liberalization of na-
tional investment restrictions, it also is noteworthy that crises do not always induce liber-
alization: in the recent global financial crisis, many countries increased the restrictiveness
of their policies toward foreign direct investment, imposing performance requirements and
equity restriction on foreign investors (UNCTAD 2012). As the global recession eased, so
did these policies; but it would be a mistake to assume that governments’ political incentives
regarding investment policy are always in a liberalizing direction.
Although de jure measures of financial liberalization are indicative of trends in finan-
cial liberalization, they also can suffer from inaccuracies, especially when there is a high
degree of evasion of legal controls on capital flows. Additionally, given the way in which
most de jure measures of liberalization are compiled (summing a set of binary measures
of restrictions), such indices may obscure significant variation across asset types. De facto
measures, on the other hand, may be plagued with statistical inaccuracies, particularly for
countries with underdeveloped statistical systems.5
But despite the problems associated with measuring de facto capital flows accurately in
developing nations, the consensus among scholars is that these flows have increased mark-
edly during the last three decades. Lane and Milesi-Ferretti (2007), for instance, employ
national estimates of international investment positions, along with data from interna-
tional sources, to construct a data set measuring countries’ foreign assets and liabilities. The
resulting measure of de facto openness, available for 145 countries, is the ratio of foreign
assets plus foreign liabilities, scaled to GDP. Figure 17.2 displays the average levels of this
measure, again grouped by country-income category.
By this measure as well, global financial integration has increased markedly over the last
four decades, but again with variation across nations. In high-income OECD nations, the
ratio of assets and liabilities to GDP is 0.66 in 1970, 1.44 in 1990, and 5.29 in 2007. Low-and
lower-middle-income countries start with relatively low levels of integration in 1970 (0.35
and 0.54, respectively); the ratio grows significantly by 1990 (1.50 and 2.33). What is inter-
esting to note, however, is that capital market integration in these countries is lower, on av-
erage, by the end of the period, with a mean of 1.47 for lower-middle-income countries, and
of 1.28 for low-income countries, in 2007. Upper-middle-income countries also experience
an increase over time in integration, albeit only to a 2007 average level of 1.82 percent of
GDP—far less than that of the high-income (OECD or non-OECD) nations. What we see
from both de facto and de jure measures, then, is a picture that suggests significant variation
in financial openness among countries and groups of nations, against a backdrop of general
increases in financial globalization.
More generally, investors’ decisions about asset allocation take into account factors that
go beyond relative rates of return. Certainly, many capital-poor nations are in need of in-
vestment; but, in many instances, the risk—political and economic—associated with such
5 High income OECD

High income non-OECD
4 Upper middle income
Lower middle income
3 Low income
0
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
Figure 17.2 Assets and Liabilities/GDP, by Group

332 Layna Mosley
locations offsets the potential for returns. When investors worry about the security of the
property rights to their foreign direct investments, or about the potential for a macroeco-
nomic collapse, they will be less willing to invest in high-return locations. Indeed, a large
body of research suggests that, at least at the country level, differences in political risk and
political regimes significantly affect the types and amounts of capital inflows (e.g., Jensen
2006). Yet even once we account for differences in risk, we find that global capital flows re-
main concentrated in a relatively narrow set of high-and middle-income recipients; many
lower-income nations continue to receive less foreign capital than an efficient, risk-adjusted
allocation strategy would suggest.
The Rise of the BRICS?

Furthermore, despite what neoclassical theories might predict, capital does not always flow
“downhill”—that is, from rich to poor nations. The most notable imbalance in the con-
temporary global economy involves a persistent U.S. current account deficit; this deficit is
offset by a capital (investment) account surplus, wherein more capital flows into the United
States than flows out. At the same time, China’s imbalance runs in the opposite direction: a
current account surplus (reflecting greater export earnings than import earnings) and a
capital account deficit (net flows of capital from, rather than to, China).6
The recent global financial crisis also led to an increasing role of developing countries—
especially middle-income ones—in receiving longer-term foreign investment (as well, in
some cases, as sending foreign direct investment). In 2011, developing economies accounted
for 45 percent of global FDI inflows, with net flows setting a new record (UNCTAD 2012).
These flows were concentrated in Asia and Latin America; FDI flows to low-income as well
as African nations instead continued a downward trajectory. Note, as well, that 23 percent
of global FDI flows originated in developing nations in 2011. This marks the continuation of
a trend that began in the wake of the Great Recession and the European debt crisis, when
FDI flows from developed nations slowed. As countries such as Brazil and China experi-
enced high levels of growth, and as firms and governments in these nations sought access to
resources abroad, their importance to overall direct investment grew.
More generally, the rise of the BRICS countries (Brazil, Russia, India, China, and
South Africa) raises the possibility of delinkage in the global financial system, in which
the connections between developed and developing nations become less pronounced,
and in which large developing countries come to serve as alternatives (in terms of is-
suing key currencies or attracting large financial system deposits) to the United States
(and, with respect to banking, to the United Kingdom). Indeed, the announcement in
early 2013 that the BRICS countries intend to create their own development bank, for
instance, highlights the possibility of “new donors” reducing the influence (via condition-
ality) of traditional donors and existing international financial institutions on borrowing
governments’ policies (also see Woods 2008). And, as large developing nations accu-
mulate reserves (as several countries have done in recent years), they both reduce their
potential need to borrow from traditional donors and their capacity to exercise leverage
by investing these funds. Yet the latter suggests continued linkage: China’s reserve ac-
cumulation, for instance, has largely involved the purchase of dollar-denominated U.S.
Treasury securities, rather than reserve assets from other developing nations. Although
some observers posit that these holdings allow China’s government to exert enhanced
leverage vis-à-vis the U.S. government, they also suggest a continued relationship of mu-
tual economic dependence between the United States and China—not something that
would indicate “delinkage.”
The emergence of China or other BRICS as alternative financial leaders in a regional or
global sense also seems a distant possibility: China and India have yet to open up their cap-
ital accounts to the degree that would represent a high or even moderate level of financial
internationalization (IMF 2012), nor have they developed stable and deep internal financial
markets, or the credible regulatory structures that accompany them. Hence, their “fitness”
as potential leaders, and their likelihood of convincing other countries to develop “prefer-
ential attachments” to their currencies (as reserve assets) and financial systems, seems low
(see Oatley et al. 2013). To become real alternative centers of finance, the BRICS countries
would need to convince other countries—and firms and investors in these countries—to
radically reorient their asset-allocation behaviors. Rather, it is likely that the U.S. dollar
will remain the key currency for transactions globally (Cohen and Benney 2012; Fields and
Vernengo 2013; also see Eichengreen 2011), and that the financial systems of the United
States (and to a lesser extent, the United Kingdom) will remain firmly at the center of the
global banking network—in which the BRICS countries’ presence appears small or nonex-
istent (Winecoff 2013).
The Domestic Political Economy of Openness

How do we explain the general trend—as well as the notable exceptions—toward finan-
cial openness? Political scientists have considered the influence of both international
and domestic factors on governments’ decisions regarding whether and how to liber-
alize. Particularly in the developing world, governments’ moves toward openness reflect a
later embrace, in the 1980s and 1990s, of neoliberal-oriented development strategies. The
success of export-oriented industrialization in Southeast Asia, as well as the shortcomings
of import-substitution industrialization in Latin America, facilitated this embrace. And, in
at least some cases, citizens of developing nations began to privilege low inflation and ec-
onomic stability, despite the painful adjustment process associated with economic reform
(Armijo 1999; Weyland 1996).
More generally, certain groups within societies benefit from financial liberalization and
therefore advocate for such policies. While financial-sector firms in developing countries
tend to oppose liberalization, as this generates increased competition and reduces their
returns, firms in other sectors benefit from the wider availability of capital. The domestic
political voice of the beneficiaries of openness often increased in response to balance of
payments crises, leading some to suggest that crises are a precondition for financial liber-
alization (e.g., Haggard and Maxfield 1996). Financial crises also have tended to reduce the
politically privileged position of domestic banks, as we observed in various Southeast Asian
nations during the late 1990s (also see Pepkinsky 2013).
While not all governments that have liberalized their policies vis-à-vis foreign capital
have done so in response to severe economic crises, it certainly is true that the political
motives for economic openness have often been external as well as internal (Brooks and
Kurtz 2007; Mukherjee and Singer 2010; Quinn and Inclan 1997; Quinn and Toyoda 2007).
334 Layna Mosley
In many cases, the reduction of trade barriers and the liberalization of capital markets were
mandated by IMF structural adjustment programs (e.g., Stone 2002; Vreeland 2003). And
even when this was not the case, explicit pressure from the U.S. government, private fi-
nancial markets, the IMF, and the World Bank—as well as the diffusion of neoliberal ec-
onomic ideas—helped to drive governments toward greater economic openness (e.g.,
Chwieroth 2009; Simmons and Elkins 2004). Therefore, the most recent generation of work
on the politics of liberalization suggests an interaction between domestic and international
factors, and it suggests that international influences on diffusion extend beyond direct ma-
terial pressure to learning from peer countries’ experiences with openness (Brooks and
Kurtz 2007).
This body of work also might provide insights about why low-income nations have been,
on average, less likely to liberalize than their middle-income counterparts. If greater inflows
of private investment are the attraction of liberalization, but if private investors tend to
avoid those countries with very weak economies or with institutional shortcomings, then
the incentive to reform also are reduced. That is, the potential supporters of reform may not
coalesce as a political coalition, as they will anticipate few benefits from pushing for such
a change. And yet, if liberalization sometimes spurs institutional reform (thereby lowering
perceptions of investment risk), then these countries will be caught in reform trap: without
reform, the benefits of liberalization will not obtain; but without liberalization, reform is
less likely.7
Finally, governments that undertake liberalization may sequence it in different ways.
The IMF, as well as many other observers, have taken the view that liberalization of
longer-term flows should precede shorter-term liberalization. The logic is that “footloose
capital” exposes developing nations to a greater risk of currency, banking, equity, or debt
crises, while longer-term direct investment offers a more robust association with eco-
nomic growth. Yet only about half of the countries worldwide liberalize in this pattern,
liberalizing FDI earlier than portfolio investments. The other half of countries do the
opposite—first liberalizing short term, and then liberalizing long term, capital flows
(IMF 2012).
This suggests that, politically, many governments find themselves facing different
incentives for liberalization. Pepkinsky (2013), for instance, argues that domestic financial-
sector actors tend to favor capital account openness, because this allows them to serve
as intermediaries between foreign capital and domestic borrowers. Capital- account
openness provides them with access to cheap foreign capital, which they then lend to
domestic borrowers, capturing interest rate charges as profits. At the same time, how-
ever, domestic financial institutions want to avoid direct competition with foreign finan-
cial institutions: they do not want foreigners to be able to own or operate local financial
institutions. Therefore, where financial sectors are powerful, we are more likely to observe
the combination of capital-account liberalization and continued restrictions on foreign
ownership. Along similar lines, but considering foreign direct investment more broadly,
Bauerle Danzman (2013) argues that, in countries that first pursue liberalization of short-
term capital inflows, the effects of such liberalization efforts can generate greater oppo-
sition to the future reduction of barriers to long-term flows. As such, we may observe a
partial reform equilibrium, in which the effects of earlier reform make later reform less
politically palatable.
The Economic Consequences of Openness
For those nations that have effected significant increases in integration with the global fi-
nancial system, what are the consequences? Financial globalization offers both benefits and
dangers to governments and their citizens. The reduction of barriers to the cross-border
flow of investment allows for a more efficient allocation of capital: neoclassical economics
suggests that capital should flow from capital-rich to capital-poor locations. These flows
allow investors to earn higher returns (given the relatively scarcity of investment in des-
tination locations); these flows also allow individuals, firms, and governments to reap the
benefits of an expanded capital base.
Over a decade ago, however, in the wake of the East Asian financial crises, many observers
noted the dangers associated with rapid capital-account liberalization in developing nations.
Of course, this was not the first crisis that had revealed the dangers created by cross-border
capital flows; the East Asian crisis, however, was different from the 1980s debt crises in Latin
America and beyond. The Asian countries generally had balanced (or nearly balanced) gov-
ernment budgets; it was private-sector entities (especially banks), rather than governments,
that did the bulk of the borrowing on international capital markets. Current account deficits,
overvalued currencies, and weakly regulated financial institutions characterized East Asia’s
crisis-hit nations.8 Some analyses of the Asian financial crisis focused on the general perils
of capital-account openness, in terms of the volatility of shorter-term investment; the pref-
erence of international investors and the IMF for one-size-fits-all reforms (i.e., Stiglitz
2002); and the propensity for contagion, given the information-gathering tendencies of in-
stitutional investors (i.e., Calvo and Mendoza 2000). Other analyses focused specifically on
the dangers of premature capital-account liberalization.9
These studies relate to a wider literature that investigates the benefits, mostly in terms of
economic growth, of capital-account openness (see IMF 2012 for a summary). The main
focus of this literature has been to establish whether, or under what conditions, financial
liberalization facilitates growth, by ensuring the efficient global allocation of capital. This
literature is generally characterized by mixed findings: under some conditions, certain types
of capital flows are associated with increased rates of growth (Kose et al. 2006), but this as-
sociation does not always obtain.10 Some studies find small or even nonexistent effects on
growth in developing nations. One explanation for the mixed findings is empirical: some
studies rely on de facto measures of capital account liberalization, while others employ de
jure measures. The latter tend to find more positive effects. The country and year coverage
of studies also varies significantly.
Another, more important explanation for the differences in findings relates to the varying
effects of different types of capital flows. Studies that distinguish among portfolio flows,
bank lending, and direct investment find that FDI has the greatest positive impact on
growth (Agenor 2001; Dobson et al. 2001). Indeed, we can expect that foreign direct in-
vestment is more stable, leading to greater positive effects on growth, and perhaps to the
transfer of technology and expertise.11 Or, put differently, all types of investors react to ec-
onomic outcomes as well as to political institutions; because foreign direct investment is
less liquid than portfolio investment, however, its considerations of these factors happen
before an investment is made. Foreign direct investment therefore exerts significant ex
336 Layna Mosley
ante influence on government policy; but it is less likely to react to policies or economic
outcomes ex post.12
But note, as well, that some types of foreign direct investment are more “footloose”
than others: where FDI does not require a significant investment in capital equipment
(as in lower-technology production), or when a multinational corporation (MNC) has
made a decision to diversify its foreign operations, producing components in or sourcing
from a range of countries, it is better able to use the threat of ex post relocation to ex-
tract concessions from host-country governments. Hence, the relationship between host
governments and foreign multinationals may resemble less of an “obsolescing bargain”
model (Kobrin 1986) and more of a “political bargain” one (Eden et al. 2005), in which
firms can make various demands on actual and potential host country governments. Firms
in the United States with FDI projects that are more mobile, for instance, tend to pay fewer
corporate taxes abroad (Jensen 2013).
Investors in shorter-term assets may be more inclined than foreign direct investors to exit
national markets—or to sharply increase risk premiums—in response to concerns about
political or economic instability (e.g., Ahlquist 2006). And these portfolio market investors
may be driven as much by external “pull” factors (i.e., global capital-market liquidity,
developments in U.S. capital markets) as by internal, country-specific factors (Mosley
2003; Wibbels 2006). While high returns in emerging markets may tempt investors during
periods of global market liquidity and pronounced risk appetite, these same investors may
rush toward the safety of developed markets when liquidity contracts or when a prominent
borrower defaults.13 The worry, then, is that developing-country governments may come to
depend on global capital markets for financing a significant portion of public (and perhaps
private) consumption, with the price and volume of these capital inflows being volatile—
and that, in some cases, even governments that pursue appropriate economic and regula-
tory policies may fall victim to sudden stops and reversals of capital flows.
Indeed, while financial globalization may offer developing countries greater access to
resources and higher levels of growth, it also brings with it a higher likelihood of crisis.
Reinhart and Rogoff (2009) document the regularity of banking, currency and sovereign
debt crises across many centuries. Conceição (2003) reports that between 1975 and 1998,
there were 116 currency crises, 42 banking crises, and 26 twin (banking and currency)
crises in emerging market countries. These crises were associated with cumulative output
losses between 5 and 19 percent of annual GDP. Similarly, Dobson et al. (2001) estimate
that banking and financial crises cost Latin America 2.2 percent of annual GDP during
the 1980s, and cost East Asia 1.4 percent of annual GDP during the 1990s. More generally,
several recent studies hint at a strong, negative relationship between financial volatility and
economic growth. And, as the East Asian crisis demonstrated, it is the poor—who lack so-
cial safety nets and personal savings—who often bear the brunt of financial crises and post-
crisis contractions. The risks of capital-account liberalization stem partly from domestic
policy mistakes, but also from instability in capital markets. Investment flows to developing
nations tend to be volatile, with some periods of great enthusiasm and availability of funds,
and other periods of pessimism and credit rationing.
Beyond the difference in the effects on growth of FDI versus portfolio investment, other
studies suggest that—within the general category of portfolio capital—equity flows tend to
be more stable than debt flows. They are, therefore, more likely to have positive and sus-
tained effects on economic growth (Kose et al. 2006; also see Mosley and Singer 2008).
And, within the fixed-income market (debt), borrowing at shorter maturities or in foreign
currencies may result in lower financing costs for governments; however, such strategies also
expose governments to exchange-rate and rollover risk (Eichengreen and Hausmann 2005).
All else being equal, then, developing nations may experience more of the benefits from
financial liberalization when they attract longer-term rather than shorter-term capital flows.
Indeed, just as we observe pronounced cross-national and over-time variation in the level
of financial liberalization, we also observe diversity in the types of capital flows that coun-
tries receive (Maxfield 1997). Comparing data on the relative balance between portfolio and
foreign direct investment in a country’s asset profiles reveals these differences. Figure 17.3
uses data from Lane and Milesi-Ferretti (2007); I calculate the ratio between portfolio assets
and FDI. The figure demonstrates the increasing role of portfolio (relative to foreign direct)
investment: in 1977, portfolio investment was 3.1 times as large as FDI in OECD nations; by
2007, the ratio had climbed to 18.7, representing the tremendous growth of equity and debt
(as well as derivatives) markets. In middle-income nations, the ratio also grows over time,
doubling between 1997 and 2007. In low-and lower-middle-income nations, however, port-
folio markets are less important than in wealthier nations. The low ratios between portfolio
investment and FDI likely reflect the challenges associated with developing deep equity
markets, as well as the prevalence of natural resources (which tend to attract large direct
investment flows) in many low-and lower-middle-income economies.
Figure 17.3, of course, obscures significant cross-country variation in the reliance on for-
eign direct investment versus portfolio capital. Among low-income countries, this ratio
(again, for 2007) varies from 0.13 in Mali and 0.38 in Bangladesh, to 2.77 in Niger and 9.7 in
Mozambique. Lower middle-income countries, including Armenia, Belize, and Honduras,
rely mostly on FDI, while Morocco’s, Pakistan’s, and the Philippines’ investments are bi-
ased heavily toward portfolio investment. Along upper-middle-income countries, Algeria’s
external assets and liabilities are comprised almost entirely of FDI (a ratio of 0.003), while
Botswana, Namibia, and Peru are very reliant on portfolio investment (ratios of 53.7, 57.3
and 56.8, respectively).
To some extent, the balance between FDI and portfolio investment in a given country, or
at a given point in time, is determined endogenously by economic factors: if, for instance,
20
18
16
14
12 1977
1987
10
1997
8 2007
6
4
2
0
High income High income Upper middle Lower middle Low income
OECD non-OECD income income
Figure 17.3 Ratio of portfolio assets to FDI assets

338 Layna Mosley
a country has a large endowment of natural resources, but few domestic firms possess the
capacity for capital-intensive extraction, it may be likely to attract large amounts of foreign
direct investment. Alternatively, a country with many successful, publicly traded firms will
be more likely to attract equity investment than a nation with a less well-developed stock
market (Lavelle 2004). Or, if a government persistently runs large fiscal deficits and does
not have a large tax base (or substantial revenues via natural resource onwnership), its gov-
ernment bond market may be larger than that of its counterparts (even as it may pay higher
interest rates when issuing these bonds).
Political institutions and events also can contribute to the balance across types of in-
vestment: foreign direct investors, for instance, may avoid locations with weak political
institutions, opting either to invest elsewhere or to enter such markets via arm’s length
relationships, like licensing and subcontracting (Henisz and Williamson 2000; Helpman
2006). More generally, regulations that impose ownership restrictions in certain sectors,
or across the economy, will limit certain types of financial inflows. Countries’ exposures
to global capital markets—in terms of overall levels of openness, as well as asset profiles—
should therefore be understood as a reflection of past policy choices, driven by both do-
mestic and international influences (e.g., Simmons and Elkins 2004).
The effects of capital inflows on growth also may depend on achieving certain
preconditions, especially economic policy stability. Nations that have liberalized trade and
that have solid macroeconomic fundamentals often benefit from capital-account liber-
alization (Edwards 2007; Schneider 2001), in contrast to countries with significant trade
policy distortions and macroeconomic imbalances (Eichengreen 2003).14 Weak and weakly
regulated financial sectors may lack the capacity to absorb, and to benefit from, capital
inflows (Prasad et al. 2007). Weakly regulated domestic banks may be more able to engage
in risky behavior in an environment of financial openness, as they can borrow excessively
from abroad (and then lend imprudently at home), borrow at short maturities (generating
liquidity mismatches between assets and liabilities), or borrow in foreign currencies
(thereby exposing themselves to currency risk).
Opening the capital account in the absence of stable macroeconomies and strong finan-
cial sectors—that is, without regard to sequencing issues—can delay or prevent the reali-
zation of gains from liberalization; premature opening also may make reversals of capital
flows more likely (Kose et al. 2006). This logic may help to account for the fact that, while
many low-and lower-middle-income countries have experienced impressive rates of eco-
nomic growth over the last few decades, these growth accelerations tend to fizzle out, often
in the wake of external shocks (Rodrik 2006). Such shocks include swings in commodity
prices (Wibbels 2006), as well as reversals in financial flows.
For political scientists, these findings are not surprising: political institutions are im-
portant determinants of economic outcomes, either directly or indirectly (in the latter
case, via their effect on the economic and social factors that drive growth outcomes).
And the macroeconomic stability that conditions the effects of capital flows often
depends on political institutions and interests. For instance, countries vary in the ex-
tent to which their monetary authorities operate independently from political leaders,
in de jure as well as de facto terms. And whether national central banks also are re-
sponsible for financial regulation, or whether this duty is handled by another agency,
can have consequences for monetary policy outcomes (Copelovitch and Singer 2008).
Furthermore, the presence and enforcement of banking and financial regulations depend
on choices made by political actors (e.g., Haggard and Maxfield 1996; Rosenbluth and
Schaap 2003; Singer 2007).
Extant research on the economic effects of cross-border capital flows, then, highlights
several lessons for political scientists and policy-makers. First, capital-account liberaliza-
tion may be desirable generally, but the precise form of liberalization that is most effective—
in terms of which asset markets are liberalized first, for instance—depends on the specific
country context. Second, the capacity to regulate adequately the domestic financial sector
may be essential to realizing the benefits of capital-account liberalization. Without ap-
propriate sequencing—ensuring that regulators have the technical capacity and political
independence to effectively supervise local financial institutions, for instance—countries
may not benefit from capital-account openness (Eichengreen 1998). Certain institutional
mechanisms, which allow for the governance of capital inflows (as well as a stable macro-
economic environment), should be in place prior to full capital-account liberalization (see
Kose et al. 2006). Whether such policies are selected and implemented, though, is often a
matter for politics, rather than economics. Indeed, while political scientists have come to
recognize the importance of analyzing the determinants of regulatory choices, they have
thus far done little of this (Helleiner and Pagliari 2011; Mosley and Singer 2009).15
Third, even with appropriate regulatory practices in place, volatility in financial flows re-
mains a possibility. Just as investors may want to diversify their investments in order to limit
their overall profile, governments and local firms may find it desirable to avoid pronounced
reliance on any one type or source of financial inflow. This caveat may be particularly rele-
vant for nations with a high dependence on a single economic sector—natural resources in
some African nations, for instance, or foreign bank operations in the context of some small
Caribbean nations. The issue for governments and societies, then, is not whether or not
to encourage foreign capital inflows and to pursue financial liberalization and innovation;
rather, it is how to pursue foreign capital and when to encourage inward investment.
The Policy Consequences

of Capital-M arket Openness
Beyond their effects on volatility, economic growth, and the likelihood of financial crises,
capital flows also can directly affect government policy decisions and outcomes. The mo-
bility of international capital—and investors’ resulting capacity to make credible threats
of exit—may limit the capacity of governments to implement certain types of (domesti-
cally determined) policies.16 Although capital-market openness provides governments with
greater access to capital, it also subjects them to external market discipline (Armijo 1999;
Obstfeld and Taylor 2004). Governments must sell their policies not only to voters, but also
to (often foreign) investors and financial institutions. Because these investors can respond
swiftly and severely to actual or expected policy outcomes, governments must consider
financial-market participants’ preferences when selecting policies. This logic suggests that
financial openness can diminish the capacity of governments to spend, tax, and regulate.
The simplest version of this argument, and the one has become a favorite straw man
of scholars, is the race-to-the-bottom claim. The race-to-the-bottom logic is grounded in
340 Layna Mosley
the imperatives of cross-national competition (in markets for goods, capital, and services)
and economic efficiency.17 As firms and economies strive to compete in highly integrated
markets, governments find themselves more accountable to external economic agents—and
to cost cutting—than to citizens of the polity. The race-to-the-bottom logic predicts that
governments will become leaner, embracing a neoliberal model of state–economy relations;
those with significant welfare-state policies in place will abandon the post–World War II
“compromise of embedded liberalism.” Governments may, as part of the effort to attract
foreign direct investment, reduce corporate tax rates, weaken domestic labor legislation and
weaken environmental standards. And governments that need to access sovereign credit
markets—or to maintain access to sovereign credit at relatively low rates of interest—must
reassure investors who were concerned with minimizing the risk of sovereign default and
of a loss of real value of their assets (Tomz 2007). Doing so requires monetary restraint, low
levels of debt, and (in some instances) neoliberal-oriented policy reforms.
In these accounts, the prognosis is particularly dim for left-of-center governments
that, the story goes, receive the most unfavorable evaluations from financial-asset holders
(Cerny 1999; Helleiner 1994; Mosley 2003). At the extreme, global markets become mas-
ters of governments, eviscerating the authority of national states (e.g., Strange 1996). This
logic invokes an earlier literature, which pointed to the structural dependence of states
on (domestic as well as foreign) capital (Przeworski and Wallerstein 1988). This “golden
straightjacket” (Friedman 2005; Rodrik 2007) was one in which financial globalization
allowed governments to do many things (thus, “golden”), but also required governments to
foreswear a broad swath of “big government” sorts of policies (thus, the “straightjacket”).
The straightjacket implied a cross-national, downward convergence of government-policy
outcomes, in which governments privileged the need to satisfy international investors over
any sort of domestic policy preferences or demands, and in which cross-national diversity
in government policies was largely eliminated.
Race-to-the-bottom claims are, however, largely apolitical in nature: they offer a very lim-
ited role for domestic institutions and ideology as mediators—or even blockers—of global
market forces. Rather, such claims assume that governments will never choose to resist
market pressures, even when doing so may have domestic political benefits. They assume
that the capacity for exit gives voice to investors (Hirschman 1970) and that this voice al-
ways is louder than that of other actors, including constituencies that favor continued state
intervention in the economy. Such claims also assume that financial-market pressures on
governments are constant over time and across countries—that investors will always react
strongly, for instance, to the expansion of social spending. And the race-to-the-bottom
logic assumes that all firms are motivated by the same factors; in reality, however, some
multinationals may be more concerned with the quality, rather than the cost, of labor, or
with the provision of high-quality infrastructure, rather than with low corporate tax rates.
Frustrated by the apolitical nature of the race-to-the-bottom prediction, and asserting
the impact of domestic political institutions and histories on government policy-making, a
generation of scholarship in comparative and international political economy sought to de-
termine whether or not, and under what conditions, financial openness generated changes
in government-policy outcomes. The findings of this scholarship are large and varied, but
some general patterns emerge.
First, the relative power of markets versus governments varies across types of coun-
tries. In developed democracies, welfare- state policies often have powerful domestic
constituencies that support (and benefit) from them; governments, especially those of the
center-left, may be inclined to retain such policies, even in the face of economic openness
(Huber and Stephens 2001). These inclinations are reinforced by trade openness, which can
generate greater domestic demands for protection from externally induced volatility—the
“compensation” mechanism with has its roots in post–World War II embedded liberalism
(Burgoon 2001). Moreover, the competition to attract longer-term investment may have
generated some pressures for convergence in tax policies, but this competition is mediated
by domestic institutions (Basinger and Hallerberg 2004); the convergence that occurs may
be more toward the middle, rather than toward the bottom (Cao 2010; Hays 2003; Plümper
et al. 2009). More broadly, if we assume that different types of direct investors have different
preferences over policy—for instance, some are seeking low-cost labor, while others are in-
terested in higher-skilled labor—then there exists space for institutional diversity within a
globalized economy (Mosley 2011; Rogowski 2003).
In the specific area of sovereign debt, investors have tended to assume that wealthy, es-
tablished democracies are very unlikely to default on their sovereign debt. This assumption
led investors to look only at overall macroeconomic outcomes when deciding whether to
invest in such countries (Mosley 2003). Because these countries were free from the “original
sin” that tainted emerging market sovereign debt (Eichengreen et al. 2005), governments
of developed democracies also could borrow in their own currencies, at relatively long
maturities. These features served to insulate such governments somewhat from shifts in
market sentiment, and they facilitated the continued cross-national divergence in many
policy areas. Of course, from 2009, this assumption was called into question in some
Eurozone countries: although the roots of Greece’s, Ireland’s, Italy’s, Portugal’s, and Spain’s
respective economic troubles were diverse, investors worried about their overall public-
debt levels, as well as about the commitment by other European nations to come to their
rescue if need be. The results, especially from 2009 to 2011, were widening spreads among
Eurozone sovereign borrowers. These governments, however, had benefited markedly from
low sovereign borrowing rates with the advent of the European Monetary Union (EMU);
market pressures came to the fore only after a decade of interest-rate convergence.
Second, scholarship on sovereign debt also suggests that the pressures generated by ec-
onomic globalization—finance as well as trade—are particularly pronounced for low-and
middle-income countries. Many of these countries were tainted not only by being identified
as developing countries, but also more specifically by their legacy of debt accumulation and
debt crises. In the poststructural adjustment era of the 1990s, these governments were able
to access international capital markets, but they did so with much greater scrutiny from
investors. Sovereign bond investors worried about default and currency as well as infla-
tion risk; this meant sustained attention to a wide array of government policies (a “broad”
financial market constraint; see Hardie 2006; Mosley 2003) as well as the frequent need
to borrow in foreign currencies and at shorter maturities. Kaplan (2012) argues that polit-
ical leaders in Latin America became more constrained in the 1990s, with the shift from
bank-based to bond-based finance: sovereign bondholders, able to threaten exit quickly,
and without regard for retaining market share in the local sovereign lending market (Devlin
1989), constrained leaders’ capacity to engineer preelection economic booms. This limita-
tion, combined with change in the electorate’s sensitivity to inflation, meant changes in the
political business cycle. Other scholars have found that, especially for developing nations,
the availability of sovereign finance depends not only on country-specific factors, but also
342 Layna Mosley
on global-market conditions: When times are good, capital is cheap and available. But when
global risk aversion strikes, even borrowers with strong fundamentals will find themselves
facing an increase in their borrowing costs. The role of these external, or “push,” factors
in determining sovereign interest rates suggests that “sovereign” risk is often not entirely
under the control of national governments (Eichengreen and Mody 2000; Wibbels 2006);
on risk premia connections among peer groups of countries, see Brooks et al. (2013).
It is worth noting, however, that not all governments of developing countries need to
borrow, or need to borrow to the same degree, on international capital markets. Those
governments with more modest borrowing requirements will experience fewer market-
based pressures. Large natural resource endowments, for instance, can be a source of insu-
lation for governments: Campello (2013) argues that, while leftist Latin American leaders
in countries without resource endowments have experienced pressure from bond and
stock markets, these pressures have been somewhat absent from resource-rich nations.
Of course, this effect depends not only on the size of the resource sector, but also on the
world price of commodities: if prices are low or fall sharply, these governments may find
themselves more in need of sovereign credit. Given the recent levels of demand for var-
ious commodities, however, resource-reliant countries have been able to avoid some bond
market–based pressures. Indeed, we could imagine that, for resource-rich nations, high
global commodities demand (often driven by BRICS nations) reduces not only the influ-
ence of private foreign investors, but also the influence of Western aid donors and interna-
tional financial institutions (Woods 2008).
More generally, financial flows to developing nations are more volatile than those to rich
countries; in terms of cross-national convergence, economic globalization was associated
with reductions in public spending (Rudra 2008; Wibbels 2006). While less-skilled workers
represent the abundant factor in most developing nations, they often have been unable to
capture fully many of the gains from economic openness (Kaufman and Segura-Ubiergo
2001; Rudra 2002). In general, workers in developing countries have been less able than
their developed-nation counterparts to mobilize politically to prevent some reductions in
social spending. Yet most scholars of comparative political economy maintain that, even
among developing countries, the pressures generated by financial openness do not over-
whelm entirely the influence of domestic institutions and ideology (Avelino et al. 2005;
Brooks 2009; Kurtz 2004; Plümper et al. 2009). This is particularly true of democratic
regimes, where (again) the need to insulate voters from the volatility induced by the global
economy may outweigh the competition-based demands for reduced government interven-
tion (Adserá and Boix 2002; Brooks 2002; Rodrik 2007; Rudra and Haggard 2005).
Third, if we turn to longer-term direct investment, and to the relationship between multi-
national firms and national governments (potential or actual host countries), we find a sim-
ilarly mixed picture: foreign direct investment brings benefits to host economies, but it also
can serve to exert pressure on policy choices, especially in capital-poor developing nations.
In the 1970s, scholars from a variety of perspectives pointed to the imbalance in bargaining
power between foreign firms and host governments (e.g., Cardoso and Faletto 1971; Evans
1971; Moran 1974). These imbalances, which should generate pressure on governments for
policy convergence, are likely most pronounced when firms are efficiency-seeking—that is,
when their primary reason for relocating is to lower their production costs (rather than to
access a given consumer market or natural resource endowment). Silver’s (2003) analysis of
labor protest and capital movements in the automobile and textile industries reveals that, in
the late nineteenth and the twentieth centuries, firms that experienced high levels of strike
activity responded by moving production abroad.
Beyond the possibility that it will enable firms to avoid labor protest, FDI allows cost-
motivated direct investors to take advantage of cross-national differences in productivity,
agglomeration, and the costs of various inputs (Markusen 1995; Navaretti and Venables
2004). The latter could include labor, as well as taxation and environmental regulation. Of
course, “cost” often is a broad category, encompassing not only labor and infrastructure
costs, but also the availability, productivity, and skill of labor; the structure of corporate tax-
ation; and the availability of suppliers in complementary sectors. There is little evidence that
one single cost-related consideration drives investment decisions; for instance, most studies
report that tax avoidance alone does not motivate direct-investment flows (i.e., Markusen
1995). Likewise, Cooke and Noble (1998) assess the impact of various labor-related measures
on U.S. parent firms’ direct investments in 33 industrialized and developing nations. They
find that high-skill, high-wage countries are most effective at attracting FDI, even in the
presence of restrictions on employee layoffs and the centralization of collective bargaining.
Similarly, another recent study of U.S.-based MNCs finds that wages and the industrial-
relations system of host nations has a significant influence on firm locations (more flexible
systems are positively related to FDI), but that the magnitude of this influence is much
smaller than that of host-country market size (Bognanno et al. 2005).18
The race-to-the-bottom concern also has been expressed with respect to longer-term di-
rect investment. Activists and scholars point out that national governments, keen to attract
FDI, may limit the rights of workers and the enforcement of environmental regulations.
And, to the extent that the observance of internationally recognized workers’ rights increases
employers’ wage and nonwage costs, governments may be tempted not to provide, or not
to enforce, such rights. Again, however, evidence for this claim is scant: it often is unclear
whether workers in low-and middle-income countries labor under difficult conditions be-
cause of the presence of foreign direct investment or because of domestic institutions or a
low level of domestic socioeconomic development.
Indeed, many studies have documented the existence of a wage premium in foreign-
owned factories: direct investors tend to hire at the top end of the local labor market and
to have more advanced technologies. As a result, workers in equivalent industries and
jobs tend to earn more when employed by a multinational corporation (see Feenstra and
Hanson 1997; Flanagan 2006). Moreover, firms may sometimes have incentives, emanating
from shareholder or consumer pressure, to adhere to internationally recognized labor and
environmental standards (Greenhill et al. 2009). They may bring their best practices with
them from abroad (Garcia-Johnson 2000), or they may encourage their subsidiaries, and
even their local suppliers, to adopt more stringent, internationally recognized standards
(Prakash and Potoski 2006, 2007). Under some conditions, then, we might even expect
foreign direct investment to promote a “climb to the top” in environmental and labor
standards.19 Recent analyses of the link between labor rights and foreign direct investment,
for instance, report a positive—rather than a negative—effect (Mosley 2011).20
To summarize, extant research on the consequences for government policies of inter-
national investment flows offers a very mixed picture: low-and middle-income nations
generally are more susceptible to pressures from investors than their developed-nation
counterparts. But even among developing nations, pressures from international investors
are often mediated by domestic political interests and institutions, as well as by resource
344 Layna Mosley
endowments. Political leaders may face conflicting pressures, some from external capital
markets (and international financial institutions) and others from domestic interest groups.
In some cases, particularly in the midst of economic and financial crises, or in periods
of commodity shocks, external influences dominate the policy=making process. In other
cases, however, the key determinants of policy outcomes are largely domestic. Extant lit-
erature also points to, but does not explore fully, variation in financial market pressures
on government policies. Although some work is sensitive to variation across countries
(contrasting developed with developing country governments, for instance), there also is
variation over time (depending on the state of the global financial system) as well as across
investors. In the final section, I discuss these types of variation and their implications for
future research.
Toward a Deeper Understanding of

the Politics of Investment and Debt
Variation over Time
Financial history suggests that investor sentiment ebbs and flows. Investors sometimes
look closely at (or ignore) economic fundamentals and government-policy positions (e.g.,
Devlin 1989). When global liquidity is high, governments and firms will have easier access
to capital markets, with less scrutiny from investors, as in the mid-1990s and again in
2006 and 2007). When global liquidity contracts, however, access to borrowing is limited
by more cautious sentiment among international investors. At the extreme, this “flight to
quality” leads to credit rationing for many—especially riskier—borrowers. Kindleberger
(1978) notes that financial markets are sometimes in a state of mania, at other times in a
state of panic, and at still other times in a state of “normal” operation. The latter category
may be most akin to the portrayal of financial markets as “efficient,” correctly pricing all
available information.
But many periods do not fall into the “normal” category, and this has implications for the
influence of capital markets on government-policy decisions. For sovereign borrowers, var-
iation over time in global-market conditions means that the (interest rate and credit access)
costs associated with a given policy (for instance, a high level of debt, or a generous public
pension system) vary over time. When global liquidity is high, even borrowers with “ques-
tionable” policies can get credit at low rates of interests. But, in periods of low liquidity, even
the “prettiest” (to invoke Keynes’s “beauty contest” analogy) borrowers may find themselves
unable to tap global credit markets. Variation in market moods can accentuate pressures for
convergence (in the wake of panics, governments may try even harder to please investors)
or for divergence (when global liquidity is high, governments will be more able to pursue
divergent policies). One implication of this variation is that governments may decide to
build up their reserves in order to self-insure against such swings in market sentiment, as
many Asian nations did in response to that region’s 1997–1998 financial crisis.
Yet, in analyzing the implications of capital-account liberalization for government-

policy choices, scholars have not fully accounted for variation over time in market sen-
timent. Certainly, some have noted that developing countries are more exposed to the
influence of external factors than their developed-country peers. In particular, the United
States has long—by virtue of the U.S. dollar’s attractiveness as a reserve asset—been able
to access capital markets at rates of interest that are low relative to its debt profile (Cohen
1998; Eichengreen 2011; Schwartz 2009). Thus far, though, those who have noted such
distinctions usually draw them cross-sectionally (between types of countries), rather than
diachronically (within a certain set of countries, varying over time).
To capture this type of variation, analysts need to appreciate that the effects of many in-
dependent variables (measures, ultimately, of “the rules” used by investors) on sovereign
borrowing costs are conditional on investors’ underlying risk attitudes. Including global-
market conditions as a control variable in statistical analyses is an insufficient empirical
fix for this fact: it is not only that global market conditions are an important independent
variable, but that the effects of other independent variables—such as government-policy
outcomes—may depend on global-market conditions. Empirically, it is the slope, as well as
the intercept, of our regression estimates that may vary as global-market liquidity varies.
While it is therefore important to control statistically for factors that are assumed to have a
constant influence on risk premiums—such as the ideology of the governing party, the de-
gree of democratic governance (Archer et al. 2007; Saiegh 2005; Vaaler et al. 2006), or the
occurrence of elections (Bechtel 2009, Hardie 2006; Jensen and Schmith 2005; Spanakos
and Renno 2009)—we also need to theorize about how financial market–government rela-
tions vary over time.
Indeed, recent debt crises in European Union nations (as well as others, like Iceland) may
bring another shift in financial market–government relations. Before the crises that began
in 2008, low-and middle-income nations were increasingly able to access sovereign debt
markets. The mid-2000s witnessed an increase in such countries’ capacity to issue govern-
ment bonds, and to do so at relatively low rates of interest. This was facilitated by a glut in
global-capital markets, in which investors were more concerned with finding assets to pur-
chase than with the default risk of issuers.
In 2006, net private capital flows to Africa exceeded bilateral aid grants for the first time
since 1999 (World Bank 2007). These flows included those related to commodities and nat-
ural resource investments. But over and above this, the governments of several African
nations took advantage of the availability of global capital, which persisted even once
troubles began to emerge in mature markets. In September 2007, Ghana brought to market
a $750 million bond issue, which was more than four times oversubscribed. A few months
later, Gabon issued a $1 billion bond, the proceeds of which were used to repay debt to Paris
Club members (Wakeman-Linn and Nagy 2008). And in February 2008, the European
Investment Bank (the EU’s lending arm) sold a two-year bond denominated in kwacha,
the currency of Zambia. Additionally, in several African countries (including Botswana,
Ghana, Kenya, Nigeria, Tanzania, Uganda, and Zambia), foreign investors came to hold a
significant portion of domestically issued government-debt securities (Le Manchec 2008;
World Bank 2007).21 By late 2008, fifteen sub-Saharan African nations had sovereign credit
ratings (for local-as well as foreign-currency issues) from global ratings agencies.22 Most of
these ratings were first issued in the 2000s.23
346 Layna Mosley
In 2008, as the Great Recession gathered steam, many investors reallocated investments
from crisis-hit high-income to relatively stable low-and middle-income nations. While
some emerging market economies experienced difficulties in attracting investment in
2009, on balance, debt-related concerns in mature markets generated increased flows, at
lower rates of interest, to emerging market nations (also see IMF 2010). With the emer-
gence of debt problems in Europe, nations that were once believed to be free from de-
fault risk (Mosley 2003) came to the center of investors’ concerns about default. This would
suggest that investors may abandon their old information shortcut—in which being “devel-
oped” immediately led to a narrower type of financial market influence—in favor of new
decision-making criteria. What these criteria are—and how they correlate with the level of
development, the presence of certain political institutions, or membership in particular in-
tergovernmental institutions—remains to be seen.
Variation among Investors

Contemporary financial market–government relations also remind us that not all investors
are created equal: investors in different types of assets (sovereign debt, equities, directly
owned product facilities) are affected in different ways by government policies and
institutions. Therefore, we would expect that such investors react differently to—and, ulti-
mately, have a different type and degree of influence on—government policies. As discussed
in this chapter, portfolio investment and foreign direct investment may have different
implications for economic growth and volatility. Portfolio investors also should have a
greater capacity to threaten exit ex post; direct investors exercise influence ex ante, because
illiquidity makes it more difficult for them to do so after an investment is made.
Therefore, the balance of a country’s capital flows—which varies significantly across
nations—affects the types of policy pressures faced by governments. Sovereign bondholders
may dislike expansionary fiscal policies, while direct investors and equity- market
participants will appreciate the effects of such policies on aggregate demand and on human
capital formation (Santiso 2003; also see Armijo 1999 and Mosley and Singer 2008). Foreign
direct investors, on the other hand, may be more concerned with the rule of law, the degree
of democracy, and the government’s ability to make longer-term commitments to sector-
specific policies (i.e., Jensen 2006).
As a result, variation in how low-and middle-income countries engage global capital
markets is likely to generate variation in the types of capital-market pressures faced by
governments and citizens. If, for instance, a nation’s economy relies more heavily on foreign
direct investment than on sovereign lending or bank financing, its government may face
fewer pressures to reduce public spending (see Alhquist 2006). On the other hand, if a gov-
ernment relies heavily on the bond market to finance its expenditures, but has a relatively
low level of stock-market capitalization, it may face greater pressures for fiscal and mone-
tary tightening (Mosley 2003). And if a country relies on a varied menu of financial inflows,
as most do, asset holders will express diverse preferences over public policy.
Even within a given category of financial assets, there likely is variation among investors.
Foreign direct investment may be the best example of heterogeneity: foreign firms that lo-
cate production abroad have a range of motivations, ranging from accessing natural re-
sources to selling to consumers in a given market or maximizing efficiency (Hanson et al.
2005). Efficiency-seeking investors are most likely to be motivated by efforts to reduce pro-
duction costs. But even these investors vary: investors in labor-intensive sectors that employ
less-skilled workers may be drawn to locations with an abundant labor supply and weak
labor-market governance. At the same time, investors in capital-intensive sectors may focus
more on the availability of highly skilled workers, as well as on the availability of suppliers
and high-quality infrastructure. It is not surprising, then, that different types of foreign di-
rect investors have different effects on human-rights outcomes in host economies (Blanton
and Blanton 2009; Kim and Trumbore 2010). Within a given industry, firms may also vary
in both their aims and their subsequent effects on host economies: Locke et al. (2007) find
that, among Nike-supplier factories, those producing more complex products have higher
levels of compliance with labor-related codes of conduct—so that, even within a relatively
low-skilled area of production, skill-intensity of production can provide incentives for firms
to protect workers’ rights.
Recent shifts in the nature of global FDI suggest other axes of variation among multina-
tional investors. If we expect firms to transmit practices from their headquarters to their
host-country affiliates, then the nature of home-country practices will matter for MNCs’
behavior abroad (Mosley 2013). Specifically, as MNCs from developing countries become
important sources of capital for some countries, these countries may experience different
sorts of pressures on labor rights—an issue that has arisen already in several African nations,
where Chinese-owned firms (in construction as well as extraction) are frequently accused
of being less labor-friendly than their Australian, British, or South African counterparts.
Chinese direct investment in the resource sector also suggests another difference among
MNCs—state (versus private) ownership. We might expect that state-owned firms are
driven less by profit or by shareholder value than by a desire to capture resources for use by
the home country or by a desire to use foreign investment as a means of gaining political
influence abroad. State-owned firms could, indeed, have longer time horizons than their
privately owned counterparts; they also might, however, be less worried about “corporate
social responsibility” as a means of appealing to consumers and shareholders.
Therefore, as scholars seek to understand the impact of international investment within
domestic polities, they must disaggregate further within the category of global finance.
This implies considering variations across asset classes, as well as types of flows—such as
remittances and housing finance—that have received little scholarly attention.24 Scholars
also should look for variation within asset classes: for instance, considering how firm-level
behaviors and motives vary as well as the effects of foreign multinationals on developing-
country host economies. Meeting this challenge often will involve moving the level of anal-
ysis, empirically as well as theoretically, from the country-level to the sector-and firm-level
(see Malesky and Tausig 2009; Mosley and Singer 2009; Weihausen, 2015) This will allow
political scientists to gain a more nuanced understanding of the implications of investment
and debt for policy outcomes in the developing world.
Notes
1. Note the “first era” of economic globalization, prior to World War I, in which capital
frequently flowed easily between countries, and in which capital owners in European
348 Layna Mosley
nations, especially Britain, provided financing to many other parts of the world. See
Mosley (2003) and Tomz (2007).
2. Country groupings, by income level, are based on the World Bank’s (2011) country
classifications.
3. For a detailed description of this measure, see Chinn and Ito (2008).
4. Chweiroth (2007) and Quinn and Toyoda (2007), among others, investigate the political
determinants of this trend.
5. See Edwards (2007) and Kose et al. (2006) for a discussion of various de facto and de jure
measures of capital account openness, including the Chinn-Ito index.
6. For a recent discussion of the consequences of this pattern, see Chinn and Frieden (2011).
7. I thank Nicholas van de Walle for suggesting this point.
8. Indeed, the “this time is different” refrain was often used in describing the East Asian
crisis. See Reinhart and Rogoff (2009).
9. See Edwards (2007) and Schneider (2001) for reviews of this literature.
10. Kose et al. (2006, table 4A) summarize approximately twenty-five recent studies on the
linkage between financial openness and growth.
11. For reviews of the literature on the effects of FDI, see Jensen (2006) and Mosley (2011).
12. This change in the bargaining power of foreign direct investors is at the heart of the
obsolescing bargain model of MNC–government relations (Kobrin 1987; Vernon 1971).
13. Although, in the current global financial market environment, the flight to safety may be
away from, rather than toward, the markets of developed nations, especially European ones.
14. Edwards (2007) reports a significant, albeit small, relationship between capital-account lib-
eralization and contractions in capital flows. The effect of capital mobility on the probability
of investment contractions is magnified by current account deficits, fixed exchange rates,
and a bias in investment toward shorter-term capital (rather than foreign direct investment).
15. For a summary of work on the regulatory consequences of capital’s structural power, see
Helleiner (2011).
16. Especially for “late liberalizers,” we can expect that governments anticipate many of the
consequences for policy of financial liberalization. We might even expect that some
governments view liberalization, and the resulting exposure to international market
forces, as a means of tying the hands of subsequent governments. In such situations,
financial liberalization may serve as a commitment device, not unlike a politically inde-
pendent central bank (e.g., Maxfield 1997).
17. See, for instance, Basinger and Hallerberg (2004), Drezner (2001), and Mosley (2003).
18. Another body of work on FDI considers the impact of political institutions, including re-
gime type as well as veto points and bilateral investment treaties, on national-level flows
of investment. See, for instance, Biglaiser and deRouen (2006), Büthe and Milner (2008),
Jensen (2006), Li (2006), Li and Resnick (2003), and Simmons and Elkins (2004).
19. See Mosley (2011), however, for an argument that other types of multinational production,
especially those involving arms’-length subcontracting relationships, are likely to be asso-
ciated with less, rather than more, stringent standards in low-and middle-income nations.
20. Also see Elliott and Freeman (2003), Kucera (2002), and Neumayer and de Soysa (2006).
21. This mirrors a trend in some emerging markets, like Brazil, where international investors’
purchases of domestic government debt grew substantially.
22. This information is based on ratings from Fitch Ratings. See www.fitchratings.com/
web.../ratings/sovereign_ratings_history.xls. A similar pattern holds for Standard and
Poor’s, another major credit ratings agency.
23. Four countries have since had their ratings withdrawn—Benin (January 2012), Gambia
(July 2007), Malawi (August 2009), and Mali (December 2009).
24. On remittances, see Leblang (2010) and Singer (2010). On housing finance, see Ansell
(2012), Schwartz (2009), and Schwartz and Seabrooke (2009).
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Chapter 18
The Role of t h e Stat e

in Harnessi ng T ra de -
and-I nvestme nt for
Dev el opment Pu rp o se s
Theodore H. Moran
What kind of policies toward trade and foreign direct investment (FDI) will generate the
greatest benefits for developing countries—and avoid damage or harm—in today’s world?1
What can be learned from the past three decades of globalization of trade-and-investment
about the role of the state in helping to deliver positive contributions and to avoid negative
outcomes? What kinds of public-sector interventions are most effective to capitalize on
the expansion of trade-and-investment, and which are less effective or counterproductive
altogether?
In the first section, this chapter subdivides foreign direct investment into several distinct
categories in order to investigate the benefits and potential harms of trade-and-investment.
It the addresses the long-standing debate about whether trade-and-investment policy
should be oriented toward export-led growth or toward import substitution, a subject of
contention that still resonates today. This analysis sets the stage for the much-contested
investigation about whether the liberalization of trade-and-investment enhances host
country growth.
The second section of the chapter explores new evidence about new controversies: the
mere openness to trade-and-investment appears to stop short of bringing sustained de-
velopment unless trade-and-investment policy can be fashioned to upgrade and diversify
the production and export base of the host country. But bringing about such “structural
transformation” through trade-and-investment policy requires overcoming complicated
obstacles and market failures. This reintroduces the state as a central player in development
strategy, requiring particular kinds of public-sector interventions that extend well beyond
the simple mantra of “Reform! Reform!” The second section identifies the key ingredients
of public-sector intervention, including controversial approaches to labor-market policy.
This initial analysis lays the foundation for the third section, which examines three cen-
tral issues in the design of trade-and-investment policy today: (1) Should forced technology
The Role of the State in Harnessing Trade-and-Investment 357
transfer, along the lines of China’s effort to trade market access for foreign technology, be-
come a model for creating national champion firms in the developing world? (2) To what
extent does today’s developmental state need an explicit industrial policy? (3) Do devel-
oping countries need more “policy space” for trade-and-investment policy than the World
Trade Organization (WTO), free trade agreements (FTAs), and bilateral investment treaties
afford? The trail of evidence and analysis begun in the first sections provides the basis for
addressing these issues in sensibly—an unusual result in the current period. All to fre-
quently, contemporary debate lapses into old fantasies about easy fixes that, as shown here,
have long since turned out to be ill advised or counterproductive.
Finally, the chapter concludes with a fourth section on the politics of host-country
policies to use FDI to build internationally competitive manufacturing industries in the host
economy. The host-country policies examined in this chapter are clear—a simple strategy of
economic liberalization, combined with the reform (“Reform! Reform!”) of doing-business
indicators, is necessary but not sufficient. Light- handed market- correcting industrial
policies are needed too. The evidence shows that a wide variety of political regimes have
been able, in the past, to fashion such policies with reasonable success.
Trade, Investment (FDI),

and Development: New Evidence
about Old Controversies
Does the liberalization of trade and investment enhance development?—and how should
“development” be defined in answering this question, and how might the contribution from
trade-and-investment be measured? In what way do trade policy and investment policy in-
teract to build internationally competitive industries in a host country? What are the most
threatening harms and dangers that might come from opening a country to greater trade
and investment flows?
Benefits and Dangers from Trade-and-Investment

Flows: How To Begin the Investigation(s)
Before embarking on an analysis of what kind of policy toward trade-and-investment, or
FDI, best serves the interest of developing country, it is imperative to recognize that FDI is
not a single phenomenon, and liberalization of trade-and-investment can open the door to
quite diverse impacts, favorable and unfavorable. Foreign direct investment comes in four
distinctive forms—FDI in natural resources, FDI in infrastructure, FDI in manufacturing
and assembly, and FDI in services. For each, FDI can lead to decidedly positive or decidedly
negative outcomes, depending upon the policy framework within which the investment is
made (see appendix 1 for a summary of the twelve principal channels through which these
four kinds of FDI can make a positive, or negative, contribution to various dimensions of
host country “development”).
358 Theodore H. Moran
• Has FDI in the extractive sector of Nigeria been “good” for that country? Will FDI
in the recently discovered oil fields of Ghana enhance the development prospects for
authorities in Accra?
• Has FDI in infrastructure in Indonesia or Argentina been “good” for those coun-
tries? Will a new round of FDI in infrastructure in India help or hinder broad social
development there?
• Has FDI in manufacturing and services been good or bad for the widely open
economy of Costa Rica, or the heavily protected economy of Venezuela? How can FDI
in manufacturing and services best help the Egypt post–Arab Spring, or Vietnam in
the Trans-Pacific Partnership era?
Given the widely varying impacts from each kind of FDI, who would consider it a wise
research strategy to run regressions in an effort to find a significant correlation between ag-
gregate FDI flows and host-country growth rates or productivity levels? Yet this is how most
in the economics community proceed. Instead—as will be summarized—each form of FDI
requires a separate analysis of potential contributions and potential damages, identifying
the policy challenges and institutional requirements needed to maximize the former and
avoid the latter.
For FDI in the extractive sector (oil, copper, iron ore, coal, nickel, bauxite, gold, diamonds),
the principal issue is whether revenues from investment operations and expenditures by
public authorities can be tracked and monitored, with independent verification, or diverted
toward corrupt private or political purposes (Shaxson 2007; Le Billon 2005; Bannon 2003).
Equally important is robust environmental regulation and enforcement. Less dramatic is
the macroeconomic task of managing the market distortions and overvalued exchange
rate associated with “Dutch disease” (Wright and Czelusta 2004; Collier and Goderis 2007;
Stevens 2003). To capture the benefits from FDI in the extractive sector requires a combina-
tion of domestic commitment and external support to establish “publish what you pay” sys-
tems for foreign investors, and “publish what you spend” procedures for public authorities,
accompanied by independent monitors and capacity building, so that legislators and civil
society can interpret the results. When successful, FDI in the extractive sector can provide
substantial funding for broad-based economic and social programs. When unsuccessful,
FDI in the extractive sector can truly become a “curse” on the destiny of the nation.
For FDI in infrastructure (electricity generation, roads, ports, water, and sewerage),
the principal issues involve managing exchange-rate risk, and supply-and-demand risk
(UNCTAD 2008, ch. 4; Andres, Guasch, Haven, and Foster 2008). Foreign direct invest-
ment in infrastructure often has an unavoidable currency mismatch, with investments and
repayments made in hard currency, while tariffs are billed in local money. The tradition
has been for host authorities to bear all of the currency risk. In the power sector, the na-
tional government has often also been required to assume all of the supply-and-demand
risk as well, through “take or pay” contracts for the output. As a result, when regional
markets (or global markets) suffer a downturn, a host country can find itself having to buy
unneeded output at an exorbitantly high hard-currency cost. The search for appropriate
formulas to share currency risk and supply-and-demand risk, and to engage in reason-
able dispute-settlement when expectations go awry, is a work in progress. Like extractive
industries, FDI in infrastructure requires careful environmental regulation and effective
enforcement. The benefits come in the form of efficient services that do not drain public
budgets. Well-managed infrastructure investments can underpin the competitive position

of small and large businesses, and lead to higher—and more healthful—living standards for
large populations.
The analysis in this chapter will focus on foreign direct investment in manufacturing and
assembly, writ large to include agribusiness, processed seafood, and horticulture (such as
cut flowers), with clear implications for trade policy. New studies in the under-investigated
realm of FDI in services suggest that most foreign direct investment in services is subject to
the same generalizations about the conditions in which FDI can lead to beneficial economic
and social outcomes, or not.
Foreign direct investment in manufacturing and services can make highly valuable
contributions to the host country, beginning with the creation of an internationally com-
petitive domestic industrial base and higher growth rates for the entire economy. But the
potential benefits from harnessing FDI in manufacturing (and services) do not stop here.
As explored in sections two and three of this chapter, attracting FDI in manufacturing and
services opens the possibility to upgrade and diversify the production and export base of
the host, with backward linkages, technological spillovers, and indigenous supply chains
that reach deep into the local fabric of society. As shown there, the obstacles, market
failures, and policy dilemmas that stand in the way of using FDI in manufacturing and
services to bring about structural transformation in the host economy are formidable, but
not insurmountable.
Export-Led Strategies for Development vs. Import-

Substitution-Industrialization Strategies for Development
How can the developing world best fashion policy toward trade-and-manufacturing in-
vestment to create modern industries in the host economy? Is the more favorable route to
use foreign firms that freely import components and generate manufactured exports? Or is
the more favorable route to use foreign firms to build plants oriented toward the domestic
market behind tariff walls?
This debate not only continued longer than might have been expected in the past,
but—as section three will show—it still has surprisingly strong resonance today. In 1989
the Washington Consensus anointed “openness to the world (at least in respect of trade
and FDI)” as the prescribed policy approach for developing countries in Latin American
and around the world (Williamson 1990, 2002). Yet even then John Williamson was
nonetheless still sensitive to the legacy of Raul Prebisch, who argued that developing
countries would suffer declining terms of trade unless they shifted from exporting
commodities to building a domestic industrial base through protected locally based
firms.2
The evidence that helped shift the policy debate away from import substitution indus-
trialization (ISI) toward export-led growth over the course of the 1980s and 1990s came
from four sources. It is important to take note of each of these sources of evidence, as
the findings they represent are relevant to the debates about industrial policy, forced tech-
nology transfer, and the desirability of “policy space” for developing countries that domi-
nate discourse about trade-and-investment policy today.
The first source consisted of relatively predictable studies of the relatively predictable
industry inefficiencies that resulted from keeping domestic markets tightly protected while
luring foreign investors to operate behind trade barriers. Anne Kreuger’s (1975) investi-
gation of foreign investment in the protected Indian automotive sector, for example, or
William Cline’s (1987) investigation of the selectively protectionist informatics policies
in Mexico, Brazil, and Argentina showed sizable production inefficiencies and high-cost
output. But the FDI-for-ISI model held out the hope that infant industries that did not
initially meet world standards might grow through dynamic learning into competitive ma-
turity. Multinational corporations could be the key to this dynamic learning, if they were
required to submit to domestic content, joint venture (JV), and other technology transfer
requirements in order to participate in the lucrative protected market.
Here a second source of disappointing new evidence began to accumulate. The data
showed that manufacturing multinational corporations (MNCs) did not bring cutting-edge
technology to the market place when they had to operate with local JV partners or otherwise
transfer proprietary knowledge to locals (Mansfield and Romeo 1980; Lee and Mansfield
1996; Blomström, Kokko, and Zejan 1992; Urata and Kawai 2000). They introduced only
older technology into JV plants or licensing arrangements, and upgraded technology less
rapidly than in the case of wholly owned affiliates. Indeed, in many cases, the JV produc-
tion process never even approximated world-class best practices—in autos or computers,
for example, foreign investors and their local partners assembled knocked-down “kits” of
previous-generation products in subscale plants that were not intended to grow to compet-
itive maturity. Domestic content requirements further locked the foreign plants into opera-
tions that were not competitive in international markets, and local suppliers to such plants
often lacked orders large enough to achieve full economies of scale themselves.
The most striking contrast between the success of export-oriented FDI and the drawbacks
of domestic, ISI-oriented FDI emerged in the automotive and electronics industries, usu-
ally a phenomenon of middle-income developing countries. But export-oriented FDI also
showed promise in the development of an export-processing zone devoted to garments and
footwear in lesser developed countries, as long as damage from various forms of sweatshop
abuses could be held in check. Mauritius was one of the poorest agriculture-dependent
countries in the world at the moment of independence in the 1960s. But FDI in textiles
enabled the country to rank seventh among the fifteen top-performing exporters of manu-
factured products over almost three decades, 1970–1996, below Singapore and Hong Kong
but ahead of high-ranking performers like Thailand, Portugal, and Israel (Radelet 1999,
table 3). Low-skilled export-oriented FDI became prominent in Latin America and Asia,
from the Dominican Republic and Mexico, to Malaysia and the Philippines. But when mac-
roeconomic conditions permitted—as for a period in Madagascar—African countries had a
chance at low-skilled FDI led growth as well (Razafindrakoto and Roubaud 1995).
The third source of new evidence came from a surprising discovery about foreign in-
vestment in manufacturing and assembly that was used for export-led growth. Whereas
the relationship between multinational parent and subsidiary was becoming increasingly
fragmented within the import-substitution framework, the parent–subsidiary relationship,
when the former relied on the latter to secure its position in international markets, be-
came ever more intimate. It turned out that multinational manufacturers were not merely
shopping around for cheap inputs from the developing world. Rather MNC strategists began
to orchestrate their developing country affiliates into a coherent supply network within
which latest improvements in production technology and quality-control procedures could
be transmitted on a real-time basis, within days or hours. Volkswagen designed the facilities
producing the inputs for its “basic vehicle platform” (engines, axles, chassis, and gear boxes)
in Brazil, Mexico, Argentina, and Eastern Europe to incorporate engineering upgrades on-
line within sixteen hours of each other. General Motors placed cylinder head equipment
in its high-performance engine export plant at Szentgotthard, Hungary, that could accept
continuous changes without rebuilding the production line. Ford designated its new export
assembly facility in Hermosillo, Mexico, as the site to teach managers worldwide quality-
control techniques that could rival the Japanese.
International electronics firms synchronized production changes in their Asian supply
chains with the pace of the new product introduction in the home market (Borrus, Ernst,
and Haggard 1999). Telecommunications and semiconductor multinationals assigned
high-precision manufacturing and quality-control procedures to their plants in Malaysia
as soon as they appeared: “as far as assembly and testing are concerned,” observed a Texas
Instruments executive as early as 1991, “we have more expertise here than we have in the
US” (Lim and Fong 1991, p. 115).
Once again, this potency of interaction between headquarters and subsidiary depended
upon the parent being able to enjoy ownership and control over the operations undertaken
in the developing country. Technology transfer and investment in human capital—
operationalized by Vijaya Ramachandran (1993, pp. 664–670) as the number of parent-
company employees sent to a given host country to bring a given technology on line and
the number of host-country employees sent to the parent country for training—was sig-
nificantly higher within wholly owned networks across all fourteen sectors in her sample
than for joint ventures or licensees. The results came from industries as diverse as metal
products, chemicals, rubber, food, textiles, and medical products, as well as transport
equipment and electronics.3
Finally, a fourth source of new evidence involved backward linkages and supplier
networks when foreign investors set up world-scale plants for export. There had been a not-
unreasonable fear that manufacturing investors who were allowed to work with whole-or
majority-ownership and freedom from domestic content requirements would limit their ac-
tivities to screwdriver assembly operations of little benefit to the host economy. But the data
showed that manufacturing multinationals oriented toward external global markets—in
their own self-interest—searched out, helped, and certified local suppliers that could pro-
vide inexpensive and reliable components for their operations (UNCTAD 2001). In some
cases they introduced these local suppliers to sister affiliates in neighboring countries, thus
launching them on their own export path. The creation of industrial poles in Brazil and
Mexico revolved around original-equipment-manufacturing (OEM) supplier relationships
with the major automobile exporters. The creation of competitive industrial base in Southeast
Asia grew from local contract-manufacturing for electronics multinationals oriented toward
external markets.
To be sure, the creation of backward linkages into the local economy did not come
quickly or automatically, and identifying the conditions under which vendor-development
and supplier-certification can be successful requires careful examination, addressed in
the next section. For now the take-away from these four data-streams is that insisting
upon forced technology transfer to local firms, or requiring JV partnerships and im-
posing domestic content requirements on foreign investors in protected national markets
is not a path that offers much promise for building a vibrant and competitive domestic
industrial base.
The widely contrasting outcomes between FDI that takes place in the context of an
export-led growth strategy versus FDI that takes place as part of an import-substitution
strategy turns out to be crucial for deciphering what is the relation between trade expan-
sion, FDI flows, and host-country growth.
The Relationship between Trade, FDI,

and Growth in Developing Countries
Identifying the relationship between trade expansion—or trade liberalization—and growth

rates among developing countries has been notoriously difficult (Frankel and Romer 1999;
Harrison and Hanson 1999, pp. 125–154; Rodríguez and Rodrik 2000; Dollar and Kraay
2002; Sachs and Warner 1995; Irwin and Tervio 2002; Wacziarg and Welch 2008). More
successful has been investigations that examine the interaction between foreign direct in-
vestment flows, trade openness, and developing country growth rates when liberalization
of trade-and-investment go hand in hand.
The foundational debate pits Maria Carkovic and Ross Levine against Bruce Blonigan
and Miao Grace Wang.4
Looking solely at the question of whether inflows of FDI accelerate economic growth,
Carkovic and Levine (2005) appear to come to decisively negative conclusion. They try to
find a relationship between FDI and growth using data from both developed and devel-
oping countries over thirty-five years, from 1960 to 1995, averaged over five-year intervals.
They combine panel techniques with cross-country growth regressions in order to avoid
weaknesses they associate with studies that attempt only the latter. They conclude that
FDI fails to produce a significant independent positive impact on the rate of host country
growth.
But this approach to identifying the relationship between FDI flows and host country
growth is flawed, argue Bruce Blonigan and Miao Grace Wang (2005). The widespread
practice of using data sets that combine observations about the impact of FDI on developed
economies with observations about the impact of FDI on developing economies (as Carkovic
and Levine do), they assert, is likely to lead to incorrect results because the motivations for
FDI differ. Keeping data sets separate, they show that vertical FDI is more likely to account
for FDI flows from rich to poor countries whereas horizontal FDI predominates among
developed economies.5
Blonigen and Wang (2005) proceed then to examine the relationship between decade
averages of total FDI inflows (from the 1970s and 1980s) and per capital GDP growth
in recipient developing countries. When the rich and poor country data sets over this
period are not mixed, they find that FDI does have a significant positive effect on per
capita growth in developing countries, once a threshold in host educational levels has been
crossed.
These two sets of results thus appear to be in conflict, all the more so when Carkovic and
Levine (2005) report that they cannot find a positive effect even with the data groups are
kept separate.
But—when considerations about openness to trade are added, argues Mark Melitz—
they point in a common direction (comment on Blonigen and Wang 2005, by Mark Meliz
pp. 273–281). When Carkovic and Levine investigate the relationship between FDI and
host-country growth with controls for initial per capita GDP, skilled-labor level, inflation,
and size of government, Melitz notes, their results actually confirm the Blonigen-Wang
finding that above-historical-average FDI flows are significantly correlated with above-
historical-average host-country growth rates. This positive relationship disappears when
Carkovic and Levine add controls for trade openness. That is, the independent effect of
FDI on host-country growth loses its significance only when the extent of trade openness
is ignored.
Like Blonigen and Wang, Melitz notes that FDI flows to developing countries are largely
driven by vertical production relationships, which—in turn—are highly dependent upon
lower trade barriers. Greater openness to trade is at the heart of FDI flows aimed at pro-
cessing imported intermediate inputs and exporting final products. Trade openness is
a necessary complement for vertical FDI to succeed; what is striking in Carkovic and
Levine’s results, Melitz points out, is that joint changes in both trade and FDI flows are sig-
nificantly correlated with growth. The conclusion for developing-country policy-makers
is clear: trade and FDI liberalization must go together to allow FDI to raise host-country
growth.
Here Melitz draws directly upon evidence of the kind presented in the preceding section
of this chapter that FDI attracted into a protected market distorts the host economy and—to
the extent that such FDI replaces imports—restricts trade. A developing-country strategy
that uses FDI for import substitution, Melitz concludes, breaks the link between FDI and
host-country growth.
Trade, Investment (FDI), and Development:

New Evidence about New Controversies
So, the evidence presented in the preceding section offers multiple reasons for concluding
that the prospects for creating a strong competitive domestic industrial base by imposing
performance requirements—like JV, technology sharing, and domestic content mandates—
on foreign manufacturing investors are not good, and that allowing foreign multinationals
more freedom to control their own technology and source inputs from wherever they want
offers a better route for export-led growth.
But new observations and new controversies complicate the picture. Simply allowing in-
ternational markets to dictate the pattern of export-led growth may not be enough to gain
the most benefits from expanding trade-and-investment. Instead, determined public-sector
interventions on part of national authorities may be necessary to keep developing countries
on a dynamic upward path. What kind of public-sector interventions are needed to harness
the globalization of industry for the developing world?
From Simple Export-Led Growth to Upgrading and

Diversifying the Production and Export Base of the Host
(“Structural Transformation”)
Just as export-led growth was enjoying growing acceptance as the surest path to building
competitive industries and enhancing growth, a new empirical discovery complicated the
design of developing-country policies toward trade-and-investment.
This new empirical discovery is captured in the slogan “What you export matters!”
Simply exporting more and more of the same goods and services may settle an economy
into an equilibrium without many ongoing, dynamic growth prospects. In contrast, those
developing countries that manage to upgrade and diversify their export base—rather than
merely expanding exports from a given array of sectors—enjoy more rapid growth rates,
more advanced levels of productivity, greater domestic welfare, and higher standards of
living than countries that are unable to do so (Schott 2004; Hummels and Klenow 2005;
Hausmann, Hwang, and Rodrik 2007). Rapidly developing countries like China, India,
Indonesia, and Thailand enjoy more diverse export baskets with above-average, skill-
intensive goods in comparison to countries at a similar income level.
Sometimes developing countries are able to rely solely on indigenous firms to move into
novel and ever more sophisticated sectors. If national governments are able to engage in
macroeconomic, microeconomic, and institutional reform—keeping inflation low and
exchange rates realistic, improving “doing business indicators,” curbing corruption, and
improving legal and regulatory regimes—perhaps the domestic private sector can move up
into higher skill–intensive operations and diversify exports.
But acquisition of higher skill–intensive technology and penetration of international
markets is fraught with obstacles. Aspiring developers face a special challenge that Ricardo
Hausmann and Dani Rodrik (2003, 2005) call “self discovery”—national governments find
that what is holding them back is not lack of capital or a particularly poor business climate,
but rather the absence of entrepreneurial actors who are willing to be first movers to set
up operations in sectors that have never existed in the economy before. As Hausmann and
Rodrik point out, calling for “Reform! Reform!” and then sitting back and waiting for na-
tional and international markets on their own to generate structural transformation in any
given economy is likely to be futile.
Attracting foreign investors to set up operations in higher-skill operations offers the pos-
sibility of placing any given developing country immediately at the frontier of best practices
in an internationally competitive industry. Developing countries do not have to “produce
ideas” in order to “use ideas,” argues Paul Romer (1992). Rather than relying purely on the
indigenous private sector to upgrade and diversify domestic production and exports, mul-
tinational manufacturing investors, Justin Yifu Lin and Celestin Monga (2010) point out,
can play a key role in structural transformation of the host.
Multinational manufacturing investment offers a particularly target- rich set of
possibilities for a host economy. Popular opinion often characterizes manufacturing FDI as
flowing only to lowest-skill, cheap-labor activities. But this is far from accurate. The uncon-
tested but often underappreciated fact is that the bulk of manufacturing FDI flows to more
advanced industrial sectors in developing countries rather than to garment, footwear, and
other lowest-skilled operations. This predominance of FDI in more skill-intensive investor

operations, moreover, is growing over time.
As Table 17.1 shows, the flow of manufacturing FDI to plants in which medium-skilled
operations take place—such as autos and auto parts, industrial machinery, medical
devices, scientific instruments, electronics and electrical products, chemicals, rubber,
and plastic products—is nearly fourteen times larger each year than the flow to low-skill,
labor-intensive operations, and it has been speeding up over time. The proportion of
manufacturing FDI devoted to higher-skilled activities was roughly five times larger than
to lower skill activities in the period 1989–1991, but approximately fourteen times larger in
the period 2005–2007.6
But attracting FDI—especially FDI in middle-skill activities—is complex and uncer-
tain. The first step in attracting FDI is the reform-reform agenda sketched out previously—
macroeconomic stability, improvement in “doing business” indicators, reduced corruption,
and greater legal and regulatory reliability. This first step is a necessarxy but not a sufficient
condition for attracting more sophisticated manufacturing FDI.
Multinational corporations are not all-seeing and all-knowing. Despite popular images
to the contrary, multinational corporations are likely to be quite risk-averse when making
quasi-irreversible investments under uncertainty (Pindyck 2009; Dixit and Pindyck 1994).
Obtaining information about new sites is costly and often unreliable. There is a high pay-off
to waiting to acquire more evidence, especially by watching others move first. Making in-
vestment attraction most difficult is the fact that the kind of information the multinational
manufacturer most needs to make the investment decision can only be obtained from “test
driving” the facility. That is, the imperfection in FDI information markets resembles George
Akerlof ’s (1970) well-known conundrum of how to convince a buyer to make a large cap-
ital investment crucial to his daily life (in Akerlof ’s model, purchase a used car) when that
buyer is afraid of “being stuck with a lemon.”
Since such “test driving” experience cannot be supplied directly, host authorities have to
do their best to provide reasonably credible assurances that a new site will enable the output
Table 17.1 Manufacturing MNC Operations in Developing Countries

FDI Flows (millions of dollars) FDI Stocks (millions of dollars)
1989–1991 1999–2000 2005–2007
(annual (annual (annual
average) average) average) 1990 1999 2007
Lowest- $2,837 $3,100 $7,487 $20,766 $46,864 $80,545

Skilled
Sectors
Higher-Skilled $13,244 $52,800 $104,365 $137,261 $505,928 $836,272
Sectors
For a complete breakdown by sector, see the analysis of manufacturing FDI flows and manufacturing
FDI stocks from the UNCTAD data base, 2009, in Theodore H. Moran. Launching a New Generation,
op. cit.
of components, subassemblies, or final products and services from a new plant in a novel
sector to be integrated seamlessly into the parent corporation’s global supplier network.
This is the job of a host investment promotion agency (IPA), to search out target investors,
present realistic feasibility studies, and provide such credible assurances.
The ideal IPA is an energetic one-stop-shop, supported by the most senior levels of the
government, with highly qualified professionals who are capable of developing detailed
project plans to present to potential foreign investors. Such IPAs have proven to have a
statistically significant impact on inducing foreign investors in new sectors to show up—
foreign investors who export products with higher unit values than the previous average,
thereby upgrading the export base.7
But the reality in many developing countries is quite different—the median IPA does
not always answer its phones when investors call, or respond promptly to emails.8 Even
when IPAs are responsive, poorly paid staff usually know only what is already on the IPA
website. Instead of a one-stop-shop, IPAs typically become a one-more-stop-shop beset with
turf battles over multiple permits involving treasury, immigration, environment, and other
ministries.
Apart from proactively seeking out investors and providing credible feasibility studies,
IPAs need to be able to back the latter up with some way of reassuring the foreigners that
their novel operations can be successful. Reassurance most frequently comes in the form
of reliable infrastructure (especially power and transport) and access to appropriately
trained workers, managers, and engineers. Countries that have been successful in using
manufacturing FDI to create world-class production and export hubs—such as the high-
performance electronics clusters in Penang or Guadalajara, or the automotive clusters in
Monterrey or São Paulo—have merged foreign companies with close-by vocational training
institutions in the midst of well-functioning infrastructure, so as to allow economies of
scale and economies of scope to generate a virtuous growth cycle.
As foreign investor activities move out of garments and footwear into electronics,
industrial equipment, auto parts, medical devices and the like, the potential for back-
ward linkages increases as foreigners provide blueprints, quality-control advice, and ad-
vance financing to local firms. But these would-be suppliers need a business-friendly
environment no less than the foreigners if they are to become competitive, grow, and
prosper. They too need contract enforcement, regulatory reliability, access to capital, use
of imported inputs, and dependable infrastructure to participate in international supply
chains. Within a favorable setting for local businesses, host authorities can experiment
with specific talent-scout and vendor-development programs to identify, train, and certify
indigenous suppliers.
These then are the ingredients for harnessing trade-and-investment for increasingly
higher-skill domestic operations—genuine macroeconomic, microeconomic, and institu-
tional reforms, proactive and effective investment promotion, packages of infrastructure
improvements and vocational training programs, and assistance with supply-chain de-
velopment. They sound straightforward, but they are not easy to create in practice. These
measures are not a panacea for all that ails a developing country by any means, but they
lead to increasingly sophisticated exports, to increasingly sophisticated jobs (see the next
section), to vertical technology transfer and externalities for local suppliers, to penetration
of export markets and export externalities for indigenous companies, and perhaps even to
some horizontal spillovers and externalities for local firms in the same sector.
Henceforth, in this chapter, getting the provision of these ingredients right will be re-
ferred to as the “real agenda” for trade-and-investment policy in the developing world. This
“real agenda” will be placed in stark contrast to recurrent demands for quick fixes and prob-
lematic or demonstrably counterproductive approaches to trade-and-investment.
But first it is necessary to examine the sensitive and tricky issue of trade, investment, and
labor-market reform.
What Are the Implications for Labor-Market Policies?

The preceding sections illustrate the shift that has taken place in recent years in
conceptualizing the potential benefits that FDI in manufacturing (and services) can bring
to a developing economy. The old emphasis was that multinational manufacturing investors
bring capital. The new emphasis is that multinational manufacturing investors bring pro-
duction technology, management practices, quality-control procedures, and the ability to
penetrate international markets. The new emphasis is that multinational manufacturing
investors place a host economy on the frontier of best practices in any given industry,
and upgrade those practices on a real-time basis as the frontier moves outward. The new
emphasis is that multinational manufacturing investors identify, train, and certify local
suppliers (a vertical externality), and introduce those local suppliers to external markets
(an export externality). The new emphasis recognizes that occasionally there are horizontal
spillovers from multinational manufacturing investors to domestic firms in the same sector.
To be sure, capital is needed for all of these undertakings, but capital is simply the vehicle
for this array of much more valuable contributions from foreign investors.
But what about the impact on local workers and on local labor markets? What are the
implications for host-country labor-market policies?
The distressing news is that at the least-skilled end of international supply chains—
among foreign investors and their subcontractors in garments, footwear, and the like—
sweatshop abuses and violations of worker rights persist despite growing efforts to expose
and combat them (as documented by such NGOs as SweatFree Communities, Workers
Rights Consortium). Physical abuse, sexual abuse, and unacceptable health and safety
conditions plague low-skill plants.
At the same time, the expansion of foreign investment in low-skill operations has a quite
notable impact on poverty reduction. Popular discourse suggests that foreign investors
move to developing countries in search of the cheapest possible labor. This assumption
is backed by intuitive logic—since capital is mobile and labor is fixed, multinationals will
use their superior bargaining power to drive wages as low as possible. But this notion is
contradicted again and again by evidence that foreign multinationals pay higher wages
than similar nonmobile local firms across industry sectors and geographical regions. Even
in the apparel sector, foreign firms and subcontractors pay a wage premium in compar-
ison to alternative employment in the economy. For example, Mireille Razafindrakoto and
Francois Roubaud (1995), holding education level, extent of professional experience, and
length of tenure in the enterprise constant, found that foreign investors in Madagascar paid
15–20 percent more than what workers with similar qualifications received elsewhere in
the economy. Robertson, Brown, Pierre, and Sanchez-Puerta (2009) confirm the wage pre-
mium in apparel plants for El Salvador (19 percent in 2000), Honduras (22 percent in 2004),
Indonesia (7 percent in 2004), and Cambodia (an extraordinary 80 percent in 2008), after
controlling for skills, experience, and gender.
Are FDI wage premiums more evident in richer developing countries, and less so in
poorer developing countries? Edward “Monty” Graham (2000, table 4-2, pp. 93–94) has
discovered exactly the opposite: compensation per indigenous employee in foreign plants in
the manufacturing sector is higher, as a multiple of average compensation per employee in
the host manufacturing sector, in poorer countries than in the middle-income developing
countries. In the middle-income developing countries, the ratio of foreign-paid wages to
indigenous-firm wages in manufacturing is 1:8; in the lower-income developing countries,
the ratio of foreign-paid wages to indigenous-firm wages in manufacturing is 2:0—that is,
twice as high as average compensation in the host-country manufacturing sector.9
The wage premium is not the only positive benefit from the expansion of low-skill
FDI investment. Drusilla Brown, Alan Deardoff, and Robert Stern (2011) gather evidence
showing that foreign investment in low-skill exports bring expanded formal employment
opportunities for women, better conditions of work, less hazardous employment, lower ac-
cident rates, greater job security, and higher educational attainment (particularly for young
women). Gender research indicates that women employed in special economic zones (SEZs)
have social outcomes that include greater economic independence, respect, social standing,
“agency,” and “voice.” Social spillovers are common. In Bangladesh, the enrollment rate of
girls aged 5 to 18 is approximately seven percentage points higher in villages with a garment
factory than in other villages. The introduction of a call center in India raises the number of
children in school in the local community by six percentage points.
Most promising is new research that suggests that higher labor standards and above-
market wages may offer a business model that makes low-skill operations more profitable
for plant-owners who dare to try a more socially responsible approach (Brown, Deardoff,
and Stern 2011; Kline 2010).
Turning to manufacturing FDI and labor-market conditions more broadly, as the
preceding section of this chapter pointed out, the bulk of multinational manufacturing
investment does not flow to activities like garments and footwear—rather, FDI flows
to middle-skilled sectors is fourteen times larger than flows to lowest-skilled sectors,
and the ratio favoring middle-skilled sectors is growing over time. The International
Labour Organization (ILO) database does not record employment in developing-country
industries by job classification and level of compensation; however, labor-market sta-
tistics support the general proposition that as skill levels increase so do wages. Survey
data from industry sectors such as autos and auto equipment, electronics, chemicals, and
industrial equipment—in comparison to garments and footwear—shows that foreign
investors with higher-skill operations pay their employees two to three times as much for
basic production jobs, and perhaps ten times as much for technical and supervisor positions,
in comparison to what is earned by workers in comparable positions in lower-skilled
MNC activities.
In these middle-skill activities the foreign multinational wage premium is even more
pronounced (Aitken, Harrison, and Lipsey 1996; te Velde and Morrissey 2003). The evi-
dence is so ubiquitous that Robert Lipsey (2006) characterizes as a “universal rule” that
foreign-owned firms and plants pay higher wages than domestically owned ones.
What might account for this foreign investor wage-premium across diverse sectors of the
host economy?
Robert Lipsey and Fredrik Sjoholm (2004, pp. 415–422) take advantage of an unusually
detailed data set of plant and worker characteristics from almost 20,000 firms in Indonesia
to separate out the relative influences. Overall they found that foreign investors paid 33 per-
cent more for blue-collar workers and 70 percent more for white-collar workers than did
locally owned firms. Controlling for education, MNCs paid more for workers with a given
education level than domestically owned firms. Controlling for region and sector, the for-
eign pay differential showed up as 25 percent for blue-collar workers and 50 percent for
white-collar workers. Controlling for plant size, energy inputs per worker, other inputs
per worker, and proportion of employees that were female, the wage-premium in foreign-
owned establishments equaled 12 percent for blue-collar and 22 percent for white-collar
workers.
The puzzle they are left with is that, while approximately one-third of the foreign in-
vestor wage premium could be attributed to region and sector and one-third attributed to
plant size and use of other inputs, one-third is left unexplained. So the pleasant mystery in
the data is why multinationals pay local workers more than what is necessary to keep their
plants operating efficiently.
Turning from evidence of an FDI wage-premium to the question of possible spillovers to
local firms, the question is how does the spread of foreign manufacturing investment affect
the wages received by workers outside of the FDI plants themselves, in other firms in the
host economy? Once again the unusually detailed data from Indonesia provide Lipsey and
Sjoholm (2004, pp. 287–310) a chance to examine whether the higher wages paid by foreign
firms in their own plants leads to payment of higher wages in domestic companies, at least
in this one country. Controlling for labor force characteristics, they find a positive spill-
over within broad sector classifications at the national level, and a smaller (but still positive
and significant) spillover within narrower sector classifications and at the regional level. It
appears that FDI generates at least some small labor-market externality to other workers in
the host economy.
Finally, there are important indications that success in attracting middle-skill FDI may
bring institutional spillovers to host labor markets. As the operations of foreign investors
grow more sophisticated—as electronics and auto parts investors build plants in export pro-
cessing zones (EPZs) and industrial parks alongside garment and footwear assemblers—the
former promote better worker facilities, security, transport, and health and safety standards
(even daycare) that apply to all firms (Moran 2002, ch. 3). Indeed the labor-institution
spillovers may extend across the host economy. Although the evidence comes from a
small sample, it includes three country histories—the Dominican Republic, Philippines,
and Costa Rica—where the more skill-intensive foreign firms led the way for passage of
ILO-consistent regulations on the national level (and more effective enforcement of the
resulting regulations on the local level, including communal disciplining of violators) in the
interest of promoting “labor peace” (Moran 2002). These outcomes show race-to-the-top
tendencies quite different from conventional race-to-the-bottom assumptions.
But the ever closer integration of developing country production into international
supply chains raises a tricky new issue for host-country authorities: how to offer foreign
investors the labor-market flexibility they need in order to adjust employment to reflect the
ups and downs of international demand.
An instructive illustration can be found in Morocco. Morocco finds itself on the cusp
of using FDI in manufacturing and services to generate structural transformation in the
economy (Kahn 2012). With new energy in the wake of the Arab Spring, the country has the
potential not just to expand the traditional base of FDI in garment exports, but to attract in-
ternational automotive, electronics, and aerospace corporations to modern industrial zones
around Tangiers and Casablanca to take advantage of the U.S.-Moroccan FTA and favor-
able market access into the European Union. The Moroccan economy, however, is locked
into labor regulations that can be traced back to the most rigid legacy in French economic
policy-making. In Moroccan labor law there is no distinction, for example, between laying
workers off and firing them—in both cases a large severance payment is required (the av-
erage severance cost is equal to 85 weeks of salary in Morocco versus 53 weeks on average
elsewhere in the region), the size of which can be easily challenged in court with the com-
pany having to continue to pay the worker while the claim is adjudicated. These policies not
only act as a disincentive for foreign investors to move to Morocco, but they also hinder
local Moroccan firms from moving easily into the supply chains of foreign companies who
do set up operations.
Similar examples abound among countries in Africa, Asia, and Latin America that could
otherwise tap quite deeply into the vast pool of middle-skilled manufacturing FDI (Moran
2012). Labor-market rigidities—often at middle-wage technical levels, rather than among
lowest-wage manual workers—thus turn out to be very costly to host countries that wish to
use international investment for structural transformation. Difficulty in adjusting the size
of the workforce, and a requirement to pay large compensation when this occurs, dampens
the willingness to hire workers in the first place, and leads companies exposed to interna-
tional market fluctuations to look elsewhere for more flexible conditions in which to locate
production.
Contemporary Debates about the

Political Economy of Trade, Investment,
and Development
Three of the most contentious debates about the design of trade-and-investment policy in
the contemporary era can benefit directly from the evidence and analysis introduced in the
preceding two sections.
First is the debate about the desirability or advisability of host state–led, forced technology
transfer from multinationals to indigenous national champion firms: Is China perfecting a
new model that lures international investors to accept a Faustian bargain, trading tech-
nology for access to the domestic market in a way that undermines the competitive po-
sition of those investors? Indeed, is there a broader Asian approach to forced technology
transfer (from Japan, through Korean and Taiwan, to China) that requires rethinking of
this chapter’s skepticism about trying to force technology transfer from multinationals to
local firms?
Second is the debate about what kind of public-sector interventions are needed for de-
veloping countries to capture the largest gains from the globalization of industry. Do devel-
oping countries need to deploy some kind of “industrial policy” to maximize their benefit
from trade and investment? If so, what are the salient features?
Third is the debate about whether developing countries need greater “policy space” to-
ward trade and investment. Do WTO rules, free trade agreements, and bilateral investment
treaties unduly restrict developing countries’ ability to design trade and investment policies
that best serve their own developmental interests?
Technology Transfer and National

Champions: How Forced, How Voluntary?
Official endorsement by Chinese authorities of something called “indigenous innovation”

has undergone ebb and flow, but there is persistent concern about whether there might
be a development route based on forcing technology transfer from foreigners to national
champions that stretches from Japan, through Korea and Taiwan, culminating in the crea-
tion of the modern Chinese economic superpower.
The idea that Japanese economic prowess grew out of a coherent Ministry of International
Trade and Industry (MITI)–driven targeting policy that identified winning technologies
(electronics, computers and supercomputers, auto, photographic) and supported their
adoption within leading keiretsu firms has lived longer—and continues to live to this
day—in popular consciousness than it has in academic scholarship. Careful investigation
of Japanese technology support policies—like Japanese industrial policy more broadly—
shows some successes accompanied at the same time by confusion and counterproductive
outcomes with the net balance not at all clearly positive.10
The details of Korean industrial policy and technology-acquisition on the part of Korean
“national champions” are even more pertinent for the perspective they offer to the case
of China.11 In industries where technology was stable and could be replicated via licenses
and for-hire foreign engineers—namely, shipbuilding and steel—Korea followed a model
of excluding FDI, requiring domestic production of inputs, and creating national cham-
pion companies via public support. But in industries where the international technological
frontier was continuously pushed outward—especially computers, semiconductors, tele-
communications, and high-performance consumer electronics—Korea followed a different
script. All three of the companies that became Korean national champions—Samsung,
Lucky Goldstar, and Hyundai—grew up as contract manufacturers for multinationals (for
Sony, Panasonic, Mitsubishi, Zenith, Toshiba, Philips, Zenith, RCA, and Hitachi). After
three decades of experience, all three still relied on original equipment manufacturer
(OEM) contracts for 60 percent of their electronics exports. They expanded their own de-
sign expertise via learning-by-doing from foreign purchasers, not via forced technology
transfer or mandatory JV partnerships. They depended upon duty-free imports of inputs
for their own assembly, not on domestic content requirements.
The Taiwan experience shows a similar pattern: Indigenous electronics firms began by
selling components for calculators, clocks, and VCRs to the local affiliates of IBM, Hitachi,
and Philips; the more successful graduated to contract manufacturing of printed cir-
cuit boards, monitors, and power supplies. All the major Taiwanese computer makers—
including ACER, Tatung, and Mitac—entered export markets as OEM suppliers to foreign
multinationals, learning advanced design and own-brand marketing as they went. Not one
became successful via forced joint-ownership with a multinational or via mandatory do-
mestic content requirements.
The Korean and Taiwanese experiences lead Michael Hobday (1995, 2000), among
others, to conclude that the route these countries followed—from contract manufacturers
learning to meet the specifications of outsiders, to original component designers, to own-
brand producers in international markets—has more in common with OEM suppliers
in Singapore, Malaysia, and Thailand than to the forced technology transfer, national
champion–creation model as romanticized or demonized in China.
Whatever the ups and downs of official support for “indigenous innovation,” there is no
doubt that Chinese officials do aspire to force technology transfer from foreign to indige-
nous firms.12 In high-speed railroad transport, the State Council, Ministry of Railroads, and
state-owned train builders—China North Car (CNR) and China South Car (CSR)—have
been particularly successful in combining access to the Chinese domestic market, favorable
financing, and competition among foreign investors to induce transfer of technology and
production processes to Chinese national champions. Beginning in 2004, the Ministry of
Railroads solicited bids for partners to join with CNR and CSR to produce train sets that
could reach 200 km/h. Alstom from France teamed up with CNR’s Changchun Railways
Vehicles, while the Kawasaki-led consortium joined with CSR’s Sifang Locomotive and
Rolling Stock. The following year, Siemens won a contract to supply technology and build
trains with CNR’s Tangshan Railway Vehicle Company. Chinese strategy to acquire tech-
nology and production experience for key components was similar. CSR Zhuzhou Electric
obtained traction-motor know-how from Mitsubishi Electronic. Yongji Electric obtained
the same from Alstom and Siemens. After less than four years of “digestion,” CSR mastered
and improved what it received from Kawasaki, finally cancelling its cooperation agree-
ment. Siemens remained active in China only by signing a “cooperation agreement on joint
action plan for the independent innovation of high-speed trains in China” with the Chinese
Ministry of Science and Chinese Ministry of Railway to develop and build a new genera-
tion of trains with a top speed approaching 400 km/h, which came into service in late 2010.
In aerospace, China similarly uses access to the Chinese market plus an informal “offset”
policy to gain access to aviation technology and production expertise. While it is difficult
to verify exactly what is involved in offset agreements because they are private agreements
between purchaser and supplier, Boeing’s website affirms that “Boeing is please to have
been invited to help Chinese companies develop skills, achieve certification, and join world
aviation and supplier networks.” As for Airbus, the parent set up a joint venture in 2006 to
assemble the A320 in Tianjin, delivering the first midsized commercial airliner fully made
in China three years later (USCC 2010, p. 99). How soon Chinese aerospace companies may
actually be able to enter into international competition in large long-distance aircraft with
high performance engines remains to be seen, however.
In computers, Lenovo has its origins in the Chinese Academy of Sciences’ Institute of
Computing Technology in 1984 as a distributor of foreign computers under the company
name Legend. In 2005 Lenovo acquired IBM’s personal computer and laptop division,
and by 2009 the company had established itself as the fourth largest vendor of per-
sonal computers in the world. Lenovo is slightly more than 50 percent–owned by public
shareholders, although the Chinese Academy of Sciences continues to hold about 27 per-
cent of the stock.
If forced technology transfer from foreign firms to indigenous companies appears to have
some success in high-speed rail, aerospace, and computers, the approach was initially quite
counterproductive in the automotive sector. Under the label of market-for-technology,
Chinese policies from the 1980s into the 1990s offered foreign investors access to a high-
protected Chinese market in return for partnering with indigenous firms and promising to
meet high domestic content requirements. Fearful of losing control over their intellectual
property—as when the Chinese partner in the Audi-First Automobile Works “expropriated”
the production technology after Audi’s license expired in 1997—international companies
hesitated to introduce their most advanced technology into Chinese JV plants, employing
assembly processes that lagged world standards by almost ten years. After accession to the
WTO, steady (albeit sometimes grudging) liberalization of the domestic market and rapid
growth in internal demand allowed the major international auto companies to achieve
economies of scale, rationalize production, and reach out to indigenous suppliers who
themselves are able to enjoy full economies of scale. Help from foreign automotive investors
in meeting stringent quality, safety, and antipollution standards may allow for expanding
export opportunities to Europe and North America.
Beyond these headline industries, micro-level data show that efforts to force technology
transfer via pressure on foreign investors to partner with indigenous firms have been coun-
terproductive in China just as elsewhere.
Drawing on a sample of 442 multinational investors, Long Guoqiang (2005) shows that
wholly owned or majority-owned foreign affiliates are much more likely to be using the most
advanced technology available to the parent than ventures with 50-50 ownership or ma-
jority domestic ownership. Thirty-two percent of the wholly owned foreign affiliates and
40 percent of the majority foreign-owned foreign affiliates use technology as advanced as
in the parent firm, whereas only 23 percent of the 50-50 shared ownership firms and 6 per-
cent of the majority indigenous Chinese-owned firms use technology as advanced as in the
parent firm.
Thus, there are relatively few cases in which policies to force technology transfer
from multinationals to indigenous national champions have worked well in China—or
Japan, Korea, or Taiwan—and the evidence of counterproductive side effects from such
efforts is large. The sequence in which would-be national champions begin as a contract
manufacturers or OEM suppliers, move into own-design production, then emerge as own-
brand players in international markets has greater demonstrated potential for countries
throughout the developing world.
The Interventionist State and Industrial Policy:

How Much, How Little?
Do developing countries need an aggressive industrial policy to target and support spe-
cific sectors in the domestic economy (Rodrik 2011, 2008; Lin and Monga 2010)? Should
industrial policy efforts include protection of the chosen sectors? How can the tricky issues
that bedevil industrial policy be handled, like ending support when the effort is failing or
avoiding capture by those being subsidized?
The investigation about how to use trade-and-investment policy to upgrade and diver-
sify the production and export base of any given host country, offered in the second section
of this chapter, offers a useful—and subtle—perspective on the debate about the need for
something that might be called industrial policy.
The evidence from the “what you export matters” analysis in the second section reinforces
the argument that developing country authorities should not merely sit back and wait to see
what international market forces bring to them. Using FDI to help diversify and upgrade
the production and export base requires a proactive investment promotion agency that
targets specific sectors, conducts feasibility studies, seeks out specific potential investors
to review the feasibility studies, and designs packages of infrastructure-and-vocational
training suited to these sectors and investors. The analysis by Torfinn Harding and Beata
Smarzynska Javorcik (2012) showed that sector-targeting by IPAs—not simply opening
the host economy up to FDI—doubles FDI flows into the chosen sectors, and results in
higher unit-value exports. This suggests the need for an interventionist state with some
kind of mechanism for selecting industries and providing packages of public-sector support
(addressing coordination externalities).
Target selection for FDI begins within a common-s ense framework of compara-
tive advantage, however, and IPA feasibility studies will help confirm or cast doubt
on the plausibility of success. Public- s ector “support” takes the form of indus-
trial parks, reliable infrastructure, and vocational training designed with training
curricula from companies who actually invest. These interventions surely qualify as a
kind of industrial policy, and definitely cost public money. These interventions over-
come imperfections in information markets and provide public goods to investors.
Multinational companies in some new sectors may thrive, while multinational
companies in other new sectors do not—or never show up in the first place. But these
interventions need not include artificial subsidies for specific companies or protec-
tion for infant industries that cannot be withdrawn later. Public programs for supplier
identification, vendor development, and certification can be conducted in a trans-
parent competitive fashion, again with selection criteria from those firms who will
provide purchase contracts to those that qualify.
Within this framework, host countries achieve best results from allowing manufacturing
multinationals to maintain tight control over their technologies and production processes
with freedom to source inputs from wherever suits them best. Policies to impose domestic
content, JV, and other technology-sharing requirements on international firms are notice-
ably absent from the set of ingredients recommended here.
These endorsed public-sector interventions are much more light-handed and market-
friendly than what some contemporary industrial-policy proponents advocate.13 Hausmann
and Rodrik 2003, for example, want government planners to pick new sectors and subsi-
dize indigenous firms from infant industry to competitive success (like the Chilean salmon
industry) or to set up public–private deliberation councils to recommend specific public
expenditures for domestic companies, rather than use multinational investors to break out
of the self-discovery trap. They consistently misinterpret the Korean formula for creating
national champions in high-performance electronics. And they—or at least Rodrik (2010)—
show considerable exuberance about imposing domestic content requirements as a tool to
spawn “productive supplier industries.”
The New Developmental State:

Real Challenges vs. Recurrent
(But False) Temptations
The evidence and analysis presented here identify a set of subtly difficult challenges faced
by national authorities who want to harness trade-and-investment for broad-based eco-
nomic and social development. In the case of manufacturing FDI, the key elements include
attracting foreign investors in ever higher-skilled activities, while surrounding them with
reliable infrastructure and access to effective vocational-, management-, and engineering-
training institutes. The key elements include building links from these industrial-and-
service hubs back into indigenous supplier networks that can become increasingly vibrant
and competitive themselves. The key elements include light-handed industrial policies and
carefully conceived labor-market reforms.
But a recurrent temptation appears, again and again, that the quick solution for designing
trade-and-investment policies that promote development is simply to impose performance
requirements (especially domestic content, JV, and technology-transfer mandates) on in-
ternational companies.
The allegedly “pro-development” agenda at the Hong Kong Trade Ministerial Conference
in 2005 launched a head- on attack on the Agreement on Trade- Related Investment
Measures (TRIMs), which bans WTO members from imposing domestic content and
export-balancing requirements, and succeeded in awarding developing countries greater
leeway to demand local content from foreign investors at least until 2020. The justifica-
tion given was that developing countries—especially poorer developing countries—would
gain from placing greater restraints on manufacturing investors, and from proceeding more
slowly with trade-and-investment liberalization. As shown in the earlier sections of this
chapter, the available evidence simply does not support this claim, but that fact does not
lessen the enthusiasm with which it is made.
In the debate about industrial policy, the need for an interventionist strategy to over-
come the market failures and coordination externalities that hinder foreign investors
from diversifying and upgrading exports—as argued earlier—makes good sense. But, as
also pointed out, the market-improving nuance easily gets overwhelmed by the appeal of
having a muscular state subsidizing some sectors, protecting others, and restricting foreign
investors or imposing mandatory technology-transfer mechanisms on them with the goal
of transforming the local economy.
Finally, the desire to use performance requirements as an easy fix for development
emerges once again in contemporary debate about whether developing countries need more
“policy space” in trade and investment agreements to allow them to fashion more effective
domestic regulations (Drabek 2010; Gallagher 2010; Center for Environmental Law,
EarthJustice, Friends of the Earth US, Oxfam America, and Sierra Club 2009; Rodrik 2009).
Here, again, well-justified and important arguments are mixed with others that are not.
A strong case can be made that developing countries are too constrained today by the
treatment of intellectual property rights (IPR)—especially intellectual property rights in
the pharmaceutical industry—in U.S. FTAs and bilateral investment treaties.14 American,
European, and Japanese TRIPS-Plus requirements impose regulatory barriers to generic

entry and limits on compulsory licensing that are subject to widespread criticism. In
this context some large developing countries—including Brazil, India, and China—have
implemented IPR regulations with significant limitations and exceptions in place for
purposes of supporting public health.
An equally defensible case can be made that the definition of expropriation and the
requirement for compensation in investor–state dispute settlement must be loosened to
allow for the exercise of effective environmental regulation that covers foreign as well as do-
mestic firms (Center for Environmental Law, EarthJustice, Friends of the Earth US, Oxfam
America, and Sierra Club 2009; Harten 2010). Cases brought under U.S. bilateral invest-
ment treaties and free trade agreements often challenge what appear to be legitimate public
policy concerns in the country that becomes the defendant, with the latter having to pay
substantial compensation if local authorities wish to fix or tighten regulations. Procedurally,
U.S. BITs and FTAs allow foreign investors to bypass local courts and bring suits against
host governments in multilateral venues directly, thus giving them greater rights than
indigenous firms.
But, as this chapter shows, the evidence simply does not support the contention that
a weakened TRIMs agreement in the WTO—or more leeway to impose performance
requirements of foreign investors in the model U.S. BIT—will help developing countries
to use trade-and-investment more effectively for development. At the meetings of the
UNCTAD Working Group on Investment Issues each year, representatives have an op-
portunity to direct the Secretariat to “further study issues of special interest to developing
countries.” As a consequence, fresh assessments of the use of performance requirements
emerge, and reemerge, on a regular basis.15 This is a fortuitous exercise, precisely because
it shows how bereft is the record of successfully promoting host industrial development
via imposing performance requirements on foreign investors, in particular mandatory
domestic content requirements. Those who argue for more “policy space” for developing
countries to use TRIMs seldom show any familiarity with these studies.
The challenges of harnessing trade-and-investment for development are hard enough
without repeated diversions in search of quick fixes and easy ways forward.
A Concluding Note on the Politics of Policies to

Upgrade and Diversity the Host Industrial Base via FDI
The preceding sections of this chapter provide a favorable vantage point to comment on
the politics of formulating policies to take advantage of the globalization of industry. The
closer one looks at key episodes in the politics of harnessing ever higher-skilled FDI for
development, the more difficult is the task of making generalizations about the political
determinants or political requirements for success. As argued earlier, a basic agenda of
macroeconomic, microeconomic, and institutional reform on the part of liberal-minded,
open-market political regimes might be sufficient to attract lowest-skilled FDI for footwear
and garments.16 But using FDI to upgrade and diversity the host production-and-export
base requires light-handed interventionist policies oriented to overcome the information
asymmetries and market failures that hinder risk-averse middle-skilled FDI from taking
place. A review of key episodes in the globalization of the developed-country industrial
base illustrates the difficulty of categorizing the political underpinnings of host-country
policy-making.
The first section noted that the creation of integrated global supply chains in middle-skill
industrial sectors—as opposed to the appearance of low-skill plants to sew garments or as-
semble footwear—emerged first in the automotive and electronics industries.
The globalization of the automotive industry began almost simultaneously in Mexico,
Brazil, and Thailand in the period 1979–1984. But the motivating force was not simple
Washington Consensus–like opening up of the host economies. Quite to the contrary, in
each case dirigiste-minded governments imposed export requirements upon the foreign
auto investors as a condition of their continuing to enjoy access to the protected domestic
markets. The behavior of the host governments in each case track closely the earlier dis-
cussion (see the third section) of the need for a dedicated industrial policy to harness FDI
to the task of upgrading from lowest-skill to middle-skill exports. None simply adopted a
strategy of “Reform! Reform!” while waiting for middle-skill multinationals to show up.
The typical response of multinational investors to export performance requirements is
to use trade rents from the local market to cross-subsidize a small amount of exports that
would never be competitive in world markets on their own. But in the case of the ini-
tial globalization of the automotive sector—in Mexico, Brazil, and Thailand—this did not
happen. Instead, as the first section pointed out, the parent auto companies took the de-
cision to build full-scale engine plants whose output consisted of perfect substitutes for
engines built in the home economy.
In Mexico, president and PRI-leader Lopez Portillo’s imposed an export performance
requirement in the late 1970s on the multinational auto assemblers that had long experi-
ence in working behind trade restrictions in Mexico’s protected auto market. Ford mounted
pressure via the U.S. embassy and U.S. government to overturn the export requirement, but
Lopez Portillo stood firm.
In the face of Lopez Portillo’s intransigence and under intense pressure from cheaper
Japanese imports into the home U.S. market, General Motors was the first to take the deci-
sion of sourcing high-performance engines for assembly within U.S.-built cars from Mexico
in 1979. Within months, Ford, Chrysler, and Volkswagen turned from opposition to embrace
of the idea of beginning the process of globalizing auto-parts production. The investments
of these four prime MNCs consisted of full-scale export-oriented engine plants, designed to
produce “perfect substitutes” for home-country manufactured engines. Once Nissan joined
them, engine production in Mexico grew to more than one million units per year by 1981.
Pushed in the same direction by Brazil’s last military dictator-president, General Joao
Figueiredo, and having already taken the decision to shift to a globalization strategy in
Mexico, General Motors’ headquarters affirmed that its São Paulo affiliate would begin
to produce engines for the U.S. Pontiac division later in 1979. Fiat and Volkswagen then
followed with globalization strategies of their own, building full-scale assembly plants to
export finished vehicles. By 1982 Brazilian auto exports reached $1.5 billion. Thailand’s
push to become an export platform for diesel-engine plants for Japanese one-ton pickup
trucks, came slightly later (1984), the same year Prime Minister Dr. Mahathir (Tun
Dr. Mahathir Bin Mohamad) was returned unopposed to a second term as president. The
transformation of the Thai auto export sector speeded up after the Plaza Accord of 1985
provided Japanese multinationals with a large exchange-rate incentive to move produc-
tion offshore.
The globalization of the electronics industry did not require such strong-arm
tactics. Indeed, as this chapter points out in its first section, the strong import-
substitution informatics policies favored initially by Brazil, Argentina, and Mexico
with mandatory performance requirements (including JV and domestic content
mandates) noticeably failed to motivate electronics MNCs set up global supply chains
in these countries. Instead would-b e electronics hosts in Southeast Asia almost ex-
clusively followed what has been characterized as light-handed industrial policy, lim-
ited to vigorous FDI promotion, backed by packages of superb infrastructure and
vocationally training. American electronics multinationals (General Electric, RCA,
Zenith, Texas Instruments, and National Semiconductor) and European counterparts
(most notably Philips) invested first in Singapore (under authoritarian prime min-
ister Lee Kuan Yew), thence in Malaysia (under democratically elected Dr. Mahathir)
and Thailand (beset by military coups, new constitutions, new prime ministers,
and new military coups), in the early 1980s. Following the currency realignment
of the 1985 Plaza Accord, Japanese investors exhibited behavior that became to be
known as the “fish” model, as when a school of fish abruptly changes direction.
Within Malaysia, the state government of Penang became the model of Southeast
Asian investment promotion, infrastructure improvement, and public–private voca-
tional training initiatives, even while national authorities in Kuala Lumpur remained
enamored of import substitution (e.g., for the Proton national automobile). After the
passage of NAFTA, president and PRI-l eader Carlos Salinas began building the “little
Silicon Valley” electronics cluster around Guadalajara with the same light-handed
tools of investment promotion, infrastructure upgrades, and public–private training
initiatives that NAFTA allowed. Shortly thereafter, President Jose Maria Figueres
launched Costa Rica’s spectacular rise as an electronics exporter with determined
pursuit of Intel 1995–1997.
So, over the course of the globalization of the automotive and electronics industries, it
is possible to make generalizations about policies that have been effective toward foreign
investors. But the politics are a jumble—including benevolent effective dictator Lee Kaun
Yew, ineffective nonbenevolent dictator General Joao Figueiredo, populist semi-democrats
Lopez Portillo and Carlos Salinas, and thorough-democrats Dr. Mahathir and Jose Maria
Figueres.
This spectrum of political actors would not fit easily into a methodological framework
that specifies some indicator of economic liberalization as the dependent variable and
regresses some characterization of political orientation to assess causation or provide ex-
planation.17 Looking to the future, it is difficult to judge whether the task might become
simpler or the results more clear-cut.
Perhaps an inability to make generalizations about the political determinants of success
in using foreign investment to create a competitive manufacturing base should not be
considered failure, but cause for celebration. The appropriate conclusion is that politics is
not destiny—political regimes of many types have shown themselves able to put in place
policies that harness FDI for industrial development.
Appendix I
The Twelve Principal Channels for Foreign Direct

Investment’s Impact on “Development”
Channel 1. FDI in extractive sector: Resource rents to fund host-country economic

and social expenditures. Environmental and governance externalities
(positive or negative).
Channel 2. FDI in infrastructure: Cheaper, more reliable, with expanded access
to electricity, water, sewage, telecommunications, and transport.
Environmental and governance externalities (positive or negative).
Channel 3. FDI in manufacturing and assembly (including FDI in agribusiness
and horticulture): More or less efficient use of host-country resources and
greater or lesser real income generated in the host economy (as measured
by economic or social cost/benefit analysis of individual projects).
Channel 4. FDI in manufacturing and assembly*: Horizontal spillovers and
externalities.
Channel 5. FDI in manufacturing and assembly*: Vertical spillovers and externalities.
Channel 6. FDI in manufacturing and assembly* Horizontal and vertical export
externalities.
Channel 7. FDI in manufacturing and assembly*: Compensation premia and training
premia.
Channel 8. FDI in manufacturing and assembly*: Labor-market externalities. Labor
institution externalities.
Channel 9. FDI in manufacturing and assembly*: Diversification of the production
and export base. Expansion along the extensive frontier. Entrepreneurship
externalities, “ideas” (Paul Romer 1992), “self- discovery” (Ricardo
Hausmann, Dani Rodrik 2003), and contribution to “what you export
matters.”
Channel 10. FDI in manufacturing and assembly: Upgrading of the production and
export base from low-skill to higher-skill activities. Expansion along the
extensive frontier. Entrepreneurship externalities, “ideas” (Paul Romer
1992), “self-discovery” (Ricardo Hausmann, Dani Rodrik 2003), and con-
tribution to “what you export matters.”
Channel 11. FDI in services: Improve the productivity of specific service sectors.
Horizontal and vertical spillovers and externalities.
Channel 12. FDI and higher or lower host economic growth rates.
*
Could include FDI in extractive sector and infrastructure.
Notes
1. This chapter draws on evidence and analysis that can be found in more detail in Moran
(2011a).
2. The free trade ideal is generally (although perhaps not universally) conceded to be subject
to two qualifications. The first concerns infant industries, which may merit substantial
but strictly temporary protection. Furthermore, a moderate general tariff (in the range
of 10 percent to 20 percent, with little dispersion) might be accepted as a mechanism to
provide a bias toward diversifying the industrial base without threatening serious costs”
(Williamson 1990).
3. The politics of the countries whose policies pioneered the shift to globalization on the
part of the automotive and electronics industries will receive special attention in the third
section of this chapter.
4. For a complete review of the literature on the relationship between FDI and developing
country growth, see Cline (2010, pp. 75–86). Cline too focuses on Blonigan and Wang vs.
Carkovic and Levine as a centerpiece of this debate.
5. Blonigan and Wang (2005) emphasize vertical relationships in trade- and- invest-
ment flows between developed and developing countries, but they, like Carkovic and
Levine (2005), are guilty of the practice discussed in the first section, of not isolating
manufacturing FDI flows in their analysis.
6. For a complete breakdown by sector, see the analysis of manufacturing FDI flows and
manufacturing FDI stocks from the UNCTAD database, 2009, in Moran (2011b).
7. To be successful, IPAs need to have a good product to market (i.e., a business-friendly
host economy). Harding and Javorcik (2012, 2011) use country-sector fixed effects and
product-year fixed effects to control for other unobserved factors that might influence
unit values of exports.
8. World Bank 2009.
9. Graham (2000) removes salaries for foreign managers and supervisors from these
calculations.
10. Compare Johnson (1981) and Prestowitz (1993) with Okimoto (1990) and Beason and
Weinstein (1996).
11. For a careful appraisal of Korean as well as Japanese industrial policy, see Noland and
Pack (2003).
12. For more detailed analysis, see Moran (2011b).
13. The recommendations advanced here are more consistent with those of Lin and Monga
(2010) and critical of those of Hausmann and Rodrik (2003, 2005).
14. For a review of this literature, see Maskus (2013).
15. For the most recent iteration under UNCTAD auspices covering Argentina, Pakistan,
Philippines, Ethiopia, and Vietnam, see UNCTAD (2007).
16. Contemporary regression analysis that uses the World Bank “Doing Business Indicators”
as the principal explanatory variable forgets that these do not include the macroeconomic
of investment attraction. Why is such an important dimension of doing business left out
of the “Doing Business Indicators”? The answer is because macroeconomic measures are
the purview of the IMF, and the World Bank would face huge turf-related criticism if it
were to presume to collect macroeconomic information about emerging markets.
17. See Dutt and Mitra (2005) for a widely accepted methodology to investigate whether
there is a robust empirical regularity in the relationship between opening an economy to
external economic competition and political ideology.
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Chapter 19
In ternational Fi na nc ia l
I n st itu tions a nd Ma rk et
L ib eraliz ati on i n t h e
Devel oping Worl d
Stephen C. Nelson
Until the 1980s economic policy-making in noncommunist developing countries in-

volved heavy doses of state intervention in markets and regulatory actions that impeded
the ability of residents to conduct transactions with nonresidents. Tariffs, quantitative
limits, import financing restrictions, and export-proceed surrender requirements were
among the panoply of policy tools used to protect producers for the domestic market and
to discourage foreign trade. Governments set up multiple exchange rates for their national
currencies. National financial systems were ring-fenced by controls on capital inflows and
outflows. Capital controls went hand-in-hand with other policies—interest rate ceilings,
deposit requirements, restrictions on the entry of foreign financial institutions, directives
to channel credit to handpicked borrowers, and in some cases outright state ownership of
banks—that governments used to “repress” their countries’ financial sectors (Agénor and
Montiel 1996, pp. 152–159).
Governments took controlling interests in firms operating in many different sectors.
State-owned enterprises exerted monopoly power in most developing countries’ infrastruc-
ture industries (Henisz, Zelner, and Guillén 2005). Farmers were forced to sell agricultural
products to state-run marketing boards at prices that fell well below those prevailing in
world markets. Foreign direct investment was heavily regulated; and, in any case, the multi-
national corporations that were able to build factories or contract with local firms faced the
persistent threat of expropriation.
The year 1979 marks the inflection point for economic policy-making in developing
countries. The thirty years that followed would be characterized not by deeper entrench-
ment of the state in the economy and ever-higher barriers between the domestic and the
global markets, but rather by a wave of liberalizing policy reforms. Data reveal the extent of
the “silent revolution” (Boughton 2001; Goldstein 2003, p. 410) in economic policy-making
in the developing world. Abiad et al.’s (2010) financial liberalization index aggregates the
386 Stephen C. Nelson
20
Domestic Financial Sector Liberalization Index
15
10
1980 1983 1986 1989 1992 1995 1998 2001 2004
Developing Countries Rich Countries
Figure 19.1 Financial Liberalization, 1980–2006
annual level of restrictiveness in seven areas of banking sector policy for ninety-one coun-
tries. A country with a fully liberalized banking sector receives a score of 21 in the index.
Figure 19.1 displays the average level of the financial liberalization index for both histori-
cally rich countries (North America, Western Europe, the Antipodes, and Japan) and for
low-and middle-income countries (hereafter referred to as the “developing countries”).
Tracking the Abiad et al. index over time shows that the mid-1980s to late-1990s was a
period in which governments in many developing countries moved away from financial
repression toward more liberalized banking sectors.
The modal developing country in 1980 used extensive current-and capital-account
restrictions to ration access to the currency that private actors (investors and firms) needed
to be able to conduct market-based transactions with foreigners. As depicted in Figure 19.2,
Quinn and Toyoda’s (2007) data set records the level of current-and capital-account restric-
tiveness, ranging from total closure (0) to complete, unrestricted openness (100) for a large
number of countries up to 1999. While developing countries remained more restrictive than
their rich-country counterparts at the end of the 1990s, policies that deterred residents from
transacting with nonresidents became far less extensive over time.
The gap between the historically rich countries and developing countries in the area of
trade-policy openness dramatically narrowed, as displayed in Figure 19.3. This figure tracks
the proportion of countries in each year that Wacziarg and Welch (2008) classify as having
liberalized trade regimes. Only 11 percent of all developing countries in the sample satisfied
the criteria for having liberalized trade systems in 1970. Thirty years later less than one-
third of the developing countries in Wacziarg and Welch’s data set retained tightly closed
trade policy regimes.
100 100
Current Account Liberalization

Capital Account Liberalization
80 80
60 60
40
40
1980 1983 1986 1989 1992 1995 1998
Developing Countries (Capital Account)

Rich Countries (Capital Account)
Developing Countries (Current Account)
Rich Countries (Current Account)
Figure 19.2 Capital and Current Account Openness, 1980–1999
1
Proportion of Countries with Liberalized Trade
.8
.6
.4
.2
1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000
Developing Countries Rich Countries
Figure 19.3 Trade Liberalization, 1970–2000

This chapter is about the role played by the two most important international financial
institutions (IFIs)—the World Bank and the International Monetary Fund (IMF)—in the
developing world’s shift from control and closure to liberalization and openness. The con-
ventional wisdom is that the IMF and the World Bank promoted the cause of market liberal-
ization by serving as its most energetic cheerleaders and, more importantly, by conditioning
access to much-needed funds in exchange for promises of market-oriented policy reform
in the near-and medium-term (Stiglitz 2003; Woods 2006). By the late 1990s the dominant
public image of the IFIs had become the arrival of the organization’s staff members at the
international airport of the crisis-stricken country’s capitol city, “with substantial hard cur-
rency credit lines in hand” (Taylor 1997, p. 145), ready to preach to the country’s governing
officials from the institution’s market-fundamentalist catechisms:
Brash youths, briefcases bulging with printouts, arrive from the International Monetary Fund
(IMF) with a clear message; do this, do that, get your prices right, privatize your zoo and your
post office, stop this nonsense about priority credit allocation, etc. and we will think about
releasing the next tranche of your standby loan. Otherwise, no dice. (Dore 1994, p. 1431)
The popular image’s origin and enduring appeal is easy to understand. There is a good
amount of circumstantial evidence for the IFIs’ central role in driving the wave of liber-
alization that swept the developing world: the IMF’s and the World Bank’s turns toward
“structural adjustment” occurred at the same time as the initial liberalizing policy shifts
in developing countries began to gather steam; the IFIs’ involvement with developing
countries was extensive (a total of 100 low-and middle-income countries borrowed
from the IMF in the 1990s), and the resources marshaled by the institutions were sub-
stantial (between January 2002 and July 2014 the IMF made a total of $764.3 billion1
available to member governments); and, finally, the nature of the conditions attached
by the IFIs to their loans became more numerous, more intrusive, and more market-
oriented over time.
The popular image of the IFIs as the holders of the whip hand pushing developing coun-
tries to move their economies faster and farther toward the fully liberalized ideal type hard-
ened into received wisdom in many circles. Conditional lending’s positive effect on market
liberalization was taken for granted; attention then turned to debating the effects of IFI-led
liberalization on economic growth, income inequality, and currency and banking crises.
Among some economists and political scientists writing on the IMF’s and World Bank’s
activities, however, a counter-narrative began to emerge: the pro-liberalization conditions
attached to the IFIs’ policy-based loans were largely ineffectual (Easterly 2005; Heckelman
and Knack 2008, p. 526; van de Walle 2001). The futility of the IFIs’ efforts at generating du-
rable reforms in borrowing countries was illustrated by episodes such as the following, re-
lated by development economist Paul Collier: “during a 15–year period, the Government of
Kenya sold the same agricultural reform to the World Bank four times, each time reversing
it after receipt of the aid” (1997, p. 60). Nicolas van de Walle’s (2001) extensive study of the
“adjustment regime” in sub-Saharan Africa concludes that the IFIs (along with the foreign-
aid agencies) were much more successful at propping up wobbly governments than eliciting
real, durable policy changes.
Which image of the IFIs—powerful “globalizers” (Woods 2006) of the developing world
or feckless organizations whose grand plans are forever thwarted by savvy governments
promising sweeping reforms that never materialize—is the right one? Over the past decade
International Financial Institutions and Market Liberalization 389
scholars have produced a raft of studies of the association of IMF and World Bank programs
with various measures of policy liberalization. I review the findings from thirty-one recent
empirical studies in this chapter. I conclude that the evidence for positive and substantively
large effects of conditional lending by the IFIs on structural reforms in developing coun-
tries is mixed. In general the findings from this vein of research should be interpreted with
caution. The inferential hurdles are high, the measurements of key concepts are imperfect,
and the methodological assumptions are sometimes heroic.
Despite the ambiguous evidence for the direct effect of IFI loans on the shift toward
market liberalization, I argue that we should not regard the IMF and World Bank as com-
pletely feckless agents in the effort to remake developing countries’ economies over the past
three decades. The indirect effects of the IFIs on liberalizing policy reforms may be more
important than the direct effects.
The remainder of the chapter is divided into four sections. I start with an overview of
the IFIs, focusing on the evolution of their conditional lending practices. The next section
introduces a simple analytical framework for thinking about how the conditional loans
doled out by the IMF and the World Bank relate to other covariates of liberalizing reforms.
The third section reviews the recent empirical literature on the effects of the IFIs on market
liberalization in developing countries. In the fourth and concluding section, I make the case
that we should not ignore the potentially important indirect effects of the IFIs on the shift to
economic openness and suggest avenues for future work on the topic.
The Evolution of the IFIs’ Approaches

to Conditional Lending
In this section I briefly sketch the paths taken by the IMF and the World Bank from their
founding in 1944 to their roles at the core of the pro-market “adjustment regime” (van de
Walle 2001, pp. 210–234) in the developing world in the 1980s.
The IMF and the World Bank are the products of the plan, spearheaded by American
and British officials, for a more open international economic system in the wake of
World War II. One of the obligations of IMF membership, built into the institution’s
Articles of Agreement, is the removal of current account restrictions (Broome 2010;
Nelson 2010; Simmons 2000). By encouraging international trade in goods and (in-
creasingly) services, the IMF created the demand for the thing that it supplied—
resources to help states with balance of payments problems adjust without resort to
exchange restrictions.
In an open international economic system, states can run current account deficits by
borrowing from the rest of world. Deficits are not sustainable indefinitely, however. Debtor
countries depend on the willingness of the rest of the world to plug the gap between what
a state’s citizens consume and the domestic resources that can be mobilized to finance that
level of consumption. If the capital inflows that finance the current-account deficit dry up,
a state finds itself in a payments crisis. Its citizens will have to cut back, perhaps drastically,
on their consumption, and it will have trouble paying off maturing debt that was issued in
the years before the crisis.
The IMF provided liquidity available to members in order to smooth the adjust-
ment process. Borrowers could stay current on their payments without having to
make radical, socially disruptive policy changes to free up resources. If IMF officials
thought that the member’s balance of payments problems were likely to be pro-
tracted, they could approve a revaluation of the country’s currency (from 1945 to 1971
currencies were pegged to the U.S. dollar, which was itself pegged to gold at the rate
of $35/ounce).
Conditionality did not become an official part of the IMF’s toolkit until the 1960s. An
amendment to the Articles of Agreement in 1968 codified the practice that developed in
the previous decade: when a member’s drawings were small (relative to the amount that the
member deposited with the IMF as its “quota”) the loan would be free of conditions, but
loans in the “upper tranches” (above 25 percent of quota) would be released in segments,
conditional on the observance of policy targets agreed upon in advance by the IMF’s
economists and the authorities in the borrowing country (Barnett and Finnemore 2004,
pp. 57–58).
IMF conditional lending arrangements involve the provision of resources in ex-
change for policy commitments by a member country facing a current- account
adjustment problem (Ghosh et al. 2005). At the core of the IMF’s approach to balance-
of-payments problems is the identity describing the components of the current
account: CA = (Spriv − Ipriv ) + (S pub − Ipub ) . The identity tells us that a country’s current
account (CA) is simply the balance of private saving (Spriv) over private domestic invest-
ment (Ipriv) less the government’s fiscal balance (IMF 2006, p. 11). The IMF’s approach
to adjustment is built on the assumption that “balance of payments deficits stem from
an excess of domestic absorption over income” (IMF 2003, p. 23). The “classical” IMF
loan involves short-run measures to reduce domestic absorption and improve the current
account balance by “as much as is required to maintain solvency” (Ghosh et al. 2005,
p. 27).
The design of IMF adjustment and stabilization programs was based on a “financial pro-
gramming” model built in the 1950s and 1960s by staff economists, led by Jacques Polak
(who served in various top positions in the IMF from 1947 to 1986). The “Polak model,” as
it came to be known, enabled the staff members to combine the current account identity
with a handful of other behavioral relationships (including the effect of credit growth in
the economy on the banking system’s balance sheet and the velocity of money) to deter-
mine which macroeconomic policies would have to change—and by how much—in order
to meet a predetermined balance-of-payments target (Agénor and Montiel 1996, pp. 423–
425; Boughton 2010).
The modal IMF lending arrangement into the late 1970s included a target for the level
of international reserves, a sizeable reduction in the government’s budget deficit, limit on
the growth of domestic credit, and (in some cases) an exchange-rate adjustment. All of
these conditions aim at turning around an unsustainable current-account position. Fund
programs were controversial because they asked borrowers to quickly and simultaneously
impose pro-cyclical policies that depressed economic activity (Taylor 1997, p. 148). However,
the financial-programming approach said nothing about the underlying structure of the
borrower’s economy; it offered no suggestion about how much the state should or should
not intervene in domestic markets or about the optimal level of openness to international
markets.
Like the IMF, the World Bank did not get into the business of promoting market liberali-
zation in its policy-based loans until the late 1970s.2 The World Bank’s activities in the devel-
oping world historically focused on providing financing and technical assistance for public
infrastructure projects. Its founders believed that “special risks” impeded the flow of private
capital to industrializing countries, justifying the existence of an institution that “substitutes
its judgment for that of the market” (Gavin and Rodrik 1995, pp. 330–331).
The World Bank could (and did) use ex ante conditionality to screen recipients of project
lending, but it did not tie project lending to policy commitments; and, until the early 1980s,
ex post conditional lending of the type practiced by the IMF was limited to 10 percent of the
World Bank’s portfolio (Babb 2013, p. 276; Woods 2006, pp. 43–46). For thirty-five years the
IFIs’ division of labor was clear: the IMF dealt with macroeconomic stabilization and ad-
justment, and the World Bank “would deal with development programs and the evaluation
of projects” (Woods 2006, p. 44).
In 1981 the World Bank’s contribution to balance-of-payments financing in the devel-
oping world was negligible, accounting for just 3 percent of developing countries’ aggregate
current-account deficits (Bacha and Feinberg 1986, p. 334). The debt crisis that erupted the
next year spurred the World Bank into motion: it removed the cap on conditional lending
(from 1982 to the present policy-based loans have accounted for 20–30 percent of the
institution’s annual disbursements) and began to collaborate closely with the IMF to fill the
financing gaps faced by developing countries.
The World Bank’s estimate of a borrower’s financing need was based on its Revised
Minimum Standard Model (RMSM) of capacity output. The RMSM combined elements
from the national income accounting identity with a production function and behav-
ioral equations relating the relationship between savings and economic output; the model
allowed World Bank staff to calculate how much saving (domestic and foreign) was required
to achieve a growth target (Agénor and Montiel 1996, pp. 425–27). The RMSM approach is
contractionary in the sense that it recommends policies that privilege saving over consump-
tion.3 But, like the IMF’s macroeconomic model, it contains no parameters pertaining to
structural features of borrowers’ economies.
This brief overview should make clear that nothing in the IFIs’ mandates or operational
cultures necessitated the use of lending facilities to promote market liberalization. The shift
to attaching conditions requiring trade-policy liberalization, privatization of state-owned
firms, deregulation of product markets, labor-market flexibility, tax-system reform, and
other “structural” measures has its origin in the belief that developing countries needed
to move beyond the pernicious cycle of crisis → stabilization → adjustment → crisis, toward
a more sustainable model built on policies that produce “good growth.” The first public
reference to “structural adjustment” came in a May 1979 speech by World Bank president
Robert McNamara (Kapur, Lewis, and Webb 1997, p. 506); that year, Senegal became the
first African country to agree to terms of a World Bank Structural Adjustment Loan (SAL)
(Lancaster 1997, p. 166; van de Walle 2001, p. 215). The IMF’s 1980 World Economic Outlook
made reference to “structural problems faced by many countries” that “may require adjust-
ment over a longer period.” In 1985 the IMF put into place its own concessional structural
lending facility, the Structural Adjustment Fund (SAF).4
Structural conditionality expanded throughout the 1980s and into the late 1990s. The
average number of conditions in World Bank programs increased from thirty-four in 1980–
1982 to fifty-six in 1987–1990 (Dreher and Vaubel 2004: 445–46). International Monetary
Fund loans in postcommunist transition countries and in crisis-stricken East Asian coun-
tries in 1997–1998 were larded with structural policy measures. The average number of
structural conditions included in IMF programs during the 1996–1999 period topped fifty.
In the 1998 Indonesian rescue package, the list of structural policy commitment signed by
the country’s economic policy team reached 140 items (Goldstein 2003, p. 400).5
Scholars suggest different reasons for the proliferation of structural conditions in IFI
lending arrangements. In the late 1970s the mainly Keynesian officials that staffed the IFIs,
who were willing to countenance some degree of state intervention in markets, were re-
tiring. They were replaced by a new cohort of young economists who received their mac-
roeconomics training in top-ranked American departments that by the 1970s had excised
“naïve” Keynesian models of the economy in favor of models built on the assumption of
rational expectations. The neoliberal economists that entered the World Bank and IMF
were more fervent in their advocacy of the price mechanism and more distrustful of the
state’s role in guiding economic activity in developing countries (Babb 2013, pp. 272–273;
Bacha and Feinberg 1986, p. 340; Chwieroth 2010; Stiglitz 2003; Woods 2006, pp. 53–56). In
this view the economic beliefs possessed by the World Bank and IMF economists led them
to advocate market-liberalizing measures in addition to the traditional stabilization and
adjustment measures attached to conditional loans. The incompatibility of the beliefs of
IFIs’ officials and the economic policy-makers in developing countries created tension; in
Francophone African countries such as Côte d’Ivoire,
the Bank’s more recent economic ideology has seemed not only hostile but inconsistent. . . .
Part of Côte d’Ivoire’s French-schooled resistance to the Bank’s economic prescriptions has
been cultural. . . . As in France, the Ivorian official working in economic administration does
not have a doctorate; rather, he has professional training from a specialized school or an en-
gineering diploma in one of a variety of disciplines. He does not base his decisions on neo-
classical theory. (Pegatienan and Ouayogode 1997, p. 131)
Using conditional loans to press for market-oriented reform was also consistent with
the interests of the IFIs’ main shareholders (namely, the United States). Stone (2011) and
Goldstein (2003) document cases in which the United States and other powerful states
contravened the IMF’s rule prohibiting members from “all attempts to influence any
of the [IMF] staff in the discharge of functions” (Article XII, section IV) in order to
insert structural conditions that they wanted the borrowing government to carry out.
American influence on the design of lending programs could be subtler. Even if the IFIs
resist meddling by members in their day-to-day activities, they remain dependent upon
the material and symbolic resources that rich and powerful states provide (Barnett and
Finnemore 2004, p. 22). International financial institutions respond to changes in their
external environments; the market fundamentalism of the Reagan, Thatcher, and Kohl
governments of the early 1980s clearly signaled that the institutions should get on board
with the new agenda or face marginalization (Lancaster 1997, p. 168; Woods 2006, pp. 47,
142–143, 146).
Finally, the ambiguity of the mandates, the degree of complexity, and uncertainty that
IFI staff members confront in crisis-stricken developing countries and entrenched or-
ganizational cultures combine to produce a tendency toward organizational expansion
(Barnett and Finnemore 2004). Instead of sticking to the narrower goals of stabilization
and balance-of-payments support, by the 1980s the IFIs’ staff members viewed their task as
encompassing macroeconomic stabilization, crisis resolution, crisis prevention, promotion

of “sustainable” economic growth, and poverty reduction. By making the task more expan-
sive, the areas of the economy to which IMF and World Bank programs applied widened
dramatically. And if (as former IMF chief economist Kenneth Rogoff claims) “fundamen-
tally most people in the Fund believe in markets and market-based solutions to problems”
(quoted in Beattie 2011), then conditional loans will be oriented to removing market-
impeding distortions across a wide swathe of borrowers’ economies.
It is common to assume that the IMF and the World Bank jointly used conditional
lending to promote greater liberalization of foreign and domestic economic policies from
the early 1980s onward. Take, for example, comments from Joseph Stiglitz, former chief
economist at the World Bank and prominent public critic of structural adjustment lending:
The problem was that the IMF was very tied to a particular set of ideologies, models that
didn’t work in the advanced industrial countries . . .they sold that ideology to developing
countries for which it was even less suited . . . in many of these programs the World Bank and
the IMF in the eighties were partners in crime so I don’t want to say that not having the IMF
there would have solved these problems . . . the big difference is that the World Bank broke
away from that ideology much earlier.6
Most of the research reviewed in the next section also rests on the assumption that the IMF
and the World Bank promoted similarly market-oriented policy changes in the countries
making use of the institutions’ resources. The big differences between the two institutions,
however, should not be ignored. Adjustment lending was a smaller part of the World Bank’s
portfolio. And as the Stiglitz quote suggests, the World Bank’s agenda veered away from
market-oriented structural adjustment in the late 1990s. While the IMF remained focused
on macroeconomic adjustment and structural reform, the World Bank’s broad mandate
to promote “development” drew the institution into a variety of new issues, including the
quality of local and national government, corruption, human rights, the impact of develop-
ment projects on the environment, gendered aspects of project-based lending, and social
protection. Research on the IFIs’ impact on the liberalization of borrowers’ policies assumes
that any observed positive effect of lending comes through the mechanism of coercion: the
IFIs preferred greater liberalization to the status quo policy regime, and used its carrots
(material resources) and sticks (policy conditionality) to bring about desired change. To the
extent that the World Bank’s agenda has drifted away from structural policy adjustment, the
coercion model may no longer be applicable.
Determinants of Market Liberalization

in Developing Countries
The first wave of studies of the politics of market liberalization in developing countries
involved primarily qualitative evidence from comparisons of reform episodes in one or
several countries over time (Haggard and Kaufman 1992; Haggard and Maxfield 1996;
Loriaux et al. 1997; Mosley, Harrigan, and Toye 1991). The development of large data sets
that recorded discrete liberalization episodes (such as Sachs and Warner’s [1995] collection
of dates of trade liberalization and Grilli and Milesi-Ferretti’s [1995] data on the presence of
capital controls) or indices that measured the degree of market liberalization paved the way
for a second, quantitatively oriented wave of studies. The focus in the second wave has been
comparing the relative importance of different covariates of liberalizing reforms and levels
of economic openness. The simple analytical framework developed in Abiad and Mody’s
(2005) study of financial liberalization is a good starting point for thinking about the factors
that shape liberalizing policy change.
We can start by conceptualizing policy change as steps toward closing the gap between
the target goal of full liberalization in some policy area (P*i,t) and the current degree of lib-
eralization (Pi,t—1). The assumption built into this line of research is that economic policy-
makers embark on reforms because they prefer market liberalization and openness to state
intervention and closure (Abiad and Mody 2005, p. 76). Liberalization is constrained, how-
ever, by some resistance to reform, and is affected by stochastic elements (ε i,t) such that:
∆Pi ,t = α(p*i ,t − Pi ,t −1 ) + εi ,t
The status quo bias factor, α, is not fixed over time; in the models of policy reform presented
in Alesina and Drazen (1991) and Fernandez and Rodrik (1991), uncertainty over the distri-
bution of gains and losses from reforms among policy-relevant societal groups can induce
gridlock; consequently, we should expect status quo bias to be decreasing in the current
level of liberalization:
α = θ1 Pi ,t −1
In Abiad and Mody’s framework θ1 > 0, implying that previous reforms reveal information
about payoffs from further policy changes to societal actors, paving the way for deal-making
and reducing resistance to liberalizing reforms. We can thus rewrite the first equation as:
∆Pi ,t = θ1 Pi ,t −1 (1 − Pi ,t −1 ) + εi ,t
Models of policy liberalization also take into account the government’s economic
beliefs. To capture this, we can include the parameter θ2 Pi ,t −1, in which θ2 ∈[0,1]. When
θ2 approaches 1, the government is fully committed to market liberalization; when it is
close to 0, the government dislikes liberalization and would prefer state intervention and
continued barriers between the domestic and international economic realms. Directly
observing policy-makers’ beliefs is difficult (if not impossible), so researchers have to
rely on indirect indicators. The most common indirect measure of beliefs about liberal-
ization is the ideological orientation of the government. Right-wing policy-makers are
assumed to be more market-friendly than left-wing counterparts. Many researchers rely
on a dichotomous measure of the head of government’s partisan orientation. Others use
biographical information on top economic policy-makers to indirectly measure economic
beliefs. Chwieroth (2007a) and Nelson (2014), for example, code policy-makers as having
neoliberal economic beliefs if they hold graduate degrees from highly ranked American
economics departments.
Status quo bias and policy-makers’ economic beliefs help explain why some countries go
further and faster than others in achieving market-oriented reforms, but these elements are
less helpful for understanding the global liberalizing trend documented in Figures 19.1–19.3.
The “ebb and flow of liberalization” (Simmons and Elkins 2004, p. 171) that swept many
countries pointed researchers to the spillover effect that one country’s policy choices could
have on other countries’ choices. The mechanism of diffusion-via-learning (Meseguer 2006;

Simmons, Dobbin, and Garrett 2006, pp. 795–799) suggests that policy-makers in country
i will press harder for market liberalization if their own country’s performance compares
unfavorably to a peer country that pursued more extensive reforms (PEER Pi ,t −1 ):
∆Pi ,t = θ3 (PEER Pi ,t −1 − Pi ,t −1 ) + εi ,t
The pressure to catch up to the competitor country’s level of liberalization presumably

increases as the difference between the performance indicator (typically the economic
growth rate) of country i and its peer competitor (θ3) grows.
Learning is one way in which cross-national policy convergence can take place. Another
diffusion mechanism involves policy emulation among members of a group of peer coun-
tries; emulation implies that policy-makers adopt reforms in order to “conform to shared
norms and appear legitimate” (Henisz, Zelner, and Guillén 2005, p. 876; see also Simmons,
Dobbin, and Garrett 2006, pp. 799–801). For example, Brooks and Kurtz (2012) show that
capital-account liberalization in Latin America in the 1980s and 1990s diffused through peer
groups composed of countries that had imposed similar “advanced” import-substitution
development models in the 1950s and 1960s.
The IFIs’ contribution to market-oriented liberalization is posited to come through
the coercive pressure that they apply to elicit desired liberalizing reforms (Henisz,
Zelner, and Guillén 2005; Simmons, Dobbin, and Garrett 2006). Coercion implies
that the IFIs, endowed with some resources that give them leverage over prospective
borrowers, used their tools to encourage countries to pursue policy changes that they
would not have otherwise pursued. By mixing carrots (infusions of hard currency) and
sticks (conditions that must be met to access tranches of the loan), the IFIs can “alter
the domestic political balance of power in favor of reform” (Henisz, Zelner, and Guillén
2005, p. 875).
The IFIs’ individual effects on reform can be tested alongside the other covariates in the
baseline specification:
∆Pi ,t = θ1 Pi ,t −1 (1 − Pi ,t −1 ) + θ2 Pi ,t −1 + θ3 (PEER Pi ,t −1 − Pi ,t −1 ) + IMFi ,t + BANK i ,t + εi ,t
The question then becomes how important the coercive effects of IMF and World Bank
programs have been compared to other possible determinants of market liberalization.
How strong is the association between the IFIs and market-oriented reforms in the recent
empirical literature?
What Are the Effects of the IFIs on Market Liberalization?

My search of the recent (post-2000) literature on the determinants of market liberaliza-
tion yielded a sample of thirty-one studies that included indicators for lending by one (or
both) of the IFIs as a covariate(s). The studies focused on policies pertaining to foreign
economic openness and deregulation of domestic markets. Each of the studies is described
in Table 20.1.
The evidence for the association between the IFIs and market- oriented policy
reforms is mixed. In the table I record whether the coefficient for the IFI variable was
in the expected direction and statistically distinguishable from zero in the bulk of the
specifications reported by the author(s) of each study in the sample. Less than half (14/
31) of the studies provide unambiguously positive evidence for an association between
indicators for the presence of IMF and/or World Bank lending arrangements and policy
liberalization. The fact that the studies vary widely in their sampling and measurement
strategies militates against rejecting the claim that coercion, expressed through policy-
based conditional lending, played an important role in the global trend toward greater
market liberalization. Further, only a handful of the studies try to account for the World
Bank’s influence (6 in total, and only 4 that include Bank and Fund indicators separately
in the models).
Privatization of state-owned firms and product market deregulation are the only
policy areas in which the evidence for the IMF’s contribution to reform is strong.7 An
indicator for IMF influence features in 16 studies of the determinants of banking, cap-
ital account, and FDI liberalization; oddly, the association between World Bank loans
and any of these outcomes is only explored in one study (Brooks and Kurtz 2007). The
Fund’s reform-promoting track record is not very strong; 6 of the 17 studies report pos-
itive coefficients that can be distinguished from zero, and in the rest of the studies the
IMF indicator shows little correlation with the level, or change in the level, of market
liberalization.
The tendency to examine the impact of the IMF alone is particularly surprising in the
area of trade liberalization. After all, trade was a common target of conditions in World
Bank policy-based loans in the 1980s and 1990s; according to Edwards (1997: 46) “almost
70 percent of World Bank adjustment operations contained some trade-policy compo-
nent, mostly in the form of trade-liberalization conditionality.” The study that did examine
the role of the Bank in trade liberalization (Brooks and Kurtz 2007) was limited to Latin
America and reported a negative but statistically insignificant association. About half of
IMF programs between 1993 and 2003 contained trade conditions (20 percent of which
were binding performance criteria) (Wei and Zhang 2010: 72). The single study (Wei and
Zhang 2010) that directly tests for the effect of trade-related conditionality reports a positive
association with trade flows. The other studies of the impact of the IMF on trade liberaliza-
tion are inconclusive.
Sharpening Our Understanding of the IFIs’ Contributions

to Market Liberalization
In this concluding section I discuss some problems in the statistical studies and suggest
that future work consider mechanisms of IFI influence on policy reform other than
coercion-via-conditionality.
The panel studies listed in Table 20.1 compare the average effect of the IFI variable(s),
conditioning on indicators for confounding factors, to other covariates. In each year a set
of countries are observed under World Bank or IMF agreements; if we had access to a
parallel universe in which those same countries were not under IFI agreements, then it
would be simple to establish the effect of the treatment: we would just compare outcomes
Table 19.1 Studies of the Association between the IFIs and Market Liberalization
Author(s) and Publication Testing for Effect of World
Year of Study Sample Policy Area(s) of Interest Bank, IMF, or both? Key IFI-related findings
Simmons and Elkins 182 rich and Capital and current account IMF (use of credits) IMF variable is never significant in hazard
(2004) developing liberalization and models of liberalizing shifts; significantly
countries, retrenchment episodes correlated with restrictions on capital
1967–1996 account.
Abiad and Mody (2005) 35 rich and developing Financial liberalization IMF (program dummy) IMF covariate is positive in all specifications;
countries, (index) significance varies.
1973–1996
Abiad (2013) 91 rich and developing Financial and capital IMF (program dummy) Positive and significant in models of financial
countries, account liberalization liberalization; positive and insignificant for
1973–2005 (indices) capital decontrol.
Burgoon et al. (2012) 82 rich and developing Financial liberalization IMF (program dummy) Positive, but never statistically distinguishable
countries, (index) from zero.
1973–2001
Mukherjee and Singer 87 rich and developing Capital account IMF (program dummy) Positive, but insignificant; interaction with
(2010) countries, liberalization (index) welfare spending is positive and statistically
1975–2002 significant.
Chwieroth (2007a) 29 developing Capital account IMF (program dummy) Positive and significant.
countries, 1977–99 liberalization (index)
Chwieroth (2007b) 53 developing Capital account IMF (program dummy) Switches between positive and negative and
countries, liberalization (index) is insignificant; interaction with number
1977–1997 of neoliberal staff members is positive and
significant.
Brooks and Kurtz (2007) 19 Latin American Trade and capital account World Bank and IMF loan World Bank and IMF are both negative in
countries, liberalization (indices) flows (%GDP) models of trade liberalization; only IMF is
1985–1999 significant; neither IFI variable is significant
in models of capital account.
(continued)
Table 19.1 Continued
Biglaiser and DeRouen 15 Latin American General reform index and IMF (program dummy) Positive and significant only in models of trade
Jr. (2011) countries, subindices (trade, capital reform.
1980–2003 account, privatization,
tax system, and domestic
financial market
regulation)
Brooks and Kurtz (2012) Latin America, Capital-account IMF (program dummy) Positive, but insignificant 10 of 11 models
1983–2007; online liberalization (index) reported in article and online appendix.
appendix has results
for larger sample
of developing
countries.
Joyce and Noy (2008) 53 developing Capital-account IMF (new program dummies, Positively and significantly correlated with
countries, liberalization (onset and distinguish type of loan) liberalization onset dummy; correlation flips
1983–1998 various indices) between negative and positive for indexes
of openness.
Pepinsky (2013) 181 rich and Financial and capital IMF (program dummy) For bank liberalization, positive and
developing account liberalization significant; for capital account, positive and
countries, (indices) insignificant.
2005–2006
(cross-sectional)
Mukherjee et al. (2014) 85 democratic Capital-account IMF (program dummy) Positive, but statistically insignificant.
developing liberalization (index)
countries,
1975–2007
Quinn and Toyoda 82 rich and developing Change in capital-account IMF (lagged program dummy) Positive, but statistically insignificant in most
(2007) countries, liberalization index models; negative (and significant) in one
1955–1999 model.
Brune and Guisinger 114 developing Capital-account openness IMF (program dummy) Positive and significant in 5 of 6 reported
(2011) countries, (index) models
1973–2002
Pandya (2014) 94 rich and developing Foreign ownership IMF (lagged program dummy) Negative, statistically significant in half of the
countries, restrictiveness reported specifications.
1970–2000
Kobrin (2004) 79 developing Deregulation of FDI inflows IMF (“obligations” in 1991) Switches signs, insignificant.
countries,
1992–2001
(cross-sectional)
Vadlamannati and 148 rich and Deregulation of FDI inflows IMF (program dummy) Positive and significant in all specifications.
Cooray (2012) developing
countries,
1992–2009
Milner and Kubota 179 developing Tariff rates and closed/ IMF (program dummy) Coefficient switches signs and is insignificant
(2005) countries, liberalized trade dummy in tariff rate models; negative, insignificant
1970–1999 coefficient in liberalization model.
Frye and Mansfield Postcommunist Trade liberalization index IMF (program dummy) Negative and insignificant.
(2004) countries,
1990–1998
Wei and Zhang (2010) All developing IMF Trade openness (logged real Pre-and post-IMF program Trade-related conditionality positively and
member countries, bilateral imports) dummies; trade-related significantly associated with trade openness.
1993–2003 conditions
Weymouth and 104 rich and Trade liberalization (onset) IMF (= 1 if country accepted Positive and significant in 3 of 5 reported
Macpherson (2012) developing IMF credits in year t) models.
countries,
1981–1997
(continued)
Table 19.1 Continued
Kogut and Macpherson Rich and developing Privatization (onset of third IMF (= 1 if country accepted Positive and significant.
(2011) (excluding episode) IMF credits in year t)
postcommunist)
countries, 1981–97
Brune et al. (2004) 96 rich and developing Number of and revenues World Bank and IMF loan World Bank covariate is insignificant; IMF
countries, from privatizations flows (%GDP) is positive and significant for proceeds,
1985–1999 negative and significant for no. of
privatizations.
Henisz et al. (2005) 71 rich and developing Market-oriented reforms in Sum of World Bank and IMF Positive and significant for 2 of 4 types of
countries, telecommunications and credit (%GDP) liberalizing reforms.
1977–1999 electricity industries
Zelner et al. (2009) 61 rich and developing Renegotiations of privatized Sum of World Bank and IMF Negative and significant.
countries, electricity contracts to credit (%GDP)
1989–2001 reduce investors’ income
stream
Bjørnskov and Potrafke 19 postcommunist Privatization index World Bank projects and IMF IMF is positive and significant in 1 of 4
(2011) countries, programs models; World Bank switches signs and is
1990–2007 insignificant.
Doyle (2012) 18 Latin American Privatization revenues IMF loan flows (%GDP) Positive and usually significant; negative when
countries, interacted with Left government variable.
1984–1998
Dreher and Rupprecht 116 countries, Economic freedom index IMF (program dummy) Negative and significant association with
(2007) 1970–2000 overall index; 2 of 5 index sub-components.
Boockmann and Dreher 85 countries, Economic freedom index World Bank and IMF (annual Jointly significant; volume of World Bank
(2003) 1970–1997 change in stock of credits credits is negative; number of projects
and number of ongoing positive (both significant); IMF covariate is
projects) insignificant.
Kingstone and Young 15 Latin American Structural reform index and IMF (program dummy) Positive and significant correlation with index;
(2009) countries, sub-components 4 of 5 components.
1975–2003
for those countries in the two universes. Living as we do in the universe and not the multi-
verse makes our task harder. We have to compare country-year units under and not under
IFI agreements, and there may be confounding factors that systematically predispose the
“treated” units to be under IFI arrangements—and those confounding factors may also
affect policy liberalization. Some of the studies in Table 20.1 attempt to correct for selec-
tion bias. Most do so by estimating two-stage selection models, an approach that, in other
contexts, has been criticized for yielding unreliable estimates (Gilligan and Sergenti 2008;
Simmons and Hopkins 2005). Recent innovations that enable analysts to construct matched
units that are observably equivalent but for the treatment (in this case the presence of an IFI
conditional lending arrangement) offer a promising fix for the selection problem.8
The congruence between concept and measurement is another perennial problem in
studies of the determinants of market liberalization in developing countries. The coercion
mechanism implies that the IFIs elicit reforms by tying money to policy commitments.
Coercion’s effectiveness is established by evidence that the borrower adjusted the policies
targeted in the loan agreement in order to continue to draw on the IFI’s resources (Simmons,
Dobbin, and Garrett 2006, p. 791).
A lack of evidence for an association between IMF conditionality and trade liberalization
does not disconfirm the coercion mechanism if trade conditions were not included in the
loan agreement. The weak association between IMF programs and capital-account decon-
trol is unsurprising in light of the fact that almost no IMF loans contain conditions related
to capital controls (Tomz 2012, p. 703). A number of studies show that IMF programs vary in
the extensiveness and content of conditionality (Goldstein 2003; Nelson 2014; Stone 2011),
yet only one of the thirty-one studies surveyed in this chapter tests for the effect of the type
of conditions. Wei and Zhang’s (2010) study should serve as a model for future work; not
only do the authors record the number of trade conditions in IMF programs, but they also
use this information to construct a difference-in-differences estimator (by conditioning on
the presence of IMF programs and comparing countries with and without trade conditions)
that mitigates the selection-bias problem. Analysts could use the data on labor-market con-
ditionality in IMF programs (1980–2000) collected by Caraway, Rickard, and Anner (2012),
for example, to design a study similar to the one set up by Wei and Zhang.
Few of the studies surveyed in this chapter examine compliance with IFI condition-
ality. The ideal test of the coercive effect of the IFIs on market liberalization would control
for borrowers’ compliance rates. Compliance with IFI conditionality, however, is hard to
measure. Some rely on program completion rates to infer compliance (e.g., Goldstein 2003).
By gathering data on the ratio of the funds accessed to the funds promised when the pro-
gram was signed one can infer that underutilization was due to suspension of the program
in response to rampant noncompliance. The problem with this measure is that it might
miscode countries that were perfectly compliant and left programs early due to improve-
ment in economic conditions as well as countries that missed one or several conditions and
continued to draw down the loan thanks to waivers.9 Another option is to use the IFIs’ own
assessments of the implementation of structural conditions; Wei and Zhang (2010, p. 80)
take this approach in their study. This approach hinges on the assumption that the IFI staff
members’ judgments reflect dispassionate weighing of the information and are not affected
by the incentives to overstate the implementation rate.
Researchers should also be wary of the “perils of pooling” (Blonigen and Wang 2004). The
studies in table 20.1 report estimates of the average partial correlation between indicators
for the presence of the World Bank and the IMF and the indicators for the degree of market
liberalization. By looking only at the average effect, we might miss big differences in how
the IMF’s and World Bank’s programs have affected different types of countries. Variation
in the level of economic development of countries under IMF lending arrangements is
huge: the per capita GDP level of the poorest country that received a conditional loan after
2008 (Burundi) was $53,180 less than the per capita GDP of the richest post-2008 IMF bor-
rower (Iceland). Countries vary in their sensitivity to the coercive pressure applied by the
IMF and World Bank. It is likely that the richer, larger countries were better able to resist
the pressure applied by the IFIs through conditional lending. Grigore Pop-Eleches (2009)
argues that when countries whose economic health is integral to the functioning of the
global financial system are plunged into crisis, they can count on special treatment from
the IMF. The evidence suggests that the IMF is more likely to grant waivers for missed
conditions to Turkey than to the Guinea-Bissau. Country classifications developed by the
international community of professional investors matter as well; the subset of countries
that are classified as “emerging market economies” often have an outside option that coun-
tries in the “developing country” classification do not: they can raise funds in the sovereign
debt market. We are likely to miss some important differences in the relationship between
the IFIs and their borrowers when we look only at the average effects from a sample that
lumps all types of borrowers together.
The empirical literature on the IFIs’ role in the wave of market liberalization assumes
that the effect of the IMF and World Bank comes through the coercive pressure they can
apply. Even the most ardent believers that the IFIs have been in the vanguard of market
liberalization would be forced, looking at the results of the studies listed in Table 20.1, to
admit that the evidence for the coercive effect is weak. But the IFIs’ positive contribution
to market-oriented reform need not come only through its use of carrots and sticks. One of
the obligations of membership in the IMF (which now tallies 188 countries) is the removal
of restrictions on current-account transactions. The IMF does not have the coercive tools to
enforce the membership requirement, yet as Simmons (2000) and Simmons and Hopkins
(2005) argue, there is a high rate of compliance with the obligation (see von Stein 2005).
Evidence shows that opening the current account makes it much more likely that a country
will open its capital account (Aizenman and Noy 2009).
The IFIs can also indirectly influence market liberalization by affecting the terms in the
baseline model sketched earlier in this chapter. The status quo bias is highest when liber-
alization is in its incipient stages, and with each incremental step toward full liberalization
societal resistance declines (Abiad and Mody 2005, p. 76). A number of developing coun-
tries have been prolonged users of IFI resources. Thirty-six countries in Bird, Hussain, and
Joyce’s (2004) data set spent more than half of the years between 1980 and 1996 under IMF
arrangements. The research discussed in this chapter does not address the possibility that
the IFIs’ main effects are additive, nonlinear, and work through the adjustment factor rather
than through coercion.
Future work should also consider the possibility that the IFIs’ influence on the wave of liber-
alization came mainly through their efforts to reshape policy-makers’ economic beliefs. Both
the World Bank and the IMF devote significant resources to research aimed at disseminating
lessons about liberalization experiences (Simmons, Dobbin, and Garrett 2006, p. 798). They
also have important roles in training government officials; based on the data presented in
Arezki, Quintyn, and Toscani (2012), the IMF’s Institute for Capacity Development (formerly
called the IMF Institute) trained over 2,500 officials each year between 1995 and 2010. IMF-
trained officials that gain influence over policy decisions may be more likely to pursue liberal-
ization, whether they are under a loan agreement or not. Arezki, Quintyn, and Toscani (2012)
find that IMF programs are more likely to yield structural reforms when a sizeable share of a
borrowing country’s public servants received IMF training.
There is a large literature in the field of international relations (IR) that focuses on how
international organizations like the IMF and the World Bank can serve as the promoters
of policy norms. Policy norms, as defined by Park and Vetterlein (2010, p. 4), are “shared
expectations for all relevant actors within a community about what constitutes appro-
priate behavior, which is encapsulated in (Fund or Bank) policy.” From this perspective
the power of the IFIs to produce policy change extend far beyond their coercive capacities.
International organizations like the World Bank and the IMF are “in authority” by dint of
the ability, formally delegated by the rules of membership and the mandate guiding the
institution, to exert governance in some issue areas; they can also act as “an authority”
through the perception that their judgments reflect expert knowledge and are thus legiti-
mate (Barnett and Finnemore 2004, pp. 22–26). International institutions can shape states’
policies by setting the standards for what constitutes appropriate behavior in international
society (Finnemore 1996).
The quantitative turn in the study of the IFIs impact on domestic and foreign economic
policy liberalization yielded a sizeable set of studies that, taken together, suggest that the
IFIs contribution to policy liberalization was mixed. More research on the indirect effects of
the IFIs might reveal the heretofore submerged but important ways in which the IFIs served
as drivers of the post-1979 wave of economic liberalization.
Notes
1. My calculation, converted from the IMF’s currency unit (Standard Drawing Rights)
to U.S. dollars, of the total amount approved for disbursal in 210 post-2002 lending
arrangements listed in the Monitoring of Fund Arrangements (MONA) database, accessed
here: http://www.imf.org/external/np/pdr/mona/index.aspx.
2. The World Bank is a multifaceted organization consisting of five separate agencies. The
International Bank for Reconstruction and Development (IBRD) and the International
Development Association (IDA) are the units that are primarily responsible for lending to
developing countries.
3. In the early 1980s the IMF’s financial programming model and the World Bank’s RMSM
were “reconciled” under a common framework by two IMF economists, Mohsin Khan,
and Nadeem Haque, seconded to the World Bank by then-vice president Anne Krueger
(Kapur, Lewis, and Webb 1997, p. 480; Boughton 2010).
4. The SAF was superseded by the Enhanced Structural Adjustment Facility (ESAF) in 1989,
which was itself replaced by the Poverty Reduction and Growth Facility (PRGF) in 1999.
5. Granted, few of those structural conditions were binding “performance criteria” (PCs), vi-
olation of which will automatically trigger suspension of further disbursements (unless the
borrower requests and is granted a waiver for noncompliance). Structural PCs are far less
common than nonbinding structural “benchmarks” in IMF programs; in Nelson’s (2014)
data set of 486 conditional loans from 1980 to 2000, the average number of structural per-
formance criteria in the loans was 1.45.
6. I transcribed Stiglitz’s comments from a BBC radio documentary, available here: http://

www.bbc.co.uk/worldservice/documentaries/2011/01/110109_documentary_inside_the_
imf_stephanie_flanders.shtml.
7. Privatization and public enterprise reform was the third most common type of structural
condition in the sample of IMF programs (1996–1999) analyzed by Goldstein (2003).
8. Statistically driven matching is not an uncontroversial approach; see, for example, the de-
bate between von Stein (2005) and Simmons and Hopkins (2005).
9. Nelson (2014) and Stone (2011) examine the covariates of waivers issued by the IMF.
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Chapter 20
Foreign A i d a nd
Demo cratiz at i on i n
Dev el oping C ou nt ri e s
Danielle Resnick
The emergence of the good governance agenda in the early 1990s brought concerns over
institutions, public sector management, and politics more broadly to the fore for the de-
velopment community. After fading in prominence in the 2000s, the commitment to good
governance was recently reaffirmed when the U.N. Secretary General’s High-Level Panel
on development beyond the Millennium Development Goals (MDGs) declared: “We are
calling for a fundamental shift—to recognize peace and good governance as core elements of
wellbeing, not optional extras” (United Nations 2013). For many bilateral donors belonging
to the Organization for Economic Cooperation and Development (OECD), good govern-
ance has become equated with democracy, which is viewed as the regime most conducive
to addressing powerlessness, providing accountability, and creating legitimate institutions
(e.g., DFID 2007; USAID 2013).
However, can donors influence democracy through foreign aid? The existing, primarily
statistical scholarship examining the relationship between aid and democracy offers mixed
and sometimes contradictory outcomes. On the one hand, aid has been found to dem-
onstrate a positive association with democracy in Africa (Goldsmith 2001), during only
the post–Cold War era (Dunning 2004), but only if allocated by traditional OECD donors
(Bermeo 2011) or if in the form of U.S. democracy assistance (Finkel et al. 2007). On the
other hand, some notable studies have uncovered that aid either exhibits no effect on de-
mocracy (Knack 2004) or that it can even exert a negative influence by undermining the
capacity of state institutions (Bräutigam and Knack 2004; Djankov et al. 2008; Moss et al.
2008). Others have argued that aid’s impact depends on whether a country has already
engaged in economic liberalization (Kalyvitis and Vlachaki 2012) or whether the ruling
regime is firmly authoritarian or already engaged in some degree of political liberaliza-
tion (e.g., Bueno de Mesquita et al. 2003; Dutta et al. 2011; Kono and Montinola 2009;
Morrison 2009).
This article builds on at least three key issues that emerge out of the research-design
strategies and findings from this scholarship: First, since foreign aid encompasses a broad
410 Danielle Resnick
range of objectives, including economic welfare, security and stability, and humanitarian
support, there is little value to examining it as a monolithic resource. Instead, the focus
here is on the largest type of foreign aid, which is development aid, and on the most
relevant type of aid for democracy, which is known as democracy assistance. Second,
democracy as an outcome variable connotes multiple meanings; therefore, greater ana-
lytical value and policy relevance can be gained from examining aid’s impact on demo-
cratic transitions separate from its influence on democratic consolidation. Third, much of
the existing scholarship heavily emphasizes quantities of aid rather than considering the
mechanisms through which it is disbursed. Instead, I focus here on three mechanisms: the
diffusion of norms and knowledge, the provision of incentives, and the employment of
coercion.
By examining both development aid and democracy assistance, I argue that coercion
has been most conducive at influencing democratic transitions and addressing breakdown.
Norms and knowledge diffusion as well as incentives are more directly influential, in both
positive and negative ways, on issues of accountability and competitive party systems. After
defining different types of foreign aid, I then provide a conceptualization of the democrati-
zation process. Subsequently, the mechanisms linking different types of aid with elements
of democratization are discussed. This is then followed by an analysis of how well these
mechanisms have worked in practice before concluding.
Defining and Disaggregating

Foreign Aid
As noted above, foreign aid encompasses a wide range of resources, two of which include
development aid and democracy assistance. Development aid includes resources aimed at
generating inclusive and sustainable growth and reducing poverty through interventions
in sectors such as agriculture, education, health, water and sanitation, and transport.
Development aid first gained prominence in the wake of World War II as a resource for
postwar construction in Europe. Since then, its main objectives have changed throughout
the decades. While infrastructure was given priority in the 1960s, macroeconomic growth
and structural adjustment became the focus in the 1980s. As a consequence of the Heavily
Indebted Poor Countries (HIPC) initiative, the Poverty Reduction Strategy Papers, and the
MDGs, poverty took center stage in the late 1990s and early 2000s (see Hjertholm and
White 2000; Temple 2010).
The current aid regime focuses on a broad range of interventions, but stresses a change
in modalities that revolve around the “partnership model.” This model was elaborated most
extensively through the 2005 Paris Declaration on Aid Effectiveness, which highlighted
five partnership commitments: (1) ownership by recipient governments, (2) alignment of
donors with national development strategies and institutions, (3) harmonization of donor
interventions, (4) results-based frameworks, and (5) mutual accountability for results
between donors and recipients (OECD 2005). This in turn led to greater diversity of
modalities that included not only the traditional project and technical assistance, but also
the increasing adoption of program-based approaches (PBAs).
Foreign Aid and Democratization in Developing Countries 411
Program-based approaches are intended to deliver development aid based on lead-

ership by the host country, a single comprehensive program and budget framework, a
formal process for donor coordination and harmonization, and the use of local systems
for program design, implementation, and evaluation (Leiderer 2010). These approaches
have been most clearly epitomized through the use of budget support, which is delivered
directly to a recipient government’s treasury and thereby ensures that the aid is managed
in accordance with the recipient government’s budgetary procedures (OECD 2006).
More specifically, general budget support is un-earmarked funding to support the
government’s policy priorities as outlined in a national development plan while sectoral
budget support funds a development program for a particular sector (Koeberle et al.
2006).1
Democracy assistance is only one tool for broader democracy promotion and can be
offered to both governments and nongovernmental organizations. Although democracy
assistance also has a long history, its visibility became more prominent during the 1990s as
much of the developing world experienced a wave of political liberalization. During this
period, a number of bilateral aid agencies began to establish democracy and governance
units, initially focusing on elections as well as strengthening judiciaries and legislatures (see
Burnell 2000; Carothers 1999, 2010). More recently, civil society has been a key area of em-
phasis (Carothers and Ottaway 2000).
The United States, the European Union, and the United Nations Development
Program constitute the largest providers of democratic assistance.2 But, the field is also
populated by a large number of party foundations and international nongovernmental
organizations, including the National Democratic Institute (NDI) and the International
Republican Institute (IRI) in the United States, the German party foundations (e.g.,
Friedrich Ebert Stiftung, Konrad Adenauer Stiftung, etc.), the Netherlands Institute for
Multi-party Democracy (NIMD), Britain’s Westminster Foundation, and the Swedish-
based International Institute for Democracy and Electoral Assistance (IDEA). Aside
from some areas of electoral assistance, the field of democracy assistance has thus far
focused less on donor harmonization than witnessed in the broader development aid
community.
While development and democracy assistance are not mutually exclusive and have
many overlapping areas, they do have different ontological foundations regarding how
to achieve democracy. Specifically, development practitioners view aid as a means of
supporting democracy in the medium-to long-term, as growth and socioeconomic shifts
result in stronger institutions and lead citizens to demand greater political liberalization
(Carothers 2009). By contrast, democracy aid focuses on supporting change in the short-
to medium-term (Finkel et al. 2007), drawing attention to the capacity of key actors, the
existing degree of political freedoms, and the space for contestation (Carothers 2009). In
addition, those engaged in democracy aid may view recipient governments as a potential
hindrance to greater political freedoms, while (as noted previously) the development com-
munity increasingly views recipient governments as partners (Carothers 2010; Unsworth
2009; Wollack and Hubli 2010). From a substantive perspective, democracy aid offers few
“carrots” or “sticks” compared with the leverage that development aid can exercise through
conditionality (Carothers 1999), especially since democracy aid remains a very small share
of total foreign aid.
Conceptualizing Democratization
As a consequence of these differences, both types of aid can theoretically demonstrate very
different impacts on democratization. To understand how, a more detailed conceptualization
of democratization is required. Reflecting a now mainstream distinction, democratization
can be distinguished between transitions and consolidation. Transitions refer to a delimited
period of time when a country shifts from a one-party regime to one where multiple parties
are allowed to compete for office through elections (see O’Donnell and Schmitter 1986).
Consolidation is a longer-term, ongoing, and iterative process that Schedler (1998)
aligned along a continuum with “negative” and “positive” poles. On the negative end, con-
solidation involves avoiding democratic breakdown or the erosion of democratic gains by,
for example, suppressing civil liberties and undermining political institutions. On the posi-
tive end, consolidation essentially consists of deepening democratic gains by supporting the
actors and institutions necessary for promoting transparent, accountable, legitimate, and
effective governance.3 In this article, attention is specifically given to horizontal and ver-
tical accountability, as well as competitive party systems. Horizontal accountability refers
to restraints imposed among equals, such as by one state institution on another. Vertical
accountability integrates power asymmetries and can involve accountability upward, from
local administrators to national ministries, and downward, from politicians to voters (see
O’Donnell 1994; Lindberg 2009). Political parties are key actors for facilitating both types
of accountability; however, in many developing country contexts, the opposition faces an
uneven playing field vis-à-vis typically better-funded and established incumbent parties.
Importantly, such a continuum is useful for reinforcing the now well-recognized obser-
vation that democratization is not a teleological process but one that involves both progress
and setbacks. Such disaggregation is also much more likely to reflect the realities that con-
front the democracy aid community as it aims to address specific elements conducive to de-
mocracy, depending on where a country sits on the continuum at any given time. Relatedly,
it allows for a more nuanced analysis of aid’s role than is possible by looking at the aggregate
relationship between levels of aid and a country’s overall level of democracy as measured by
typical indicators, such as Polity IV and Freedom House data.
External Actors and Democratization:

What Role for Aid?
There is a growing scholarly recognition that a broad array of external actors play a
nonnegligible part in a country’s democratization (see Beaulieu and Hyde 2009; Geddes
1999; Pevehouse 2005; Schmitter 1996; Welzel 2009; Whitehead 1996). To understand aid’s
particular role in this process, research must move beyond simply examining the relation-
ship between aid and democracy in terms of aggregate aid flows. Instead, at least three key
mechanisms that have been identified with other types of external influences on democ-
ratization are also relevant here: the diffusion of norms and knowledge, the provision of
incentives, and the employment of coercion.4
Diffusion of Norms and Knowledge

The diffusion of norms and knowledge can occur through both direct and indirect
channels. Indirectly, such diffusion can revolve around demonstration effects as demo-
cratic transitions in one country encourage similar patterns in neighboring countries. This
certainly played a role in the political liberalization witnessed during the 2011–2012 Arab
Spring, when events in Tunisia encouraged pro-democracy activists in other parts of North
Africa and the Middle East to protest for similar changes. Demonstration effects were clearly
present in sub-Saharan Africa when twenty-nine countries held multiparty elections in the
five-year period between 1989 and 1994 (Bratton and van de Walle 1997). More generally,
democratization historically occurs in geographic clusters (Pevehouse 2005; Whitehead
1996), with Gleditsch and Ward (2006) finding that the probability of a country shifting
from an autocracy to a democracy increases by 10 percent when at least 75 percent of a
country’s neighbors are democracies.
Such diffusion can occur in a variety of ways. One way is through the international
media, which Huntington (1991) pinpointed as a catalyst for the wave of democratization
witnessed during the 1980s. Another is through transnational networks of nonstate actors,
such as religious, labour, and civil society organizations that have advocated for democratic
transitions and greater civil rights in existing democracies (see Keck and Sikkink 1998).
Epistemic communities, which refer to networks of professionals with recognized expertise
and authority in a particular domain (Haas 1992), represent another facilitator of diffusion.
International agreements can likewise generate rhetorical commitments to uphold certain
pro-democracy norms, as demonstrated by Thomas’s (2001) analysis of the impact of the
nonbinding Helsinki Accords on human rights practices in Eastern Europe.
Norm diffusion about democracy has played a substantial role in the aid community. As
noted earlier, the 1990s represented a watershed period when a number of major aid or-
ganizations began to stress the importance of political freedoms and competitive elections.
For instance, the British government announced in 1990 that political freedom was essen-
tial for socioeconomic progress in Africa, while the United States Agency for International
Development (USAID) announced that progress toward democratization would be a
criteria for aid allocations (Nelson 1992). Around the same time, French president Francois
Mitterand announced that French aid would be more enthusiastically disbursed to those
regimes initiating democratic transitions, and the World Bank pinpointed poor govern-
ance as a major hindrance to Africa’s development (Casteran and Sada 1990; World Bank
1992). Since then, a coterie of governance and democracy experts within aid agencies and
NGOs, ranging from constitutional lawyers to election monitors, increasingly constitute
an epistemic community that provides technical assistance on the means for achieving and
reinforcing democratic values and institutions.
Provision of Incentives
Incentives, particularly the provision of material benefits or international clout in return for
countries and leaders acting in a pro-democratic manner, represent a second mechanism.
For instance, regional economic organizations such as the Organization of American
States (OAS), the Southern Common Market (MERCOSUR), and the European Union
(EU) require that member states demonstrate certain democratic credentials in order to be
admitted and enjoy preferential treatment (see Pevehouse 2002). According to Mansfield
and Snyder (2007), EU entry was certainly a motivator for countries like Slovakia and
Romania to address their human rights records. Other incentives have come from the
global business community, such as the Mo Ibrahim Prize, which was established to re-
ward African leaders who were elected democratically for adhering to their term limits
and demonstrating a commitment to sustainable and equitable development. Likewise,
Levitsky and Way (2006) refer to the concept of “linkage” whereby strong diplomatic, po-
litical, economic, and social ties, especially with Western countries, can create incentives
for governments to adhere to democratic norms so as to avoid putting valuable investment
prospects and relationships at risk.
Incentives are implicit within the selectivity approach to aid whereby donors allocate
more aid to those countries that adhere more closely to the governance behaviors, both
economic and political, preferred by the donors. In practice, the practice of selectivity is
uneven. While Dollar and Levin (2004) found that donor disbursements are higher to
countries that meet at least a minimum democratic threshold, Easterly and Pfutze (2008)
observed that 80 percent of development assistance goes to countries deemed to be only
“partly free” or entirely “unfree” by Freedom House. Not surprisingly, the decision to
apply aid selectivity, and to do so consistently, varies according to the donor. According to
Gates and Hoeffler (2004), the Nordic donors reliably tend to provide more aid to coun-
tries with better human rights records than donors such as USAID or the Department for
International Development (DFID) in the United Kingdom.
In some cases, specific agencies and modalities were initially designed to provide ex ante
incentives for countries to engage in and sustain political reforms. For instance, the United
States’ Millennium Challenge Corporation (MCC) notes that its grants are allocated only
to countries that, along with “investing in people” and “fostering economic freedom,” show
positive performance at “ruling justly” (see Radelet 2003). Herrling and Radelet (2009) be-
lieve that the MCC incentive approach has encouraged potential recipients to embark on
significant policy reforms to become eligible for MCC aid. But the MCC budget is relatively
small compared with other U.S. donor organizations, and its board of directors has the dis-
cretion to allow assistance to go to even noneligible countries (Carothers and de Gramont
2013).5 Likewise, a country’s eligibility for multi-donor budget support is, in theory,
supposed to depend on the recipient government’s commitment to four underlying prin-
ciples, one of which is democratic accountability, participation, and human rights (Faust
et al. 2012).6 Some major budget support donors have pushed this even further in recent
years. The European Union, for example, has required that budget information needs to be
publicly disclosed, and calls for the engagement of legislatures, civil society, and subnational
authorities into budget support arrangements (European Commission 2011).
Employing Coercion
Coercion represents the most explicit mechanism for democratization. In its most ex-
treme form, it has involved military interventions to install or preserve a threatened dem-
ocratic regime. Besides the recent and controversial examples of Afghanistan and Iraq, key
instances of such intervention include Germany and Japan at the end of World War II,
Panama in 1989, Haiti in 1994, Lesotho in 1998, and Kosovo in 1999. Economic coercion in
the form of trade and financial sanctions has been used by democracies to promote human
rights and political liberalization in other countries (see Cox and Drury 2006). However,
notwithstanding the notable contribution of sanctions to ending apartheid in South Africa,
the record on the ability of sanctions to facilitate democratization remains relatively mixed
(see Hufbauer et al. 2007).
In the aid community, ex post conditionality is tantamount to a subtle form of coercion.
While the ex ante incentives discussed previously involve the use of selectivity to entice
governments to reform before aid is disbursed, coercion involves withholding or rescinding
aid when violations of democratic norms occur. The difference is between forfeiting the
opportunity of obtaining additional resources versus losing resources that were already
budgeted by governments.7 For instance, in the 1990s, bilateral donors punished undem-
ocratic behavior among recipients by withholding aid to recipients that did not hold free
and fair elections. During that decade, this trend was particularly pronounced in Africa,
where there were at least twenty-five cases of political conditionality (Bratton and van de
Walle 1997). Multilateral donors tend to eschew the use of political conditionalities, and
even among bilaterals there are notable differences in preferences. During the 1990s, for
example, the United States was more active at applying political conditionalities than the
United Kingdom and Sweden (see Crawford 2001).
Assessing the Effectiveness
of the Mechanisms
These various mechanisms have demonstrated disparate success on different elements of

the democratization process. In this section, consideration is given to the impact on both
transitions and consolidation. Coercion attached to development aid has had the most
leverage with regards to encouraging transitions to multiparty regimes, and to reverse
breakdowns, but less so with regards to supporting the positive pole of consolidation. The
reverse is generally true for the use of incentives and diffusion, although there are certainly
instances where both have worked in tandem with coercion to facilitate transitions.
Coercion, Transitions, and Breakdown

Starting primarily in the 1990s, economic policy and political conditionality played
a more visible role in influencing regime type. The former, when imposed in a context
of economic crisis, can exacerbate domestic discontent. In Benin, the World Bank and
International Monetary Fund (IMF) required the implementation of unpopular economic
austerity programmes in the mid-1980s to correct for inefficient parastatals, corruption,
and broader mismanagement of the economy. The suspension of aid, in response to the
Kérékou regime’s unwillingness to comply with these conditions, bankrupted the state and
led to lengthy arrears in civil service salaries and student scholarships. In turn, widespread
protests erupted, eventually prompting President Kérékou to hold a national conference in
1989 among different stakeholders, which ultimately paved the way to multiparty elections
(Westebbe 1994). A similar dynamic occurred in Zambia during the 1980s, forcing President
Kaunda to hold multiparty elections in 1991 (Joseph 1997).
Political conditionalities were more explicitly aimed at delegitimizing repressive, one-
party regimes. In countries such as Thailand and Guatemala, the suspension of aid led the
military junta and President Serrano, respectively, to relinquish power. In Africa, Bratton
and van de Walle (1997) observed that only eight cases of political conditionality during
that period ended in a democratic transition. A key example was Malawi where donors
suspended aid in the wake of the deaths of forty pro-democracy protesters who opposed
President Hastings Banda’s autocratic regime, prompting him to hold a referendum on mul-
tiparty rule (see Brown 2004; Roessler 2005). Another case was Kenya, where President
Daniel Arap Moi ultimately legalized opposition parties in the wake of donor threats to
withhold US$350 million in new aid (Brown 2001).
More recently, the 2009 coup in Madagascar resulted in key donors, including the United
States and the European Union, suspending all nonhumanitarian aid until the resump-
tion of multiparty rule (Ploch and Cook 2012). Four years later, the coup leader, Andry
Rajoelina, finally conceded to elections from which both he and the leader he ousted, Marc
Ravalomanana, abstained. Likewise, in the wake of Mali’s 2012 coup, key donors froze non-
essential aid until elections were held and resumed assistance upon the election of Ibrahim
Keita as president in 2013 (see Arieff 2013).
Even though it is not always effective, the mechanism of coercion appears to have the most
impact with regards to transitions rather than for the more long-term process of democratic
consolidation. The reason is that transitions are often equated with a distinct outcome, which
is the holding of multiparty elections, and therefore donors can attach this specific demand
to their aid sanctions and easily verify whether it has been achieved. For instance, Wright
and Winters (2010) show that since about 1990, aid has been allocated to reward contestation
(i.e., elections), rather than inclusiveness. The ability of conditionality actually to result in
transitions depends on, among other things, how aid-dependent the country is, how much
aid is withheld and by which donors, the degree of grassroots support for reform, and the
constellation of stakeholders that uphold the regime. Wright (2009), for example, focuses
on the period from 1960 to 2002 and finds that aid exerts a positive influence to liberalize in
dictatorships supported by a broad range of stakeholders with distributional demands.
However, in some cases, the most powerful approach for donors to assist with transitions
has been the combination of coercion with other mechanisms. For instance, the dual role
of coercion and incentives on transitions is vividly illustrated in Myanmar. Since 1988, aid
and trade sanctions from Western countries increased the isolation of that country’s mil-
itary regime. Yet, in 2009, the military government was informed by key Western coun-
tries, including the United States, that sanctions could be removed or relaxed entirely if
certain criteria set in existing U.S. law were met (Martin 2013). The subsequent release by
the junta of political prisoners, the holding of by-elections, and the provision of press free-
doms were met with commitments for incremental donor assistance from the Paris Club
bilateral donors, the United Nations Development Programme (UNDP), and the World
Bank (Nehru 2012).
Likewise, the diffusion of norms and knowledge by NGOs and party foundations in au-
tocratic regimes that have been targeted with aid sanctions has assisted domestic actors
keen to push for greater democratic openings. Angell (1996) notes the importance of the
democracy aid community in contributing to the end of Augusto Pinochet’s military rule
in Chile through voter education and voter registration drives in preparation for the 1988
referendum on military rule. Similarly, McFaul (2007) emphasizes the role of IRI and NDI
in the Ukraine’s 2004 Orange Revolution by strengthening opposition forces and helping
the independent media monitor instances of electoral fraud.
The power of coercion to result in transition, however, is very much limited by the lack of
coordination across donors and by the inconsistent application of conditionality over time.
A number of factors have been highlighted as hindering coordination, including whether
economic or security interests are at stake or donors possess historical ties to a recipient
country (Crawford 2001; Levitsky and Way 2006). According to Levitsky and Way (2006),
donors are most concerned with democratic abuses when they have greater linkages with
a recipient country due to economic ties, geopolitical reasons, high cross-border flows of
people and communications, and strong transnational civil society relationships. For in-
stance, Bunce and Wolchik (2011) note that the United States has been much less likely to
put donor pressure on autocrats in countries where there were important energy and secu-
rity interests, such as Armenia and Azerbaijan, than they have been in other postcommunist
countries. The partisan leanings of the government in the donor country can also be a
driving factor, with strategic foreign policy partners tending to be favored in donors with
right rather than left governments (Bermeo et al. 2011).
Coercion and Democratic Erosion

The lack of coordination becomes more pronounced when the concern is democratic ero-
sion rather than transitions or even breakdown. Based on a data set of aid allocations to
118 developing countries between 1981 and 2004, Nielsen (2013) finds that donors impose
sanctions erratically in cases of human rights violations and are more likely to do so if the
recipient country lacks close ties with donors, if the violations have been widely publicized,
and if human rights abuses have negative implications for donors, such as increased refugee
flows. Similarly, Boulding and Hyde (2009) uncover from a comprehensive data set of all
donor–recipient dyads from 1990 to 2000 that, while donors do respond to nondemocratic
action, they react more readily to dramatic events such as political violence and coups
than to a slow deterioration in civil liberties. Indeed, some of this is due to explicit legal
proscriptions by certain donors, such as the United States, against dramatic democratic
breakdowns precipitated by military coups.8
By contrast, guidance on reacting to the full spectrum of potential democratic erosions
is often less clear. Increased intolerance and suppression of the independent media,
academics, and homosexuals in Malawi in 2011 was met with a tepid response by the donor
community, with only Germany reacting quickly to suspend part of its support (see Resnick
2013a). Even harassment of opposition leaders during elections has resulted in schizo-
phrenic policy responses by donors according to the level of violence that occurs. Rwanda’s
2003 fraudulent parliamentary elections, which effectively banned any opposition parties
from competing, resulted in only the Netherlands withholding a meager level of aid (see
Reyntjens 2013). Yet, the United Kingdom, European Commission, and a number of other
donors froze their budget support to Ethiopia in the wake of the country’s 2005 electoral
violence that left forty-six people dead.
Given the heavy emphasis on ownership in the Paris Declaration, donors may be loath
to circumscribe the sovereignty of recipient countries when there is a lack of consensus
about which democratic erosions are completely unacceptable and which are just mildly
inconvenient. As Carothers and de Gramont (2013) note, donors also may be more willing
to withdraw aid to countries that are governing badly across the board, such as Zimbabwe,
than to those that are committed to economic development but not necessarily democ-
racy, such as Ethiopia and Rwanda. In the latter countries, the specter of past civil conflict
can project a long shadow. Given that aid volatility has been associated with civil conflict
(Nielsen et al. 2011), using coercion to start and stop the aid tap can create worries about
social instability, an erosion of socioeconomic gains, and a diminished capacity for donors
to engage in constructive dialogue.
Accountable Government and Competitive Party Systems

The diffusion of knowledge through democracy assistance and incentives attached to de-
velopment aid have been most prominent with regard to the positive pole of consolidation.
One of democracy aid’s most visible roles has been supporting the quintessential mech-
anism of downward vertical accountability: elections. As of 2011, donors committed ap-
proximately US$456 million for electoral assistance.9 Resources from donors for elections
and technical expertise provided to electoral commissions have been particularly important
in postconflict countries and countries that only recently transitioned to multiparty rule. In
Mozambique’s first postwar elections in 1994, seventeen donors provided US$59.1 million
and created an US$18 million electoral fund that provided an incentive for leaders of the
Resistência Nacional Moçambicana (RENAMO) to participate in these elections (Burnell
2000; Ottaway and Chung 1999). In the Democratic Republic of Congo (DRC), donors
provided 90 percent of the costs of that country’s first postconflict elections (IDC 2012).
Electoral assistance is often accompanied by a wide range of supporting activities, including
voter registration drivers, distribution of ballot papers, and civic education programs.
A number of impact evaluations on donor-sponsored civic education programs in partic-
ular have found that they lead to a transmission of political knowledge as well as democratic
values and norms (Bratton et al. 1999; Finkel and Ernst 2005; Finkel and Smith 2011).
The other means by which democracy assistance supports vertical accountability is by
aiding those actors, such as civil society groups, the media, and political parties, who pro-
vide oversight of government actions, create norms around social bargaining, and help
convey citizens’ preferences in the public arena (see Diamond 1997). In addition to mate-
rial resources, such groups have benefitted from training initiatives related to fundraising,
ethics, management, and modes of publicizing their activities (see Kumar 2006). Parties
in particular receive information about developing manifestos, engaging in interparty di-
alogue, and using different methods for obtaining finances for campaigns even as they
operate in low-income settings. Diffusion of other country experiences can also be instru-
mental. For instance, prior to Malawi’s contentious 2009 general elections, NIMD funded
representatives from all the major parties to visit Kenya in order to learn what sparked that
country’s electoral violence in 2007 (Prater 2010).
Horizontal accountability is targeted by democracy aid donors predominantly through
support for institutions such as parliaments, judiciaries, anticorruption bureaus, audit courts,
and human rights commissions. A great deal of learning has occurred by donors working in
these areas. For instance, “issue-based” approaches, which involve capacity training in spe-
cific thematic areas, such as HIV/AIDS or food security, are increasingly believed to be the
most effective form of strengthening parliamentary processes and mechanisms. Investing
in resources, training for public accounts committees, and establishing independent budget
units represent useful interventions for improving parliamentary budget oversight. To im-
prove communication and greater accountability to constituents, donors have supported a
broad range of interventions, ranging from the introduction of parliamentary scorecards
in Uganda to the launching in 2009 of the House Live Broadcast in Kenya, which shows
legislators debating live on television and radio (AFLI 2011; Amundsen 2010).
These efforts to improve vertical and horizontal accountability via the diffusion of norms
and knowledge do, however, face limitations. First, democracy aid programs can lack the
long-term commitments necessary to ensure meaningful change. This has been very evi-
dent with electoral assistance, which still tends to be overwhelmingly concentrated around
electoral periods with little attention to building up capacity between those periods.10
Parliamentary strengthening programs can also be focused on a five-year program time ho-
rizon, with the lessons learned from such programs eroded through parliamentary turnover.
Second, local circumstances and the broader democratic environment can hamper the de-
gree to which deep reforms are feasible. Key issues in many developing democracies include
the absence of a legislative framework to protect media freedoms, electoral commissions
that are not wholly independent from the executive branch, and a lack of respect for judicial
autonomy. Third, such interventions can be unbalanced within and across sectors. Notably,
funding for civil society far outweighs that for political parties. As of 2011, more than US$2
billion in foreign aid by the OECD donors was allocated to civil society while support for
party strengthening was closer to US$150 million.11 The low interest by donors in party
support is because it is perceived as meddling in the domestic political affairs of sovereign
states (Burnell and Gerrits 2010).
Development aid that has been disbursed through an incentives-based approach can un-
intentionally create additional challenges for the positive pole of democratic consolidation
in the area of accountability and party strengthening. At the heart of the problem is that
aid that incorporates positive conditionality, such as budget support, often includes too
many criteria that are weakly specified and not prioritized. This in turn increases the scope
for actions that have the outward trappings of being reforms even if they lack substantive
meaning.
More specifically, foreign aid has long been complicit in reinforcing the political business
cycle by allowing governments to increase expenditures right before elections (Briggs 2012;
Dreher and Jensen 2007). This gives a notable advantage to the incumbent party. Budget
support is even more likely to contribute to such ambiguous effects on vertical account-
ability. Sectoral budget support can be used to augment expenditures for developmental
needs—but ones that provide partisan pay-offs, such as agricultural subsidies or welfare
schemes for party loyalists, rather than broader public goods. General budget support
is even more fungible, allowing incumbents to use such resources to fund the purchase
of vehicles, advertisements, and handouts that give them a campaign advantage around
elections. Thus, governments may be regularly holding multiparty elections, thereby
adhering to the minimal criteria for democracy and one of the key partnership principles
upon which budget support is predicated; however, there is little explicit disincentive for
governments to disburse such aid in a manner that implicitly distorts the playing field for
party competition.
Another challenge is that the criteria guiding disbursement decisions for budget support,
and implicitly aimed at incentivizing recipient governments, are not given equal weight by
the donors. For instance, Faust et al. (2012) find that there is a hierarchy of priorities among
budget support donors whereby macroeconomic stability is given the greatest attention.
This has a number of consequences: First, it contributes to the pattern noted earlier about
democratic erosion, particularly human rights abuses, generating an erratic and often
unharmonized response by donors. Second, the incentive is for governments to focus mostly
on the important work of building public sector management capacity, which is essential
for improving macroeconomic management. Yet, it often overshadows any incentives for
governments to engage with institutions of horizontal accountability. Even though parlia-
mentary oversight of the budget is increasingly stipulated as a disbursement criteria by
some European budget support donors, this is often secondary to efforts to build strong
ministries of finance and bureaucracies (see Faust et al. 2012). Already-weak parliaments
become further marginalized by executives and central government ministries as a result
(see Carothers and de Gramont 2013). Third, performance assessment frameworks (PAFs),
which include specific performance indicators that capture progress in a particular area, are
either especially narrow or nonexistent with regards to democracy and human rights. For
instance, in the case of Malawi, the only human rights indicator is whether the country has
implemented the national strategy for the elimination of gender-based violence (Resnick
2013b).
More broadly, the incentives underlying the Paris Declaration to improve mutual ac-
countability between donors and recipient governments and promote country ownership
can have unintended outcomes. For instance, the priorities of the ruling government, or a
narrow elite, become conflated with those of the country at large (Wollack and Hubli 2010).
This can be a disincentive to enhancing the legitimacy and voice of other stakeholders, in-
cluding opposition parties, and in that sense circumscribe the range of domestic actors to
whom recipient governments need to be accountable. As summarized by Youngs (2010,
p. 13), “Support for increasing governance capacity can undermine any objective to open up
decision making to popular scrutiny.”
Conclusion
Analyzing the influence of foreign aid on democracy can be more challenging than
examining its impact on other desirable development outcomes. As Carothers and de
Gramont (2011) highlight, progress toward or away from democracy is not as easily quan-
tifiable as maternal mortality, school enrollment, or agricultural yields. For example, a
toothless parliament may easily coexist with a strong media and a robust civil society. This
state of affairs may account for some of the mixed findings in the statistical literature on the
aggregate relationship between aid and democracy.
To gain more leverage over this challenge, this article not only disaggregated foreign aid
into development aid and democracy assistance, but also analyzed distinct elements of de-
mocratization, ranging from transitions to avoiding breakdown and erosion to reinforcing
accountability and competitive party systems. Particular attention was accorded to assessing
how the mechanisms of coercion, incentives, and diffusion are used by donors in both the
development and democracy communities to promote these various elements of democ-
ratization. The recent historical record suggests that the coercive elements of development
aid have been most effective at facilitating democratic transitions and addressing break-
down. By emphasizing holding multiparty elections, such coercion can be tied to a clear
goal within a definitive time frame. While coercion can also be a tool for addressing the
negative pole of consolidation, particularly democratic erosion, the erratic and often un-
coordinated donor response to instances of human rights abuses and electoral fraud has
resulted in it being a less useful tool in this domain.
Tying incentives to development aid theoretically can be useful for promoting the posi-
tive pole of consolidation and thereby deepen democratic gains. Yet, in practice, the promo-
tion of democratic principles and behaviors is included among a wide range of other criteria
related to macroeconomic management and socioeconomic achievement, such as poverty
reduction, which are typically given greater weight for aid disbursements. Moreover, a lack
of specificity in some cases and an absence of comprehensiveness in others creates little mo-
tivation for governments to pursue wide-reaching democratic reforms.
By contrast, democracy aid’s main lever of influence is via the diffusion of norms and
knowledge; therefore, it is most effective with the positive pole of consolidation, partic-
ularly promoting vertical and horizontal accountability and more competitive party sys-
tems. A variety of achievements have been detailed with regard to support for elections,
parliaments, and civil society—but a number of shortcomings were also noted, including
the short-term nature of democracy aid programs, the imbalance between civil society and
party support, and limitations created by the broader political environment. The latter point
reinforces Burnell’s (2013) observation that democracy aid typically has the most influence
in countries where there is already support for greater consolidation.12
A consequence of these disparate influences is that different types of aid and modalities
can at times work at cross-purposes. While there have been increased efforts by donors to
reconcile trade-offs in the interventions and modalities separately favored by the develop-
ment and democracy communities (see Carothers and Gramont 2013), a key problem is
that there is no clear agreement about the best way to achieve democratization. Instead,
as Bunce and Wolchik (2011, p. 236) observe, the aid community tends to follow a “scat-
tergun” approach to promote democracy. In especially poor and postconflict democracies,
this problem is even more extreme, as new stakeholders are entering the political arena
even as state institutions remain weak. Yet, donor interventions to address one of these
problems does not always help the other (see Carothers 2004), especially since democracy
is not synonymous with political stability and can sometimes expose underlying pockets of
intolerance that hinder efforts at reconciliation (see Berman 2007; Seligman 2009).
Admittedly, democratization is ultimately an internal affair, and its trajectory and charac-
teristics are largely shaped by domestic actors. Yet, as with trade sanctions, military action,
and transnational networks, foreign aid does play a nonnegligible role in the political dy-
namics of the developing world. This is even increasingly true of aid from nontraditional
donors, such as Brazil, South Africa, India, and Turkey (Carothers and Youngs 2011). The
post-MDG world therefore promises to be one, not only where democracy and good gov-
ernance are touted as desirable outcomes, but where the feasible means to achieve these
goals is actively debated and rigorously evaluated.
Notes
1. After having reached their zenith in 2009 at US$4.4 billion (in constant 2011 terms), general
budget support commitments fell to US$1.2 billion by 2011 (see http://stats.oecd.org).
2. According to McFaul (2007), the United States and the European Union jointly spend
approximately $1.5 billion on democracy assistance annually.
3. Notably, Schedler (1998, p. 103) elaborated this continuum but argued that the concept of
consolidation should be restored to its classical meaning and therefore should only refer
to “expectations of regime continuity.” However, this definition is not particularly useful
for disaggregating the disparate impacts of aid on consolidation.
4. The focus on mechanisms here differs from the very insightful and growing area of schol-
arship examining channels of aid delivery (e.g., Dietrich 2013).
5. See also Lancaster’s (2009) observation that the MCC has applied its eligibility principles
very inconsistently.
6. The other three are macroeconomic stability, the implementation of a national develop-
ment and poverty-reduction strategy, and the implementation of financial management
reforms (see Faust et al. 2012).
7. In their work differentiating the effectiveness of “linkage” versus “leverage,” Levitsky and Way
(2006) consider the latter to include both positive conditionality, which is equivalent to the
incentives approach that has been described here, as well as punitive measures. See Burnell
(2013), however, for a critique of the problems with the linkage and leverage differentiation.
8. The U.S. Congress prohibits aid from USAID or the State Department to be allocated
to a country where a military coup has overthrown a democratically elected leader (see
Arieff 2013).
9. See OECD Creditor Reporting System at http://stats.oecd.org/.
10. See Scott and Steele (2011) with respect to this problem for USAID’s assistance.
11. These figures are in 2011 constant USD. See OECD Creditor Reporting System at http://
stats.oecd.org/.
12. Nielsen and Nielsen (2010) go even further by arguing that donors may engage in dis-
bursement decisions that increase the likelihood of success and thereby give democracy
aid only to those countries that are most likely to promote democracy.
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Pa rt I V
P OL I T IC A L SYST E M S
A N D ST RU C T U R E S
Chapter 21
Organizin g for
Prosperi t y
Collective Action, Political Parties, and
the Political Economy of Development
Philip Keefer
The vast literature on the political obstacles to economic development ranges widely,
from clientelism, ethnicity, and conflict to the influence of special interests, culture, colo-
nial experience, and regime type. Citizens’ ability to act collectively underlies all of these,
but differences in the ability of citizens to act collectively are not usually the explicit focus
of analysis. Two lines of research, in particular, conclude that the specific organizational
arrangements that groups make to facilitate collective action have significant develop-
ment implications. This essay explores this work. An essential challenge of common re-
source management is the potential that free-riding leads to the “tragedy of the commons.”
Scholars in this area have long explored the importance of formal organizational structures
to avoid free-riding. Other literature focuses on political parties, the primary vehicles of
collective political action. A wealth of scholarship has explored significant variations in
party organization and electoral mobilization strategies. One dimension of variation that
has received less attention is the degree to which parties are organized to serve the collective
interests of members. When they are not, recent research suggests, governments are less
likely to pursue development-friendly public policies.
The links between collective action and the various strands of research on the political
economy of economic development are easy to discern, even when they are not the direct
focus of scholarly inquiry. This research analyzes struggles between elites and nonelites,
workers and capitalists, farmers and merchants, and insurgents and counterinsurgents, and
among ethnic groups, in order to understand the causes and consequences of conflict or
the interaction of democracy and development. It almost always assumes that groups are
capable of collective action: leaders of the groups do not shirk in their pursuit of group
objectives nor do group members free-ride on their obligations to the group. In many rele-
vant cases, however, this assumption is usually unfounded.
The importance of collective action for economic development is also evident when
one focuses on the more proximate determinants of development: education and the
432 Philip Keefer
accumulation of human capital; infrastructure; security, including the protection of

property and contract rights; public health; and the proper regulation of market failures,
ranging from the environmental to the financial. All of these are vulnerable to the central
collective-action challenge of free-riding: they are underprovided if individuals cannot be
persuaded to contribute to or abide by them.
For example, although most education benefits accrue to the recipient and are private,
some accrue to society as a whole (e.g., norms of citizenship); education is underprovided
to the extent that all members of society assume that all other members will underwrite
the costs of instilling norms of citizenship in its children. The benefits of secure property
rights similarly accrue to everyone in society: expropriation of one investment deters other
investors, reducing employment for all. Individuals who expropriate enjoy all of the benefits
of expropriation, but bear only a fraction of the costs. They have private incentives to free-
ride on a social norm or law that prohibits predation.
Governments can solve these problems when government officials have the authority
and incentive to enforce individual contributions to collectively optimal public goods and
individual compliance with collectively optimal regulations. Unfortunately, delegation of
this authority by citizens to government is fraught with “political market imperfections”
(Keefer and Khemani 2005). These “imperfections” drive a wedge between politicians and
citizens, making it difficult for citizens to hold politicians responsible for political decisions
that reduce citizens’ welfare.
One of these political market imperfections is the inability of political actors to make
credible commitments to citizens. As Ferejohn (1986) concludes, when citizens do not be-
lieve candidate promises, they can no longer credibly threaten to vote for challengers who
promise to pursue different policies than the incumbent, since challengers’ promises are
not credible. At best, citizens can credibly threaten to remove incumbents only upon the
incumbant’s failure to meet some performance threshold that would galvanize spontaneous
coordination by citizens. If citizens can spontaneously coordinate at the point when incum-
bent performance falls below the threshold, then regardless of challenger characteristics
and promises, citizens throw out the incumbent; otherwise, they will retain the incumbent
in office. Unfortunately, the performance threshold is credible only if it is low. If it is not low,
it is feasible—and cheaper—for incumbents to use small transfers to persuade individual
citizens to ignore the spontaneous decision to expel them. Persson and Tabellini (2000) de-
scribe multiple policy failures that emerge under these circumstances.
As this example demonstrates, credible commitment is therefore difficult because voters
can neither collectively commit to punishing incumbents who do not fulfill their promises
nor exert their collective influence over the choice of candidates. In the Ferejohn argument,
precisely because citizens’ capacity to act collectively is restricted to spontaneous coordina-
tion, they cannot credibly commit to removing politicians unless incumbent performance
is particularly low. The remainder of this article examines why groups of citizens are better
able to act collectively in some places more than in others.
One important clue comes from research on the management of the commons. The next
section summarizes the evidence from this literature: The organizational characteristics of
these groups of citizens are key in ensuring that they do not fall victim to the “tragedy of the
commons.” Successful commons have organizational arrangements that assign to leaders
the right to enforce rules of access, but also make it easy for group members to replace
leaders who shirk.
Organizing for Prosperity 433
The parallels between the challenges of managing common resources and of managing
public policy to promote economic development are immediate. When citizens cannot
act collectively, they exercise less collective influence over the political process, allowing
politicians to pursue significant departures from those public policies that contribute most
to their collective welfare. Political parties are the central vehicle for collective action by
citizens to enforce government actions in the public interest. The article continues by
examining evidence for one broad hypothesis to explain why politics might be more likely
to exhibit this behavior in some places than in others: In some countries, political parties
are organized to represent the collective interests of members; in others, they are not. In
particular, in poor countries, parties are less likely to be organized to facilitate collective
action by party members.
This article concludes by exploring the implications of collective action for debates
surrounding democratization, state-building, and development. In most analyses of de-
mocratization, the disenfranchised struggle for self-determination in order to correct
public policies that are biased against them. In this literature, citizens—enfranchised and
disenfranchised—are generally assumed to be able to act collectively. The state-building lit-
erature focuses on the leader’s decision to establish a large and organized bureaucracy; this
is sometimes influenced by the threat of citizen rebellion, but citizen organization is not
explicitly examined. The threat of violence lurks beneath these theories, with democratiza-
tion ultimately determined by the rents at stake and the relative ease with which rulers can
repress and the disenfranchised can organize revolutionary movements. Again, though, as
in most theories of conflict, scholars assume that parties to the conflict can act collectively.
This ability varies significantly across countries.
The Organizational Foundations

of Collective Action and the Common
Pool Problem
For scholars of the commons (e.g., Ostrom, 1990; Libecap and Johnson, 1982), it comes as
no surprise that development is a collective enterprise that is fraught with difficulty.1 When
individual exploitation of economic resources such as fisheries, irrigation systems, forests,
and oil reservoirs is difficult to limit, rational users extract more of the resource than is
optimal for its long-run sustainability. When they do, they precipitate the “tragedy of the
commons”—a tragedy, since all fishermen would be better off if they could enforce collec-
tively optimal limits to fishing.2
Central to the task of managing common-pool resources—and economic development—
is, of course, the control of free-riding. Olson’s (1965) argument is precisely that collective
action is illogical in the absence of measures to control free-riding by group members.
He and other researchers emphasize three solutions to free-riding: small groups, so that
members are more likely to internalize the costs of free-riding; selective incentives or
punishments that directly discourage free-riding; and the presence of hegemonic members,
who themselves benefit enough from the provision of the collective good that it is in their
interest to provide it even when all other members free-ride on their efforts.
434 Philip Keefer
The emphasis on small groups and hegemonic members leaves open the question of how
to organize collective action in large groups that lack a hegemonic member. The application
of selective incentives or punishments answers this question, but raises a central organiza-
tional issue: Who in the group monitors shirking and applies the selective incentives, and
how do group members prevent such “leaders” from shirking? A large literature, much of it
based on laboratory experiments and on efforts to manage common-pool resources, such as
irrigation systems and forests, has grappled with these organizational issues.
One finding from this literature is not organizational at all: Some fortunate groups are
able to control free-riding simply by relying on social norms and the intrinsic motivation of
individuals to cooperate. Ample laboratory evidence indicates that norms and intrinsic mo-
tivation can substantially offset incentives to free-ride. In her review of this large literature,
Ostrom (2000, p. 140) lists key regularities that emerge among laboratory subjects playing
variations on the public-goods game. Despite the fact that the dominant strategy for each
participant—the strategy that maximizes their individual material interests—is to make
no contribution at all, participants regularly contribute significantly to the public good/
collective action. They also expend resources to punish noncooperators, even though the
individually rational strategy is to leave punishment to others. Finally, and again contrary
to their dominant strategy, the more that participants believe that other participants will
cooperate, the more likely they are to cooperate themselves.
These results might tell us that collective action should not be so difficult—indeed, it
should be nearly universal. They imply that the literature on public economics is of only
theoretical concern; in practice, groups do not require delegation to government to solve
the problem of public-good provision. Moreover, Ostrom (2000, p. 149) reports that groups
do self-organize when they have a norm of reciprocity. However, she also presents ample
evidence from the field and laboratory demonstrating that this fortuitous circumstance is
frequently absent: “Few long-surviving resource regimes rely only on endogenous levels of
trust and reciprocity. . . .” (Ostrom 2000, p. 151). Moreover, the more complex the common
resource and the larger the number of users, the more likely it is for collective management
to have failed, as Libecap and coauthors have shown for oil fields, land and fisheries.
Frequent real-world breakdowns in collective action find potential explanations in lab-
oratory experiments. One of these is anonymity—that is, once exchange is no longer face-
to-face, cooperative behavior in laboratory settings endures for fewer periods. Another is
adverse experiences with cooperation—when “conditional cooperators” experience nonco-
operation, they turn into “rational egoists,” who play dominant strategies (i.e., they cease to
contribute to the public good). Moreover, subjects who have played incentive-compatible
versions of cooperation games, where their dominant strategy was actually to cooperate
and contribute, are less likely to behave cooperatively in settings where cooperation is no
longer a dominant strategy (Schmidt et al. 2001).
Historical and cultural circumstances also have profound effects on norm-based coop-
erative behavior: Many communities, particularly those that are more deprived, are less
well endowed with cooperative norms. Based on experiments in Uttar Pradesh, Hoff,
Kshetramade, and Fehr (2011) show, for example, that lower castes in India are much less
willing to punish members of their own caste who free-ride than are members of higher
castes. Norms that deny opportunities to members of lower castes certainly harm them di-
rectly. However, they also have indirect effects, by undermining their ability to organize in
their collective interests to improve their situation over time.
This research indicates that where social norms are insufficiently widespread or too
weakly embedded to overcome collective-action problems, groups cannot spontaneously
solve free-rider problems. Instead, they require more structured, organizational solutions.
These solutions, and the difficulties of achieving them, entirely parallel the challenges of
solving the collective-action problems that impede economic development. The parallels
are not coincidental—economic development and fisheries, for example, are both common
“resources” that demand efficient collective action.
Two features of group organization reduce the challenges of managing common re-
sources, particularly when many individuals have the right to use the resources. First,
members in successful common-resource associations allow group leaders to enforce rules
to limit free-riding (Ostrom 2000). This decision supports groups’ ability to act collectively
even when members have weak cooperative norms. By itself, though, the delegation of key
powers to a single group member does not guarantee that collective action will be in the
group’s collective interest. The group member with the authority to monitor and punish
free-riding by other members can shirk on this task to secure private benefits at the expense
of the group. In real-world experiences of common-pool management, leaders differ sig-
nificantly in the degree to which they encourage norms of reciprocity, with corresponding
effects on whether these norms actually emerge and persist. Opportunistic behavior by
group leaders is a frequent reason for collective failure.
To control this, groups that successfully manage common resources, like those that suc-
cessfully delegate development challenges to government, have a second feature: organiza-
tional characteristics that allow members to replace leaders who fail to pursue the collective
interests of the group. Based on her review of numerous irrigation systems, fisheries, and
other collectively managed resource systems, Ostrom (1990, 2000) argues that members
must be able to select their own monitors. Individuals affected by a resource regime should
also be able to participate in making and modifying its rules. Bardhan (1999) finds that the
quality of irrigation maintenance is significantly lower where farmers believe rules of access
are made by a local elite. In their theoretical analysis, Bates and Bianco (1990) conclude that
leaders are less able to curb free-riding when group members cannot credibly commit to a
response to leader shirking.
Political Parties and Collective Action
In most countries, citizens cannot easily act collectively in support of development policies
over which they share common preferences. This is not a question of preference heteroge-
neity. Every country exhibits groups of citizens who prefer similar policies, even if between-
group preferences diverge. Nevertheless, even groups with homogeneous preferences
are incapable of collective action. Moreover, citizens should all prefer to limit corrupt
behavior—excessive rent-seeking—by government officials; yet, in many countries, they
cannot. One important reason for this lies with the political parties in these countries,
which are not organized to promote members’ collective action.
Political parties’ role in solving citizens’ collective-action problems has long been
recognized. Kitschelt (2007, p. 525) emphasizes that in mass democracies with a universal
franchise, individuals require “intermediary vehicles of coordination that help them to
436 Philip Keefer
overcome collective action problems. . . .” Aldrich (1995) introduced the idea that parties
solve voters’ collective-action problem of trying to hold multiple politicians jointly account-
able for their actions. Cox and McCubbins (1994) view parties as a solution to collective-
action problems inside the legislature. However, although political parties are ubiquitous in
both democracies and nondemocracies, they often do not promote the collective interests
of adherents.
Research on political parties rightly emphasizes the central question of whether and
how cleavages in society—between rich and poor, secular and sectarian, rural and urban,
north and south, Catholic and Protestant, etc.—are manifested in party systems. Lipset and
Rokkan (1967) were the first to link the diversity of party systems to the interaction of so-
cial cleavages and the particular historical and institutional circumstances that lead elites
to emphasize certain cleavages over others. Boix (2007) reviews the body of scholarship
flowing from this insight, deploying more rigorous theoretical frameworks to weave to-
gether the specific roles of institutions, particularly electoral, and of history, particularly the
constraints and opportunities confronting elite decision-makers, to explain the emergence
and evolution of parties.
Scholars have not, however, focused as much on the particular organizational challenges
of forming political parties that facilitate collective action by members, though all recognize
that this is precisely the role of parties. An important exception, Kalyvas (1996), advances
the important insight that Christian Democratic parties succeeded in Europe because they
benefited from the organizational strength of the Catholic Church. Even here, though, the
analysis does not explore the specific features that distinguish strong and weak organiza-
tions, nor does it explain why they are difficult to develop. The capacity of parties to represent
the collective interests of members is similarly not a focus of early research on party organi-
zation (see, e.g., Panebianco 1988; Katz and Mair 1994). On the contrary, Panebianco argues
that parties are stronger when leaders are more autonomous from members, which is par-
ticularly the case when members cannot act collectively to supervise leaders. Gehlbach and
Keefer (2011), in their analysis of ruling parties in nondemocratic settings, reach a different
conclusion: The more difficult it is for members to act collectively to remove leaders, the less
credible are leader commitments to pursue the collective interests of members.
As the literature on collective action and common resources foreshadows, two organiza-
tional characteristics ensure that parties pursue the collective interests of members (Keefer
2011); neither is easy to adopt. One is that leaders are authorized to monitor and punish
free-riding by members in the pursuit of the party’s objectives. Parties grant leaders the
authority to sanction members who fail to support the party—by, for example, denying
members access to party funding or advantageous positions in the government or legis-
lature. However, leaders can use this authority to advance policies that help their private
interests at the expense of the party, or to promote members who are personally loyal to
them, even if the members’ support for the party is suspect. The second key organizational
characteristic, therefore, is that members (or some reasonably large subgroup of members)
can act collectively to control shirking by leaders.
Each of these organizational attributes is risky. Members fear that leaders will exercise
their authority opportunistically, or that their decisions will not hew closely enough to
member preferences. Leaders, for their part, are typically more interested in organizational
arrangements that cement their control over the organization, rather than arrangements
that allow members to more easily remove them. They also may be concerned that less
informed members will prevent more informed leaders from making decisions that ensure
the party’s political success.
Differences across parties in these two organizational attributes distinguish the types
of political parties that have attracted the most scholarly attention: programmatic parties,
which mobilize electoral support through appeals based on a particular policy or ideo-
logical program; machine parties, for which electoral strategies depend on targeted, party-
mediated transfers to supporters; and “patron–client” parties, where targeted transfers to
individual supporters are again the key instrument of electoral mobilization, but mediated,
in this case, by candidates themselves, not by the party.
These types of parties vary significantly in the degree to which they promote collective
action by members. As the following sections argue in greater detail, programmatic parties
can only sustain credible programmatic appeals if they allow members to act collectively to
sanction leaders who shirk and allow leaders to apply selective sanctions to members who
free-ride. Machine parties are more likely to succeed if they offer members some capacity
for collective action to restrain leaders from reneging on their obligations to supporters.
Patron– client parties, however, provide little basis for collective action by members.
Correspondingly, evidence reviewed below suggests that public policy is least supportive
of development in countries where political competition is organized around patron–client
parties.
Programmatic Parties and Collective Action

It is well known that programmatic parties make it easier for citizens to hold politicians col-
lectively accountable for their actions, encouraging politicians to care less about the partic-
ularistic benefits they deliver to voters and more about broadly distributed benefits (Aldrich
1995). Scholars have also pointed to organizational preconditions for the sustainability of
programmatic parties. In particular, Kitschelt (2000) argues that a central feature of pro-
grammatic parties is an organizational arrangement to resolve intraparty disagreements
about policy, allowing the parties to hold policy positions that voters can easily identify (i.e.,
“programmatic crystallization,” as in Kitschelt et al. 1999).
In view of one important goal of research on political parties—to understand what
types of programmatic parties emerge in societies with multiple and often cross-cutting
cleavages—it is natural for discussions of party organization to revolve around struggles to
define a party program. However, this struggle is usefully seen as not simply a bargaining
process among members with conflicting views, which organizational arrangements can
help to structure. It is also only one of many challenges to collective action that program-
matic parties must successfully address.
The overarching challenge to collective action is the incentives of party members and
leaders to free-ride on their obligations to the party and, instead, to pursue their own
private interests—ranging from the financial to the ideological. The ambitions that drive
individuals to push for party leadership positions, or party candidacies, are rarely confined
to the purely programmatic. Office-seeking leaders and candidates may seek to shade the
party’s program to expand support beyond the membership of the party; their views may
be stronger on some issue dimensions and weaker on others than average members of the
party; and venal motivations can tempt them to make decisions that benefit only themselves
438 Philip Keefer
and select special interests. As a consequence, leaders of programmatic parties may pro-
mote members and candidates who support them personally, rather than those who best
advance the goals of the party. In raising funds to support the electoral appeal of the party
and the party’s candidates, leaders may retain a larger share of those funds for themselves.
In each case, party members have incentives to seek advantages that benefit them indi-
vidually at the expense of other party members. However, the essence of a party’s ability
to credibly commit to a specific program is the degree to which it is organized to limit
free-riding by party members, candidates, and leaders. Parties that are not organized to
limit free-riding undermine the ability of their candidates to credibly commit to a policy
program.
The tensions within programmatic parties are well known, but the impressive organ-
izational challenge needed to moderate free-riding tendencies is less often the focus of
attention. For example, a large body of scholarship concludes that programmatic parties
comprised of members who have strongly held and homogeneous views on the party pro-
gram confront fewer challenges to collective action. This parallels the literature on collective
action and evidence from laboratory experiments, demonstrating that strong intrinsic
commitments to the goals of a group can substitute for organizational controls.3 However,
preference homogeneity is an organizational choice, and can only be sustained if party re-
cruitment limits leader and member discretion to depart from the programmatic litmus
tests that are a condition of membership. This is not costless for leaders, who face higher
costs in trying to recruit and advance personally loyal individuals who are less committed
to the party’s goals.
The sustainability of a party program also demands that party organization facilitate
collective action by members to challenge leaders and leader decisions regarding such key
issues as candidate selection. This, however, also limits leaders’ discretion and makes them
more vulnerable to replacement. It also requires that members and candidates delegate to
leaders the authority to sanction them—denying recalcitrant members leadership positions
in the party or financing for their campaigns. However, popular candidates with strong per-
sonal constituencies are loath to subject themselves to discipline by party leaders.
The link between programmatic crystallization and the organizational challenges of lim-
iting free-riding is therefore clear. The collective task of programmatic crystallization is
more difficult if party organization does not institutionalize the recruitment of members
with homogeneous preferences. At the same time, efforts to crystallize the program are only
meaningful if party organization can enforce the program that emerges. Where it imposes
no limits on free-riding by leaders or members, citizens have little reason to believe candi-
date commitments to pursue the party program.
Collective Action in Machine Parties

Machine parties mobilize electoral support through the party-mediated distribution of pri-
vate benefits to supporters. Policy promises and ideology play less of a role; recruitment
into the party places correspondingly little weight on these factors. Nevertheless, machine
parties may also support collective action by members.
By definition, these parties exhibit one of the two organizational features that supports
collective action by members: They allow leaders to provide selective rewards and
punishments to members depending on member efforts to advance the cause of the party.
The party itself supervises the exchange of targeted rewards for political support between
party and party members, so party leaders have the authority to impose sanctions on
party members who free-ride on their obligations to support the party. This is organiza-
tionally complex; machine parties exhibit sophisticated arrangements to track members’
contributions to the party’s electoral success, offering privileged access to private transfers
from the party or government to members who contribute more (Kitschelt 2000; Calvo and
Murillo 2004).
Machine parties exchange targeted rewards from the party for supporters’ efforts on be-
half of the party. This exchange is rarely simultaneous, and supporters exert effort on be-
half of the party in the expectation of future rewards. Gehlbach and Keefer (2011) explain,
however, that these intraparty exchanges require that party leaders credibly commit not to
renege on the party’s obligations to reward such supporters. Such a commitment comes
precisely from organizational arrangements inside the party that allow members to punish
or remove leaders who shirk on their obligations to party members. In the absence of these
arrangements, individual party members have less confidence in party promises that their
efforts on behalf of the party will be subsequently rewarded. This undermines the efficacy of
the machine party’s main mobilization strategy, the exchange of private rewards for efforts
on behalf of the party.
As with programmatic parties, it is not necessary that the entire membership of machine
parties be able to act collectively to restrain shirking by leaders. It is, instead, only necessary
that they are sufficiently numerous and well organized to make it too costly for the leader to
buy their support. In programmatic parties, however, the cost of buying off members must
compensate members for the reduction in their welfare occasioned by leader decisions that
degrade the party program. In pure machine parties, organized only around the transfer of
rents to individuals, party members incur no such programmatic losses.
Enduring machine parties therefore exhibit both leader oversight of member free-
riding and member oversight over leader shirking. Given that they are already equipped
with organizational arrangements that are needed to make credible programmatic appeals,
one might expect machine parties to eventually increase their reliance on programmatic
commitments as a device to mobilize electoral support. This is because the resources
needed to fulfill programmatic commitments can, in principle, deliver larger welfare gains
to citizens than if the same resources are used to make transfers to citizens. A standard
conclusion of public economics, for example, is that spending on public goods can deliver
larger welfare increases to large groups of citizens than the same spending transformed into
individual payments to each of those same citizens. It is, in a nutshell, cheaper for parties
to use public goods to improve citizen welfare by a given margin than to use transfers (see,
e.g., Persson and Tabellini 2000).4
As Kitschelt (2000) points out, however, machine parties typically do not invest in the or-
ganizational infrastructure of interest aggregation (see also Kitschelt and Wilkinson 2006).
In the context of the arguments in this article, three obstacles stand out as limiting the
scope for machine parties to embrace programmatic appeals: First, programmatic appeals
are more difficult to the extent that a party continues to rely on activists with little program-
matic commitment, but great skill at mobilizing voters with private inducements. Second,
the support of these activists is at risk if these same activists see their path to party ad-
vancement limited by the new emphasis on programmatic mobilization. Third, the task of
440 Philip Keefer
“programmatic crystallization” is much more difficult for a machine party than for a new
party. Machine parties carry a legacy of past recruitment strategies, with members who are
tied together only by loyalty to the party and its private transfer agenda. Party members are
no more likely to share with each other a common perspective on development policies
than they are with nonparty members. Deep disagreements about whether those policies
should emphasize redistribution, growth, infrastructure, education, transfers that relieve
credit constraints on the poor, public health, environmental regulations, or support to the
judiciary can be an insuperable obstacle to programmatic transitions.
Kitschelt (2000, p. 854) emphasizes the difficulties that parties confront when they
attempt to switch between clientelist and programmatic strategies, emphasizing especially
examples from Austria, where “the disparity between clientelist deeds and Socialist words
hung like a millstone around the neck of the Sozialdemokratische Partei Österreichs (SPÖ)
and eventually undercut the party’s credibility.” In India, the Congress Party has struggled
to free itself from historic promises to provide free power to farmers. This policy generates
social costs far in excess of the value of the power received by farmers. Moreover, because
the costs of the policy have led to underinvestment in the power sector, it even leaves many
farmers worse off. Nevertheless, the general secretary of the Congress Party indicated
the difficulties of abandoning the policy when he explained that “Congress as a national
party . . . is against subsidies, but if the state Congress is confident that it can sustain pro-
viding free power to farmers, the party high command will have no objections to it” (The
Times of India, July 22, 2002).
Nevertheless, because members can act collectively, and following the argument that
Aldrich (1995) makes for programmatic parties, citizens can rationally hold individual
machine-party candidates accountable for policy failures by leaders. Citizens know that
party members collectively have the ability to restrain leader shirking and that the party is
sufficiently well organized to allow such collective action. Hence, they can rationally punish
individual candidates from parties that are responsible for development failures, and re-
ward individual candidates from those that succeed.
As the next section indicates, this contrasts with the experience of countries dominated
by patron–client parties—clientelist parties that are loosely organized around patron–
candidates. In these countries, it is irrational for voters to hold individual candidates even
retrospectively accountable for failures of national economic policy. Individual politicians
have little influence over national policies, and their parties have no capacity to organize
them for collective action. That is, they can do nothing to change policy even if voters
threaten them with expulsion in the event of policy failure; voters therefore gain nothing
by expelling them in the event of policy failure (beyond the satisfaction of casting a
protest vote).
Clientelist Parties, Charismatic Leaders, and

the Absence of Collective Action
In two other broad categories of nonprogrammatic parties, those that rely on individualized
patron–client exchanges (“patron–client parties”) to mobilize electoral support, and those
based on the charismatic appeal of their leaders, party members have little ability to act
collectively. The central characteristic of patron–client parties is the exchange of support

by individuals (“clients”) for narrowly targeted benefits provided by candidates (“patrons”).
In contrast to machine parties, the exchange of payoffs to individual voters for their elec-
toral support is managed by individual politicians. These politicians are, or work with, “pa-
trons,” individuals who each have the capacity to make credible commitments to deliver
private rewards to a personal constituency, their “client” (as in Keefer and Vlaicu 2008),
and to monitor their electoral choices (see, e.g., Bratton and van de Walle 1997; Kitschelt
and Wilkinson 2006).
The basis of electoral mobilization in patron–client parties is the individual exchange
between patrons and clients. Regardless of party organization, patron–client exchanges are
credible, even in the absence of collectively organized clients, because the relationship be-
tween patrons and clients is grounded in sustained reciprocal exchange (Scott 1972), which
makes them self-enforcing. Both patrons and clients value future exchanges, so the threat
of withdrawing from the patron–client relationship, in the event of noncompliance, is a
meaningful threat.
However, within patron–client parties, little binds patrons together or prevents them
from splitting off to form new parties. Moreover, the fixed costs of unilaterally starting a
party are low since patrons can always count on the support of their clients. In Benin, for
example, individual politicians regularly establish and disband parties, and parties have
generally been small. The average age of all political parties in Benin was ten years in 2001,
and only three years in 2012. Weakly organized, clientelist parties can persist because family
ties are extensive and strong or because, in the style of charismatic parties, party leaders or
their families are popular or command large voting blocs (e.g., as in Pakistan).
Patron–client parties have notably weak incentives to pursue policies that promote de-
velopment because they are inherently incapable of making programmatic commitments
to voters. For example, party leaders are unable to prevent patrons from pursuing policy
objectives that are contrary to those advocated by the party as a whole, since patrons can
easily leave. This has significant implications for public policy. Keefer and Vlaicu (2008)
show that policies pursued by politicians who can make credible preelectoral commitments
to only a narrow group of voters (e.g., politicians in patron–client parties) mirror the
policy choices associated in the literature with political clientelism: low public good pro-
vision relative to private good provision and high rents. Keefer (2007) shows that young
democracies pursue exactly these types of policies, consistent with the hypothesis that po-
litical competitors in younger democracies are less able to make credible commitments to
broad groups of citizens.
Leaders who rely on their own charisma to attract popular support also have weak
incentives to introduce organizational arrangements that facilitate collective action by
members. The popular appeal of such leaders emerges precisely because citizens believe
that these leaders will pursue their interests. Citizens therefore do not require the reassur-
ance that committed party members will act collectively to discipline the leader if the leader
shirks.
For example, Hugo Chávez advanced significant social programs that largely benefited
the poor and were not strongly conditioned on overt support for the ruling party (Hawkins
2010). His party, though, like those of other charismatic leaders, was organized around the
personality of the leader, with little institutional basis of its own (Zúquete 2008; Roberts
2003). The internal organization of such parties does not impose costs on leaders if they fail
442 Philip Keefer
to pursue redistributive policies in the future. This is because voter support for the party
rests not on the credibility of the party’s commitment to redistributive policies, but on their
faith in the charismatic leader’s commitment to those policies. Indeed, it is precisely because
Chávez’s personal charisma was sufficient to persuade voters of his credibility that he could
refrain from introducing key organizational arrangements into the Partido Socialista Unido
de Venezuela (PSUV) that would allow members to act collectively to restrain shirking by
the leader. Such parties are less likely to survive after the death of their charismatic leader
(holding aside the question of the long-term financial feasibility of the leader’s program).
Isn’t Clientelism Everywhere?
This discussion emphasizes that a key difference between programmatic and clientelist
parties is the organizational characteristics of programmatic parties that allow them to make
credible commitments to broad public policies. Of course, any simple typology of parties
masks the complexity of real-world partisan organization. Hagopian (2007) summarizes ev-
idence indicating that, whether one looks at self-reported citizen identification with parties
or swings in party vote-shares from one election to the next, emerging democracies exhibit
significantly lower and higher rates, respectively, than those in industrialized countries.
The preceding argument offers one explanation for this: In countries dominated by patron–
client parties, which are more likely to be emerging than industrialized democracies, the
ease with which patron-candidates can switch and establish new parties renders parties
unstable. However, Hagopian (2007) underlines that this, or any other single explanation,
is unlikely to explain all cases.
In Russia, for example, during a period of extreme party flux, voting decisions reflected
most strongly citizens’ views on issues rather than candidates. One explanation for this,
consistent with the core argument in this article, is that where ideology is highly salient
to voters, and candidates can establish a personal commitment to the ideology, voters can
rationally base their votes on ideology even when those candidates are not organized into
parties that can make credible programmatic appeals.
Hagopian (2007) notes as well that parties make clientelist appeals in some parts of
a country and programmatic appeals elsewhere, and that ideologically committed party
representatives can also be effective representatives of narrow constituent interests.
Certainly, it is well known that even programmatic parties do not abjure clientelism, and
their candidates may still make “empty promises”—promises that are unfeasible to im-
plement. Targeted payoffs to key constituencies are a staple of politics in North American
and European democracies. Politicians in these democracies also often make clearly
noncredible policy promises on issues ranging from job creation to the elimination of
waste in government, to the reversal of global warming, in order to signal their broader
policy preferences.
However, in contrast to politicians in countries that lack programmatic parties, they
can credibly commit to policies that differ from those advanced by competing parties.
Republicans who embrace higher taxes or Democrats who oppose abortion face larger
sanctions within their parties than do their counterparts in countries that lack program-
matic parties.5 One way to see the importance of the difference is to observe interparty
variation in partisans’ preferences on key issues. If programmatic parties can make credible
commitments to broad policies that party supporters care about, supporters should ex-
hibit systematically different preferences regarding “programmatic” issues. Where credible
policy differences are not in evidence, there should be no association between voters’ policy
preferences and their partisan inclinations.
In the United States, in a survey of 2,369 voters in February 2002, Republican and
Democratic voters expressed significantly different preferences regarding tax cuts that were
consistent with their party affiliation. Fifty-five percent of Republican-leaning respondents
said tax cuts should be made permanent, and 12 percent said they should be repealed. In con-
trast, 12 percent of Democratic-leaning respondents said they should be made permanent,
and 31 percent said they should be repealed. Similarly, 70 percent of Republican-leaning
voters described themselves as pro-business and only 30 percent as not being pro-business.
Democratic-leaning voters split 50–50.6
Many observers have argued that the two main parties of Ghana are also programmatic
with regard to economic policy. The New Patriotic Party (NPP), they argue, is a part of
the anti-Nkrumah tradition of J. B. Danquah and President Kofi Busia, typically viewed as
the party of business (or, at least, of successful businessmen, or “big men”) (Nugent 1999,
p. 290). The National Democratic Congress (NDC), on the other hand, began as a revolu-
tionary, socialist party that rapidly became more populist and “developmental” (oriented
toward public works).7 The Economist Intelligence Unit (EIU) (2006, pp. 10–12) described
the NPP as the party of the market and of business, opposed to interventionist policies of
Ghana’s postindependence leader Kwame Nkrumah and virulently opposed to the aggressive
antibusiness policies followed by the Rawlings government immediately after taking power
in 1981. The NDC, in contrast, traditionally favored more significant government interven-
tion in the economy, but lost a definite policy identity as a result of major liberalizations
that began under the Economic Recovery Program (ERP) around 1983. In addition, based
on their survey of 690 voters in 2003, Lindberg and Morrison (2005) argue that partisan
preferences differ by education, the rural/urban divide, income, and occupation—the same
dividing lines that one observes in mature democracies. They also conclude that Ghanaian
parties convey programmatic messages to voters.
However, in other work, Lindberg (2003) carefully documents that clientelist
payoffs from politicians to voters are so large that politicians hesitate to return to their
constituencies because of the large sums they are expected to distribute when they are
there. Moreover, there is little evidence of organizational arrangements within these
parties that encourage programmatic consistency. On the contrary, the Ghana Center for
Democractic Development (CDD-Ghana) held debates for parliamentary candidates in
twenty-four constituencies across the country in 2004 and recorded the proceedings of fif-
teen of them in detail (CDD-Ghana, 2004). Of fourteen NPP candidates who appeared in
the fifteen debates, eight made no mention at all of the national party, either its program or
its past performance, despite the generally recognized success of the NPP’s first four years
in government. Only five of all the NPP candidates mentioned policy issues that extended
beyond the constituency; the remainder confined themselves exclusively to constituency-
level policy interventions. The NDC candidates were even more emphatic in underplaying
the national party, with only three of twelve candidates mentioning the national party’s
accomplishments, and only two of twelve mentioning policy issues that transcended con-
stituency borders.
444 Philip Keefer
Consistent with the relative weakness of programmatic appeals to voters in Ghana relative
to the United States—despite the potential presence of both programmatic and clientelistic
mobilization strategies in both countries—the policy preferences of supporters of different
parties in Ghana are nearly identical, in contrast to those of their counterparts in the United
States. Afrobarometer’s 2002 survey of Ghana probed 1,200 respondents about their party
preferences and also their opinions about a market-based economy. About 10 percent of
respondents (126 out of 1,200) agreed with the statement, “For someone like me, it does
not matter what kind of economic system we have.” Thirty percent (372) agreed with the
statement, “A government run economy is preferable to a free market economy,” and one-
half (612) agreed with the reverse statement, “A free market economy is preferable to a
government run economy.” As Figure 21.1 indicates, however, and in sharp contrast to the
supporters of the Republican and Democratic parties in the United States, these responses
were nearly the same across supporters of the two main Ghanaian parties, contrary to what
one would expect if the parties made credible programmatic promises related to the role of
government in the economy.8
Parties in Nondemocracies
The foregoing logic extends to any group that seeks to make credible claims about its fu-
ture actions, not only to political parties in democracies. In particular, the organization of
ruling parties is also relevant for nondemocratic leaders, who can limit challenges to their
rule in three ways: One is through the persistent application of coercion. Another is to make
continual payoffs to key groups of citizens in exchange for their continued support of the
regime. A third, however, is to convince key citizens that future policies under the current
60%
50%
40%
30%
20%
10%
0%
NPP NDC Republican Democratic
Favoring Markets (%) Favoring Permanent Tax Cuts (%)
Party Affiliation (Ghana) Party Affiliation (United States)
Figure 21.1 Partisan Divides on the Growth Agenda: Ghana and the United States

Note: The figure depicts the percent of Ghanaian and U.S. respondents to the 2002 Afrobarometer and Pew surveys,
respectively, who expressed support for the indicated party and who agreed either that the market was a preferable
form of economic organization (Ghana: NPP and NDC) or that tax cuts should be made permanent (United
States: Republicans and Democrats).
leader will be better than those under any potential replacement. The way they choose to
organize the ruling party affects how nondemocratic leaders can bind themselves to their
future policy commitments.
As with party leaders in democracies, nondemocratic rulers can rely on their charis-
matic appeal, if they happen to possess it, as a source of credible commitment, allowing
them to dispense with party organization. If their charismatic appeal is more limited, how-
ever, they can at least make credible future commitments to family members or others
with whom they have a personal connection, again without relying on party organization.
This was the strategy followed by the recently deposed president of Tunisian, Ben Ali.
These leaders might themselves be “patrons” and able to make credible commitments to
their own clients, allowing them to extend their ability to make credible commitments to
a larger fraction of the population (as Keefer and Vlaicu 2008 describe in the case of dem-
ocratic rulers).
Like party leaders in democracies, nondemocratic rulers may find it advantageous
to expand their capacity to make credible commitments beyond those with whom
they have personal relationships and affinity ties by establishing more organized ruling
parties. The choices that they have in this regard are analogous to those of party leaders in
democracies. In particular, they can establish a ruling party machine, targeting members
with individual benefits. Or they can establish a programmatic party, aiming to make cred-
ible commitments to citizens regarding their future policies. In both cases, the question
confronting rulers is whether they want to create organizational arrangements that facil-
itate the collective action of members, the problem at the center of Gehlbach and Keefer
(2011, 2012).
In democratic ruling party machines, as long as leaders’ interests are sufficiently
intertwined with those of the party, individual members can restrain leader shirking
without resorting to collective action. Leaders can be obliged to honor their commitments
to individual members simply by the threat that these members will switch parties
should commitments to them not be honored. In nondemocratic settings, however, the
option of party switching is constrained by restrictions on the existence of other parties.
It is also constrained by the threat that the leader will make reprisals against individuals
who leave.
As a consequence, in ruling party machines, nondemocratic rulers’ commitments to
provide transfers to individuals who exert effort on their behalf are only credible if those
individuals can act collectively to restrain the leader. In addition, as in democratic settings,
the credibility of programmatic commitments by rulers requires that they endow party
members with the ability to act collectively.
Gehlbach and Keefer (2012) show that organizational arrangements ensuring the free
flow of information about a ruler’s treatment of individual party members are sufficient
to make a ruler’s commitments not to expropriate party members credible. In an exten-
sion, Gehlbach and Keefer (2012) also demonstrate that the same logic applies to a leader’s
promises to provide selective benefits to group members who exert effort in the pursuit of
goals established by the leader. This is key because, in a setting where the programmatic
promises of rulers include infrastructure development, better schools, or improved envi-
ronmental quality, the ability of party members to act collectively to enforce those promises
has spillover benefits for citizens more generally.
446 Philip Keefer
The Development Effects

of Political Party Organization
The foregoing discussion indicates that political parties in both democracies and
nondemocracies differ in the degree to which their organization supports collective action
by party members. In particular, parties seeking to mobilize support on the basis of pro-
grammatic commitments, either in democratic or nondemocratic settings, must allow
party members to act collectively. Otherwise, leader incentives to shirk in their pursuit of
the party program renders it noncredible and the program ineffective as a mobilizing de-
vice. Successful machine parties also allow members to act collectively to restrain leader
shirking, though they confront significant obstacles to using this organizational endow-
ment to make programmatic appeals. In contrast, patron–client parties have no capacity at
all to make programmatic appeals.
If the analysis is correct and patron–client parties are the only parties that are system-
atically incapable of make credible commitments to pursue policies in the broader public
interest, then we should observe an association between the presence of such parties and
the lower quality of public policies and development outcomes, in both democratic and
nondemocratic settings.
Evidence on these implications is difficult to assemble, since data on whether parties ex-
hibit leader monitoring of member contributions and member collective action to restrain
leader shirking are not available. However, Keefer (2011) exploits several characteristics of
parties, for which time-series data are available, that plausibly capture the degree to which
parties are organized to better promote the collective interests of members. One of these,
from the Database of Political Institutions (DPI) (Beck et al. 2001), is whether the party
(a) can be characterized as espousing economic policies that are left (i.e., more redistribu-
tionist), right, or centrist or, instead, (b) has no stance on these issues and seems to exist
mainly to further the ambitions of the party leader.
The coding of the DPI is based on descriptions of parties in a number of long-running
almanacs. The coding rules do not require the enumerators to identify the organizational
characteristics of the party (on which the descriptions in the almanacs are, in any case,
silent). However, the foregoing argument is that parties can only sustain a programmatic
reputation for pursuing broad public policies along the left–right spectrum if they allow
members to remove leaders who diverge from the policies and delegate to leaders the right
to sanction members who do not contribute to the party’s pursuit of these policies.
The coding is generous: 71 percent of the largest governing parties are coded as program-
matic. However, among poorer countries, only 58 percent are coded with a programmatic
stance, compared to 83 percent in richer countries (71 percent and 91 percent, respectively,
in the case of poorer and richer countries that exhibit competitive elections). Moreover, the
generosity is in the direction of attributing programmatic character to parties (such as ma-
chine parties) that may not be sufficiently well organized to make credible programmatic
commitments to voters. That is, parties that are not coded as programmatic can be reliably
regarded as fundamentally organized around patron–client, charismatic, or coercive forms
of political mobilization.
For example, the almanacs (and therefore the data in the DPI) tend to distinguish
whether programmatic tendencies are the product of leaders’ autonomous decisions or are
supported by the party. Venezuela provides a useful illustration. In particular, although
Hugo Chávez has advanced significant social programs that largely benefit the poor, his
party, the Partido Socialista Unido de Venezuela (PSUV), is, correctly, not coded as pro-
grammatic in the DPI. Instead, the party is coded with a 0, nonprogrammatic, because it
is organized around the personality of the leader, with little institutional basis of its own.
The results displayed in Table 21.1, taken from Keefer (2011, tables 4 and 5), illustrate
the strong association between the absence of parties sufficiently organized to sustain a
programmatic reputation and the corresponding absence of more development-oriented
policies. Panel A indicates that both gross primary and secondary school enrollments are
significantly higher in countries that exhibit programmatic political parties (controlling for
income and the presence of competitive elections, among other things). Stasavage (2005)
and Baum and Lake (2003) argue that competitive elections, in and of themselves, increase
access to education. The results in Keefer (2011), reported in Table 21.1, indicate that this
effect is driven by the disproportionate presence of parties organized to sustain a program-
matic reputation in democracies: the effect of competitive elections is largely insignificant
after controlling for whether parties are primarily patron–client and nonprogrammatic.
The predominance of patron–client parties is also associated with lower bureaucratic
quality and higher levels of corruption, as reported by the International Country Risk Guide
(https://www.prsgroup.com/about-us/our-two-methodologies/icrg). Again, the effect of
competitive elections is insignificant and appears to depend on the relative importance of
programmatic parties relative to patron–client parties. Panels B and C demonstrate that
these effects also capture within-regime variation in public policy. In countries with more
programmatic political parties—whether they have competitively elected governments or
not—school enrollment and bureaucratic quality are significantly higher and corruption is
significantly lower.
The evidence in Table 21.1 indicates that the prevalence of nonprogrammatic parties—
that is, the pervasiveness of patron–client parties—is associated with worse public sector
performance with respect to education, bureaucratic quality, and corruption. This raises the
question of whether countries that lack programmatic parties are also less likely to adopt
institutional arrangements inside the bureaucracy that support better bureaucratic quality
and lower corruption—in particular, transparent public sector financial management and
meritocratic civil service recruitment.
Cruz and Keefer (2010) address this issue. They argue that politicians in political parties
organized in the members’ collective interests are more likely to insist on management sys-
tems that allow them to supervise the public administration.9 On the one hand, such parties
are more likely to prefer policies (such as education, health, and infrastructure) that are
difficult to monitor without the assistance of adequate management systems (in contrast
to policy goals of distributing patronage jobs, that they can oversee by themselves). On the
other hand, collectively organized legislators and ruling party members can more effectively
insist that the executive adopt such administrative reforms. Cruz and Keefer (2010) test this
theory looking at independent evaluations of 511 public sector reform loans extended by
the World Bank. They find that, among countries that accepted these loans, those with
programmatic parties implemented the reforms more successfully than those that did not.
448 Philip Keefer
Table 21.1 Party Organization and Public Policy

Gross Secondary Gross Primary Bureaucratic
School Enrollment School Enrollment Quality Corruption
Panel A: All country-years, controlling for whether governments are competitively elected.
Coefficients for other controls not reported (see note).
Competitive −2.51 (8.21) 1.49 (.58) .20 (0.13) 0.12 (0.34)
elections, 0-1
Average of 8.21 (.001) 7.94 (.02) .46 (0.01) .87 (0.00)
programmatic
dummy
variables across
all parties
Panel B: Sample restricted to country-years with governments elected in competitive
elections. Coefficients for other controls not reported (see note)
Average of 8.10 (.01) 7.78 (.05) .56 (.03) .95 (0.00)
programmatic
dummy
variables across
all parties
Panel C: Sample restricted to country-years with governments not elected in competitive
elections. Coefficients for other controls not reported (see note)
Average of 8.09 (.04) 8.00 (.10) .40 (0.04) .74 (0.00)
programmatic
dummy
variables across
all parties
Note: Table based on Keefer (2011, tables 4 and 5). Results of ordinary least squares regressions
that control for real, purchasing power parity–adjusted income per capita; the percentage of
the population that is rural; the percentage that is fifteen years old or younger; land area; and
total population (not reported). Data for bureaucratic quality and corruption are taken from the
International Country Risk Guide (ICRG). Competitively elected governments are those in which both
legislative and executive elections had multiple parties competing and in which no party or candidate
received more than 75 percent of the vote or seat share; data are taken from the Database of Political
Institutions (DPI) (Beck et al. 2001). Sample sizes in panel A range from approximately 500 for the
education variables to approximately 1,300 for the ICRG variables. p-values in parentheses, standard
errors clustered by country.
Their findings explain the robustness of the results in Table 21.1 and the inclusion of
countries such as Venezuela under Hugo Chávez in the “nonprogrammatic” category. As
Cruz and Keefer (2010) argue, although Chávez pursued explicitly redistributive policies,
he did not invest in improved bureaucratic performance—indeed, reluctance to strengthen
the bureaucracy goes hand in hand with an unwillingness to strengthen party organization,
since both strong bureaucracies and strong parties restrict the discretion of leaders.
If the prevalence of patron–client parties increases two of the clientelist attributes of
public policy (narrowly targeted transfers, rent-seeking), they should also increase a third,
vote-buying. Hanusch and Keefer (2012) argue that vote-buying is particularly likely when
politicians cannot make credible commitments to voters. In that case, they can only mobi-
lize electoral support with preelectoral transfers to voters—with vote-buying. However, to
make it easier to enforce the vote-buying contract, vote-buying is more likely to occur just
before the elections. This, however, should give rise to a political budget cycle, with greater
expenditures just before elections to finance vote-buying. They find evidence precisely of
this: Political budget cycles are more extreme in countries lacking programmatic polit-
ical parties, which they interpret as resulting from the reduced incentives of more credible
politicians to engage in vote-buying.10
One key public good that clientelist politicians are less likely to provide is security. Keefer
(2008, 2012) links this prediction to the vulnerability of countries to civil war. On the one
hand, countries without programmatic policies are less likely to pursue broadly beneficial
public policies, making citizens less supportive of the government in the face of potential
insurgencies. On the other hand, public security, including the development of counter-
insurgency capacity, is an important broad public policy that, like other broad policies, is
more likely to be implemented by political parties capable of credibly committing to them.
The evidence in Keefer (2008) points to a significantly lower risk of civil war in countries
with programmatic political parties.
The Implications of Collective

Action for Democracy, State-Building,
and Development
Research on the political economy of development is intimately tied to questions of democ-

ratization and state-building: What are the effects of democracy on development? Under
what conditions do countries democratize? And when do rulers build “strong” states? The
organization of collective action plays a significant role in answering all of these questions.
Democracy, Democratization, and Development

Fundamentally, arguments that democracy improves development outcomes rest on the
assumption that elections substantially reduce the costs of citizens’ collective action. At
the very least, they provide a focal point (the time and place) for citizen action, and the
action itself is cheap. On the other hand, the key conclusion of the foregoing discussion
is that regimes—democracies and nondemocracies—vary significantly with respect to the
ability of citizens to act collectively, independent of elections, and that this variation has a
significant impact on political incentives to pursue development. Some nondemocracies ex-
hibit significant capacity for citizens’ collective action (e.g., within the ruling party); many
democracies exhibit little capacity for citizens’ collective action (e.g., parties are inchoate or
leader-centric).
In the best case, articulated by Tilly (1986), elections themselves lead to citizen organiza-
tion, explaining why citizen organizations were far more developed in nineteenth-century
than in the eighteenth-century Europe. However, consistent with intraregime heteroge-
neity with respect to citizen collective action, the nineteenth-century British and French
450 Philip Keefer
experiences at the center of Tilly’s narrative contrast sharply with those of many newly
democratic developing countries. In these countries, despite universal suffrage, organiza-
tions capable of supporting collective action by large groups are often absent. Consequently,
the development performance of democracies, in practice, need not be better than that of
nondemocracies.
Citizen organization also plays a central role in the recent work of North, Wallis, and
Weingast (2009). One novel conclusion that they advance is that more prosperous coun-
tries (open access orders) are characterized by multiple citizen organizations, engaged in
economic or political competition with each other, subject to failure and exposed to the
entry of other organizations. Organizations play a central role because, alone, citizens can
do little to protect themselves from predation by other citizens. In his review, Bates (2010)
argues that their thesis mirrors Tilly’s work. However, in contrast to earlier research, in-
cluding Tilly’s, they explicitly link citizen organization to development and argue, just as
this article argues, that suffrage is neither a necessary nor sufficient condition for citizen
organization to emerge.
The organizational features that matter most for the argument here differ, however, from
those emphasized in North, Wallis, and Weingast (2009). In their analysis, the key attribute
of organizations is that they are long-lived. There are two characteristics of organizations
that arguably allow them to be long-lived: the ability of members to replace leaders and the
ability of leaders to monitor and punish free-riding by members. A focus on these char-
acteristics offers insights into why many organizations neither endure nor promote the
collective interests of members.
Given the uneven level of citizen organization across democracies, the evidence on the
effects of democracy on development is correspondingly mixed. Research looking at spe-
cific and dramatic policy failures finds that democracies outperform nondemocracies.
Bates (1981) concludes that agricultural policy in postindependence Africa was enormously
prejudicial to small farmers because unelected leaders could prevent these farmers from
organizing against the government. He argues that this strategy is foreclosed to elected
officials. Consistent with this, Bates and Block (2011) provide evidence that the introduction
of competitive elections in Africa significantly improved conditions for farmers. Stasavage
(2005) finds that spending on primary education increased following the introduction of
competitive elections in Africa.
On the other hand, in the evidence summarized in the previous section (e.g., Keefer
2011), it is the presence of programmatic parties, rather than competitive elections, that
is strongly correlated with the development orientation of public policies. Recent debates
in the democracy and development literature, from Przeworski et al. (2000) to Acemoglu
et al. (2008), point to significant ambiguity about whether democracy promotes develop-
ment and growth more generally. Przeworski et al. (2000) argue that majorities cannot
credibly commit not to expropriate minorities; Acemoglu et al. (2008) dispute a causal re-
lationship between growth and democracy, insisting that underlying factors that influence
whether countries democratize also determine whether, after democratization, countries
grow or not.
In his analysis of banking crises, Keefer (2007a) suggests one solution to this puzzle. He
finds that the costs of banking crises are significantly lower—as much as 15 percent of GDP
lower—in countries with competitive elections. Why should banking crises have lower
costs, or agricultural policies be less predatory, in democracies, if overall development
outcomes are not clearly associated with democratization? Keefer extends the arguments
of Ferejohn (1986) to explain these manifestations of electoral accountability. Citizens can
more easily coordinate their electoral behavior when confronted with large policy shocks.
When policies are sufficiently welfare-reducing, elections therefore allow citizens to co-
ordinate implicitly on a decision to remove the incumbent, even if they are not formally
organized for collective action and even if challengers cannot credibly promise to do better.
Banking crises are striking manifestations of policy failure that voters can easily attribute to
politicians’ actions; the agricultural policies that Bates (1981) documents in predemocratic
African countries are similarly dramatic in their effects.
In contrast, unorganized citizens cannot as easily coordinate on the endemic failure of
politicians to address underdevelopment more systematically. Hence, the effects of democ-
racy on growth and development are modest or ambiguous. Even if the prospect of elections
does deter particularly pernicious policy decisions, it may do little to prevent the accumula-
tion of less salient, more subtle, but also pernicious policy choices by governments.
Assumptions about citizens’ collective action also condition theories explaining the
emergence of democracy. In accounts that follow Tilly’s line of reasoning, elections are a
product of elite decisions to encourage citizens’ collective action, either to resolve inter-
elite struggles or to allow the rulers to extract more resources from citizens to meet ex-
ternal threats than they can coerce in the absence of elections. The analyses of Przeworski
et al. (2000), Boix (2003), and Acemoglu and Robinson (2006) each approach the
question of democratization differently, but all assume that political contestation occurs
between groups of citizens, whether elites and nonelites, capital and labor, or majorities
and minorities. In all of these cases, groups are assumed able to act as unitary actors—
that is, leaders represent the collective interests of their groups when making decisions,
whether before or after the introduction of universal suffrage. Democracy emerges, in
these accounts, when the disenfranchised—assumed to be organized already—collectively
rise up to demand it.
Like research on collective resource management, the literature on democratization
offers evidence that informal citizen organization is insufficient to sustain collective action.
Tilly (1990), for example, recognizes that some citizens resisted rulers in eighteenth-century
predemocratic Europe; they were “already connected by durable social ties” (p. 100). Such
social ties are reminiscent of the normative bases of collective action that the literature on
common resources also studies. As the earlier review of the literature makes clear, however,
social norms and the intrinsic motivation of individuals are rarely sufficient to ensure sus-
tainable resource management. Instead, group organization is required. Correspondingly,
Tilly (1990) implies that these social ties were insufficient to secure systematic political
change that served citizens’ collective interests.
More contemporary evidence also shows that affinity is insufficient to motivate collective
political action even in countries with competitive elections. In Afghanistan, for ex-
ample, where durable, organized political parties are entirely absent, politics is organized
around clan or tribal lines. These ties are insufficient to overcome significant coordination
difficulties. The electoral rule used in Afghanistan, single nontransferable voting, places a
high premium on the ability of groups to choose exactly the right number of candidates
and to allocate group votes evenly among those candidates. If they choose more candidates
than their support base can sustain, or if they fail to allocate votes evenly across candidates,
the group can secure dramatically fewer seats than other groups with fewer members.
452 Philip Keefer
Nevertheless, clans regularly fail to maximize clan representation, as families do not trust
that representatives from within the clan but from outside the family will represent their
interests. Reynolds (2006) shows the consequences of miscalculation in the first parliamen-
tary election that Afghanistan held: 68 percent of the votes across the entire country were
for losing candidates.
Even in democracies where voting patterns regularly track ethnic, religious, tribal,
or linguistic cleavages, from Benin to Afghanistan, citizen organizations based on these
affinities are weak and evanescent. Ethnic political parties are unable to make the cred-
ible appeals to coethnics that one would expect from large, durable political organiza-
tions aimed at mobilizing coethnics. One way to see this is to ask whether members
of ethnic groups whose collective interests are represented by a coethnic party are
more likely to express a partisan preference than members of ethnic groups that lack
a coethnic party to represent them. Keefer (2010) shows that, in sub-Saharan Africa,
although ethnic voting is common, members of ethnic groups represented by coethnic
parties are not more likely to express a partisan preference than members of groups that
lack such a party.
Collective Action and State-Building

Discussions of regime type and government accountability to citizens presume that the
state has the capacity to implement the policies that underlie political contestation. This
capacity is often not present, making state-building an essential issue in development. It
is also a key issue in political economy, since, as Tilly (e.g., 1990) observes, well-organized
bureaucracies can constrain ruler discretion. He argues that rulers therefore prefer not to
build such bureaucracies except under duress—when confronted by the prospect of war or
rebellion that could only be met by building a bureaucratic apparatus that could provide
significantly more services to citizens, oversee an effective army, and raise the revenues
needed to support these endeavors. Once established, as Tilly documents (and just as rulers
feared), bureaucracies were not simply a tool of the ruler, but developed the capacity to
act independently as a constraint on ruler discretion (p. 115). Shefter (1994) echoes these
arguments, concluding that in democracies that inherit a strong civil service, clientelism is
more difficult for politicians to implement, and they prefer to pursue mobilize voters with
programmatic appeals.
Neither Shefter nor Tilly explores the role of formal citizen organizations in state-
building. The results reported above from Cruz and Keefer (2010), though, shows that
the presence of programmatic parties allows citizens to demand broad public goods from
politicians; these politicians, confronted with the need to deliver these policies, build an
administrative apparatus capable of overseeing it. At the same time, politicians bound to-
gether in a programmatic party are themselves better able to demand that the executive
implement such an apparatus. In Gehlbach and Keefer (2011), the prospect of greater rents
from private investment can be enough to prompt autocrats to strengthen the ruling party
by allowing members to act collectively; they provide systematic evidence of the phenom-
enon in Gehlbach and Keefer (2012). Keefer (2008) shows that programmatic ruling parties
are significantly associated with lower risk of civil war: Where citizens are organized, they
are better able to demand the public good of security, raising the cost to possible insurgents
of launching an attack on the regime.
Conclusion
The conclusions reached here go from the more to less widely appreciated: Collective action
challenges are pervasive in development; organization is essential to the ability of groups
to undertake collective action; and political parties play a central role in citizens’ efforts to
act collectively to ensure political accountability to their common interests, but only if they
are organized to represent the collective interests of members. These arguments have wide-
ranging implications. For example, most discussions of institutions in development focus
on the right to vote and the rules that govern how votes are translated into representation,
and representation into public policy. The discussion here adds to this list the right to as-
sembly and the institutions of collective action.
Certainly, politicians themselves pay considerable attention to these issues. This is evi-
dent in nondemocracies, where rulers overtly suppress organized citizen activity, whether
of religious groups, nonprofits, or opposition parties. However, even in liberal democracies,
politicians act strategically to undermine the organizational capacity of their competitors.
For example, when labor and capital conflict over the rules of union formation, politicians
take an interest not only because these rules have consequences for the distribution of rents,
but also because they influence the costs of mobilizing workers for political activity. The ev-
idence and arguments presented here, but also the actions of politicians themselves, argue
for more attention to the role of collective action in development.
Acknowledgments
I am particularly grateful to the comments of Cesi Cruz and the editors.
Disclaimer
The findings, interpretations, and conclusions expressed in this article are entirely those of the
author and do not necessarily represent the views of the World Bank, its executive directors,
or the countries they represent.
Notes
1. Important contributions in the context of the organization of firms analyze similar issues,
for example Miller (1987).
2. Individuals know that they can sell all of the fish that they catch today. They also know
that they cannot reserve for themselves any fish that they leave for tomorrow: these can
be freely taken by other users. Lacking any special claim on the contribution that they
454 Philip Keefer
make to future fish populations, the future benefit to them of conserving fish today is
only a fraction of the benefit of extracting fish today.
3. Kitschelt (1993) argues that parties that fail to employ “organizational democracy” (the
delegation of authority by members to party leaders) are necessarily small, since the alter-
native, direct democracy, imposes costs that many potential party members are unwilling
to bear. In the cases he refers to (left-libertarian movements that become parties, such as
the Greens), members actually have an ideological aversion to centralized mass organi-
zations, preferring “direct democracy” as the model for internal governance.
4. A road, for example, could increase the incomes of both party members and non-party
members by 25 percent, after accounting for the deadweight losses accrued from raising
revenues to finance the road. The same resources, delivered as transfers to all citizens,
would actually reduce their incomes slightly (taking into account the deadweight losses
associated with collecting taxes). If the resources were transferred only to the members
of a small party, their incomes could increase by much more than 25 percent. As the party
grew, however, the optimal policy even for party members would eventually switch to the
road that benefits all citizens.
5. Of course, this makes compromise difficult when the programmatic gulf is large, as
American politics in 2012 demonstrate. However, negotiation between competing parties
is potentially even harder when neither is programmatic and there are weak political
incentives to solve broad policy problems.
6. Pew Research Center for the People and the Press. Survey of February 2002. http://
people-press.org/dataarchive/
7. Parties in the tradition of Kwame Nkrumah, also with a more left-leaning ideology, per-
sist as well, but none approaches the two main parties as a political force; in the 2000
elections, the two main parties won 93 percent of the presidential votes and all but eight
parliamentary seats (Nugent 2001, 422).
8. Responses might have differed if the question had emphasized a potentially more salient
issue, such as “The government should redistribute more from the rich to the poor”. The
2005 Afrobarometer survey asked whether respondents believed that people should be
responsible for their own success, or whether the government should bear the main re-
sponsibility. Here, NPP supporters were more different than NDC supporters: 61 percent
of NPP supporters, compared to 44 percent of NDC supporters, favored the self-reliance
response. Even here, though, the differences are far smaller than those found between
Republicans and Democrats.
9. Kitschelt (2000, p. 852) also concludes that programmatic parties are more likely to re-
quire a “universalist legal codification of citizens’ entitlements and obligations”, which
also demands a well-functioning public administration.
10. In fact, one other indication that the DPI coding of the PSUV in Venezuela as non-
programmatic is likely correct is the prevalence of vote-buying in the country. Some
evidence (not unbiased, however) suggests that vote-buying could be important in
Venezuela. El Nuevo Herald (a newspaper opposed to the Chavez regime), reported
widespread vote- buying in connection with regional elections in 2012. In several
municipalities, it exceeded $10 million. These reports, if they are accurate, are telling: in
2012, Chavez’ illness was well-advanced and well-known, weakening the credibility of his
personal commitments regarding future party actions and exposing the lack of credibility
of the party, absent Chavez.
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Chapter 22
M issing Links i n t h e
Institu tiona l C ha i n
Anirudh Krishna
What can an ordinary citizen in the United States do if she feels fired up about a gov-
ernance issue at the local or the national level? Much more, I will argue, than a similarly
placed individual in India, Uganda, Kenya, or Peru. If there is a shortage of teachers in
the public school or if some teacher behaves inappropriately with her children, a woman
in the United States can contact the local parent-teacher association (PTA), get together
with other parents and petition the school board or the town council, write a letter to
the editor of the local newspaper, or call the district office of her state congressman. If
a business operation has cheated her or reneged on a deal, she will get in touch with
the local chamber of commerce or better business bureau, or she can take her case to a
nearby small claims court. While not equally available to all individuals, these means of
communication, of getting their voices heard and grievances redressed, are within reach
of the majority in the United States. Not so in India, where, as Yadav (1999, p. 2399)
states, “the chain that links peoples’ needs to . . . public policy is impossibly long and
notoriously weak,” nor in many other developing countries, where ordinary people feel
helpless in getting the system to work for them on a day-to-day basis. The constitutional
order in these countries may be democratic, as it is and has been for more than sixty
years in India, but what democracy provides by way of protections, opportunities, and
benefits to ordinary people is not the same as in the United States or other democracies
of the West.
Scholars who have investigated the politics of development have correctly pointed to
institutions as being critical for resolving these and other problems.1 It has become clearer
that the task of building appropriate institutions is a central concern. In order to be ap-
propriate for some particular context, institutions have to be rooted in local norms and
prevailing notions of legitimacy. Getting the bulk of the population to submit volun-
tarily to formal rules of governance becomes feasible only when these rules are widely
respected, being products of social consensus more than imposition from above (North
et al. 2000). These advances in institutional analysis, particularly the ones that came later
and emphasized the wrongheadedness of cookie-cutter approaches, have helped advance
the agendas both of development and democracy.
Missing Links in the Institutional Chain 459
But what they have not emphasized nearly enough is that it is not any particular insti-
tution or institutions that make the critical difference. Rather, it is the chain of institutions
linking individuals and communities, on the one hand, with the state and with markets,
on the other hand, that helps make democracy vibrant, citizenship real, and economies
effective.
People count when they can more easily and effectively make themselves heard, when
their voices reach and are acted upon by public officials. People who are unable to get
missing schoolteachers replaced, because the concerned officials are difficult to contact,
being impossibly far away (in terms of both physical and cognitive distances), are only
nominal members of a democracy.
Chains of institutions that enable these connections have links from the grassroots
level and the intermediate level (between local and national) to apex or national-level
institutions. School boards and PTAs, district offices of congressmen or political parties,
local courts, municipalities, neighborhood councils, etc., are all examples of grassroots (or
local-level) institutions. Corresponding intermediate institutions include state and county
education boards and party organizations, appellate courts, and civil society organizations
at the regional level. Apex institutions include the ministry of education together with na-
tional chapters of PTAs, national party organizations, the supreme court, interest groups,
lobbying organizations, and civil society organizations with a national charter. For any par-
ticular domain to be well served, institutions at all levels need to exist, perform, and be
easily accessible. They also need to be linked with institutions at higher and lower levels.
Take, for instance, the domain of justice and conflict resolution. It is not enough to invest
alone in a well-performing supreme court. In addition, lower and appellate courts also need
to be competently staffed, with well-known and well-respected procedures, easily accessible
by the population at large. The nature of the chain linking lower and appellate courts with
each other and with the supreme court needs to be well articulated and clearly known.
The same holds true in every other domain of public life. In education or public health,
for example, it is not enough to focus institution-building efforts at the national ministries
alone. Grassroots institutions, such as school boards and PTAs, hospital advisory boards
and complaints tribunals, need to be in place and resourced, given real powers, and be ac-
cessible at low cost.
Too often, the institution-building effort is focused on one or another link in the chain,
forgetting the fact that the entire chain is only as strong as its weakest link. And too often,
the weakest links are to be found at the grassroots level, too numerous in number to be
easily controlled from the top, out of sight from the capital city, under-resourced, and
disempowered.
Democratizing has been and is being pursued with vigor across the developing world.
However, the promise of democracy is not complete simply when people can vote in (or
vote out) their governors and administrators. Indeed, democracy has another and larger
part of the promise to fulfill, which includes a commitment to equal rights and equality
before the law, fair access to lawful opportunities for enforcing democratic rights and pun-
ishing violators, and reasonable reassurance that the protections, benefits, and opportunities
made available by democracy will not be disproportionately captured by some exclusionary
group. It is this second part of the promise that has not been adequately redeemed by in-
stitution builders or studied in sufficient detail by scholars of new democracies. Observing
460 Anirudh Krishna
these trends, Diamond (2008, p. 38) notes that, in many parts of the developing and
postcommunist world,
Democracy has been a superficial phenomenon, blighted by multiple forms of bad

governance—abusive police and security forces, domineering local oligarchies, incompe-
tent and indifferent state bureaucracies, corrupt and inaccessible judiciaries, and venal ruling
elites who are contemptuous of the law and accountable to no one but themselves. Many
people in these countries, especially the poor, are thus citizens only in name and have few
meaningful channels of political participation.
In some developing countries, including many of the “bottom billion” (Collier 2007),
devastated by turmoil and civil war, the problem may be that state institutions simply do not
exist or that they so often mutate and are replaced that, in practice, people pay them little
heed. But in other developing countries, the problem is not that state institutions do not
exist or are not recognized and respected; it is that ordinary people, especially poorer ones,
find it difficult, if not impossible, to make connections with these institutions on a day-to-
day basis. Reporting a missing or abusive schoolteacher can be a daunting task when the
official to whom one needs to report sits hundreds of miles away—and especially daunting
when the institutional chain that connects upward to these levels has no effective links
closer to hand. Where a PTA does not exist or is largely ignored by higher officials, where
there is no school board or town council (or where they exist but are ineffective), where
newspapers do not exist that can carry letters of complaint by ordinary people—in such
situations the benefits of democracy start to become questionable. Diamond (2008, p. 39)
states further that “for democratic structures to endure—and to be worthy of endurance—
they must listen to their citizens’ voices, engage their participation, tolerate their protests,
protect their freedoms, and respond to their needs.” How can any of these things begin to
happen, unless there are in place effective and accessible institutions, links in the chain at
local and intermediate levels, which can help carry the people’s voice, influencing public
policy?
In most developing countries, the state and democracy have been built from the top
down; in many among them, these tasks have been largely abandoned while still remaining
incomplete (Davidson 1992; Kohli 1990; Van de Walle 2001). The last few links in the institu-
tional chain, at the grassroots level and just above, often have not been constructed or they
have deliberately been left weak. Strengthening these links would help make ruling elites
more accountable, whittle down the power of local oligarchies, and help provide a spur
against indifferent bureaucrats. Perhaps because it does not play to the interests of these
powerful groups, the agenda of extending the institutional chain over the missing last mile
has been left undone in many places.
Of the reforms proposed by scholars and practitioners, many refer in different ways to
this agenda of forging missing lower-level institutional links. For instance, decentraliza-
tion is being supported vigorously by many aid organizations. Analysts have argued that
democratic decentralization can raise the political capacities of ordinary people, enhance
downward accountability between elections, increase information flows between citizens
and government institutions, improve the quality of education and other key services,
and undermine authoritarian enclaves.2 Civil society organizations and social movements
have been proposed as alternative bridging mechanisms between poor communities and
the state.3 And other innovative solutions have been devised by ordinary people who
have despaired of gaining assistance from any of the established organizations, as we will
see below.
Which particular type of institutional links should be built in some particular developing
country context is an empirical question, better addressed with the help of comparative and
grounded investigations. However, absent some such link, resources and capabilities at the
hands of ordinary citizens do not become effective, productive, and fruitful.
A case example from one part of India, presented in the second section of this article,
shows how collective resources at the hands of village communities cannot be put to
better use in the service of democracy and development—unless there are agents present
who can help communities close the existing institutional gaps. Social capital possessed
by communities in these contexts does not help enrich democracy in the same ways as
Putnam (1993) found for the case of northern Italy. The result, in rural India, is despondent
democrats: People who believe firmly in the rightness of democracy, but who are neverthe-
less unable to have their voices heard and their needs addressed.
Not only collective but also individual resources tend to be underproductive in such
situations. A second case example, presented in last section of this article, demonstrates how
talented and hardworking young people are unable to rise to higher-paying positions, in
part because institutions do not exist at the grassroots and intermediate levels that can help
these individuals make the necessary connections. That this is not particularly an Indian
phenomenon is shown by investigations conducted in three other developing countries.
Social Capital, Economic Development,

and Democratic Participation
Social capital has been defined by Putnam (1995, p. 67) as “features of social organization
such as networks, norms and social trust that facilitate coordination and cooperation for
mutual benefit.” Communities and groups that have higher levels of social capital act collec-
tively for mutual benefit more often than others where levels of social capital are low. This
propensity to act collectively for mutual benefit can be put in service of both democracy
and development: “Citizens in civic communities [those with higher levels of social capital]
demand more effective public services, and they are prepared to act collectively to achieve
their shared goals. Their counterparts in less civic regions more commonly assume the role
of alienated and cynical supplicants” (Putnam 1993, p. 182). Thus, members of high-social
capital communities are expected to achieve better results by way both of development per-
formance and democratic participation.
I examined this contention using an original data set compiled for sixty diverse village
communities of Rajasthan and Madhya Pradesh, two north Indian states. A combination
of case study and statistical methods was employed. Sixteen villages were investigated as
case studies, and all sixty villages were studied through quantitative analysis of survey
data. A total of 2,232 residents, selected at random from all adult residents of these villages,
were interviewed, using a 114-point questionnaire that was developed at the end of an in-
itial six-month period of field study. Separately, 408 village leaders of different types were
interviewed.
462 Anirudh Krishna
Measuring social capital required developing a scale appropriate for these agrarian
contexts, quite different from the contexts in which Putnam conducted his earlier empirical
studies. In the Italian regions, Putnam utilized a measure based upon density of member-
ship in formal organizations. It must be noted that—like all measures of social capital—this,
too, is only a proxy measure: It is not directly concerned with norms or with trust, but
looks, instead, at certain manifestations that accompany social capital within this setting.4
It is not obvious that social capital will be manifest in other cultures in similar fashion.
Density of formal organizations is a particularly inappropriate indicator for these north
Indian villages. Hardly any formal organizations have been set up voluntarily by villagers
in Rajasthan, and nearly every formal organization in these villages is companion to a state
agency and executor of its program. Formal organizations in this context do not, therefore,
provide any reliable indication of voluntarism and cooperation among villagers. However,
several informal networks exist, and many villagers attend these networks regularly.
A locally relevant scale for measuring social capital in Rajasthan was devised that relies
upon assessing participation in informal networks, considering the types of activities
with which people of this area are commonly engaged. Social capital exists “in the rela-
tions among persons” (Coleman 1988, pp. S100–S101), and only those activities are valid for
comparing social capital that inhabitants of this area regard appropriate to carry out col-
lectively rather than individually. Six survey questions, corresponding to six such activities,
were used for measuring social capital in this context:
Membership in labor-sharing groups: “Are you a member of a labor group in the

1.
village? Do you work often with the same group, sharing the work that is done either
on your own fields, on some public work, or for some private employer?” Responses
were coded as 0 for “no” and 1 for “yes.” These responses were aggregated for all
individuals interviewed in each surveyed village, thereby measuring the proportion
of villagers who do participate in such networks.5
Dealing with crop disease: “If a crop disease were to affect the entire standing crop of
2.
this village, then who do you think would come forward to deal with this situation?”
Responses ranged from “Everyone would deal with the problem individually,” scored
1, to “The entire village would act together,” scored 5. Individuals’ responses were
averaged for each surveyed village. This item and the next relate to the cognitive maps
that people have concerning the breadth of mutual support networks in their village.
Dealing with natural disasters: “At times of severe calamity or distress, villagers often
3.
come together to assist each other. Suppose there was some calamity in this village
requiring immediate help from government—for example, a flood or fire—who in
this village do you think would approach government for help?” Responses varied
from “No one,” scored 1, to “The entire village collectively,” scored 5.
Trust: “Suppose a friend of yours in this village faced the following alternatives.
4.
Which one would he or she prefer?“To own and farm ten bighas of land entirely by
themselves? [scored 1]“To own and farm twenty-five bighas of land jointly with one
other person?” [scored 2]6
Solidarity: “Is it possible to conceive of a village leader who puts aside his own wel-
5.
fare and that of his family to concern himself mainly with the welfare of village so-
ciety?” Responses ranged from “Such a thing is not possible,” scored 1, to “Such a
thing happens quite frequently in this village,” scored 3.
Reciprocity: “Suppose some children of the village tend to stray from the correct
6.
path—for example, they are disrespectful to elders, they disobey their parents, are
mischievous, etc. Who in this village feels it right to correct other people’s children?”
Four alternatives were posed: “No one,” scored 1; “Only close relatives,” scored 2;
“Relatives and neighbors,” scored 3; and “Anyone from the village,” scored 4.
Responses to these six questions were found to be highly correlated with one another, and
factor analysis supported the proposition that these were manifestations of a single under-
lying factor. Because they point commonly in the same direction, it was legitimate to con-
stitute a social capital index (SCI) through a simple aggregation of village scores on these
six separate items.
High scores on this social capital index reflect manifestations of cooperation and reci-
procity that I observed at first hand. Balesariya village attained a high score on the index,
and in fact its high level of social capital was displayed in many ways. People trust each
other a great deal in this village. No walls separate the houses of this village, and doors are
left open all day. Large numbers get together every Tuesday to sing bhajans (devotional
songs). Every household takes its turn to fill the communal trough for animals to drink.
Morning and evening, turns are taken by rotation. Water from an irrigation tank is also
distributed by rotation. Trust and collective goodwill are nowhere nearly as visible in other
villages, such as Kundai, Sare, and Ghodach, where social capital scores are low. People
in Kundai speak guardedly. They are afraid that they might say something which will be
misunderstood by a neighbor. People in Ghodach are suspicious of each other, and they are
constantly scheming to put each other down. There is an irrigation tank in Ghodach, but all
households take water any time they can, and there is no organization.
The question of immediate interest, however, is: Does social capital so measured corre-
spond with better results in terms of democratic participation and development perfor-
mance? Two separate outcomes were examined in order to develop some better answers to
this question.
First, democratic participation was compared by looking at a variety of political activ-
ities, including voting, campaigning, contacting public officials, and protest behaviors.
Different questions related to each of these activities were asked of survey respondents,
intended to assess the extent to which each of them was engaged in diverse aspects of dem-
ocratic politics. Factor analysis conducted on these reported opinions showed that different
survey items related to campaign work, contacting and protesting all loaded highly on a
single common factor, indicating that villages and villagers who are active in one aspect
of political activity, say campaign work, are likely to be equally active in the other aspects
as well. An index of political activity was constructed by taking a simple sum of scores on
these separate survey items.7
Second, an index of development performance was constructed by combining village
scores on four separate activities, each associated with particular aspects of economic de-
velopment that are especially valued by village residents:
1. Because livestock forms a large part of the village economy in this region, and because
village common lands—which comprise up to half of all land in each village—serve
as the principal source of fodder (as well as fuelwood), conserving and developing
these common lands is critical for the livelihoods of most villagers. A program of
464 Anirudh Krishna
integrated watershed development launched by the government in 1991 has assisted

villagers in achieving these aims. Performance with respect to common land devel-
opment within this program served as the first measure of development progress.8
2. Poverty reduction is a second important development objective for villagers, and
a second measure was constructed to assess progress on this dimension. On av-
erage, 44.5 percent of households were poor at the time of study. No direct meas-
ures are available of the numbers of people who escape poverty each year. I relied,
instead, upon numbers assisted under the official programs—the Integrated Rural
Development Program (IRDP) and two others—which provide assets and training
to poor villagers, measuring for each village the number of program grants per hun-
dred villagers averaged over the previous five years.
3. Employment generation is the third major economic concern of villagers. Continuing
poverty is abated to some extent through the wages provided by public construc-
tion projects. I measured the man-days of employment on such projects per capita
of village population and averaged them over three years to smooth year-to-year
fluctuations.
4. A fourth criterion of development performance mentioned by villagers relates to
the quality of health, education and water supply services. A focus group of villagers
was consulted to rank the quality of health, education and water supply services in
their village compared to neighboring villages. A five-point scale was used for these
comparisons.
Interestingly, villages that had high scores on any one (among these four) elements of de-
velopment performance also tended to have high scores on each of the other three elements.
Their performance in other areas of development—family welfare, forest protection—was
also superior, by and large, to other villages of the same region. Results of correlation as well
as factor analysis indicate that some underlying village-level propensity exists that is asso-
ciated with high performance by some villages and low performance by others. In order to
examine what this propensity might be—social capital or something else—village scores on
these four elements of development were combined to generate an index of development
performance.
These two indices— the index of political activity and the index of development
performance—were analyzed in relation to a host of potential explanatory factors, in-
cluding social capital. These results, presented in Table 22.1, show that social capital matters
considerably—but only when knowledgeable agents are also available who can help villagers
make connections with state agencies and market operations. Low social capital villages
can hardly ever achieve good results in either domain, even when high-capacity agents are
available. But high social capital villagers are also unable to achieve high development per-
formance (or greater democratic participation) without the assistance of agents who can
help them cross past existing institutional gaps.
Before presenting these results in full, a brief note is necessary to explain the natures
and functions of different agency types, commonly available to people of these villages.
Six different agency variables, corresponding to an equal number of agency forms were
considered for this analysis.
First, each caste group in a village is organized into an association, although the strength
of these associations varies from village to village. The variable capacity_caste assesses by
averaging survey responses for each village how strong or weak these associations are in
any particular case. Villages where caste associations were relatively more salient—where
villagers met more often with their caste fellows, where caste leadership was more effective,
and where its effectiveness was expected to continue into the future—received higher scores
on this scale.
The variable capacity_panchayat was similarly constructed to scale the strength of village
panchayats, units of local government in rural India, elected usually by residents of from
one to five villages, depending upon population size. While conceivably panchayat leaders
should be responsive to villagers’ needs, in practice they have most often acted merely as
“implementing agencies of a centralized state” (Mayaram 1998), helping run the programs
sent down by higher officials, but hardly ever intervening in the reverse direction. In con-
sequence, when villagers need to interact with state officials or bankers or merchants, they
turn most often to a new set of homegrown leaders, whose activities are examined briefly in
what follows (and more fully in Krishna 2003). The continuing weakness of these local gov-
ernment units constitutes a significant part of the institutional gap at the grassroots level.
In part because formal institutions have been weak historically, patronage links acquire
salience in these villages and others like them (Migdal 1988; Van de Walle 2007). The var-
iable capacity_patron reflects the strength of patron–client linkages in each village, being
measured in ways similar to the other agency capacity variables.
Another such variable capacity_party gauges the strength of political parties as perceived
by the respondents of each particular village. It does not relate to the strength of any specific
political party, and is intended, instead, to take stock of the extent of allegiance, loyalty, and
influence in relation to political parties in general. The nonsignificance of this variable in
the following analysis shows how another likely institutional link remains weak, resulting
in the emergence from the bottom up of new and innovative ways that enable ordinary
villagers to make contact with the state and markets.
The last agency variable examined here, capacity_new, reflects these developments. In
these and other villages of India, a number of young political entrepreneurs have come up
who help villagers deal with continuing institutional gaps. Processes leading to the emer-
gence of these new village leaders are examined elsewhere in greater detail.9
The supply of such new leaders has benefited from the expansion of school education in
rural India, which has grown rapidly, particularly over the previous three decades. Many
more young villagers than older ones are capable of negotiating the written world in which
state agencies operate. Demand for the services provided by the new village leaders has
also grown simultaneously. The budget for development and social welfare has expanded
manifold. A plethora of government programs, including several concerned with poverty
reduction and employment generation, has proliferated in the countryside. But how does
any particular village (or villager) obtain these program benefits for itself (or herself)?
The continuing weakness of lower-level institutional links makes it difficult for ordinary
villagers (or groups) to connect effectively with the state. Partly filling this institutional
vacuum, new leaders have appeared over the last few years within most villages. They per-
form a number of tasks on behalf of villagers that require mediation with the state and with
market agencies, such as banks, insurance companies, and private health care providers.
More than two-thirds of all villagers consulted reported that whenever they needed to deal
with the police, the land records office, a bank, or a hospital, they seek the services of such
new village leaders.10
466 Anirudh Krishna
These new leaders, who are mostly men, although there are also a handful of women, are
villagers themselves and “are usually between 25 and 40 years of age . . . [and] educated to
about middle school [level]. They read newspapers, have low-level contacts in numerous
government offices, and are experienced [in dealing] with the government bureaucracy and
with banks, insurance companies, and such like. . . . Their caste does not matter. These new
leaders can be of any caste, but they have knowledge, perseverance and ability.”11 In fact, our
investigations showed that lower and scheduled castes (the former untouchables) constitute
a disproportionately high share of new leaders. Through frequent interactions on behalf of
fellow villagers, they acquire a capacity to engage with diverse state officials at lower and
intermediary levels in the institutional chain, levels that—while being physically closest to
them—are most often opaque to and out of reach by ordinary villagers.
In order to assess the capacity of such new leaders in each studied village, three survey
questions were asked relating to their existence and to the utility and frequency of contact
by villagers. A fourth question assessed range of effectiveness in terms of numbers of activ-
ities performed.
None among these five separate agency capacity variables is particularly well correlated
with the social capital index (or with any of the other agency capacity variables). Social
capital is neither an effect nor a cause of the strength of different types of agency. While
social capital reflects the nature of relations within a community (i.e., it is a collectively
possessed resource), agency strength is related to a different set of capacities that particular
individuals possess.
Having considered the different types of agencies available in the villages, we are now
in position to examine the effects of social capital, controlling for the effects of other likely
influences. Regression results presented for all sixty villages in Table 22.1 were complemented
by detailed accounts constructed for the smaller group of case-study villages.
In addition to the previously mentioned variables, a number of societal variables, corre-
sponding to different village-level influences, were also examined. Distance to nearest town
is a measure of relative remoteness. The variable infrastructure combines scores for level of
facility related to transportation, communications, electrification, and water supply. The
variable number of castes is a measure of the number of different caste groups that reside
in any village. This variable provides one measure of the extent of heterogeneity within the
population of a village, which some (e.g., Dumont 1970) regard as affecting adversely the
potential for collective action in pursuit of democratic or development activities. The vari-
able poverty percentage is a measure of relative need. It reflects the percentage of village pop-
ulation that was below the official poverty line at the time of study. In addition, literacy is
examined to test hypotheses that expect economic development and political participation
to be closely related to the level of educational achievement in communities (e.g., Dreze and
Sen 1995; Finkel 2002; Jackson 1995). The variable literacy was calculated as the sample per-
centage of persons in each village who have five or more years of formal education.
The effects of these societal variables, the five agency capacity variables, and village scores
on the social capital index were examined simultaneously in regression analysis in relation
to the two dependent variables.12 Additionally, an interaction term was considered, calcu-
lated by multiplying the social capital index with capacity_new, the variable that measures
the capability of new leadership in each village.13
Consider first the results related to development performance: Among the soci-
etal variables, only literacy is significant. None of the agency capacity variables matter
Table 22.1 OLS Regressions on Development Performance and Political Activity
Index of Development
Performance Index of Political Activity
Intercept −46.6* −25.38

(22.7) (32.91)
INDEPENDENT VARIABLES
(A) Societal Variables
Distance to nearest town 0.29 −0.05*
(0.37) (0.02)
Infrastructure −0.18 0.29
(1.72) (0.69)
Number of castes 0.16 0.42
(0.94) (0.36)
Poverty percentage 0.82 0.70
(3.61) (5.28)
Literacy 0.50* 5.40
(0.22) (12.6)
(B) Agency Variables
Capacity_party 0.89 0.64
(5.22) (2.08)
Capacity_panchayat 1.39 0.46
(3.85) (1.64)
Capacity_caste 0.32 0.56
(4.37) (1.38)
Capacity_patron −0.15 −0.45
(0.66) (2.32)
Capacity_new 0.62 0.58*
(2.58) (0.30)
(C) Social Capital 0.35 0.13***
Social capital index (SCI) (0.37) (0.04)
(D) Interaction 0.09*** 0.02****
(SCI × capacity_new) (0.009) (0.004)
N 60 60
R2 0.44 0.71
Adj-R2 0.38 0.65
F-ratio 6.31 9.88
F-probability 0.0001 0.0001
* p≤.05, *** p≤.001, **** p≤.0001.

Note: Standard errors are reported in parentheses.
468 Anirudh Krishna
individually. Neither, surprisingly, does social capital matter by itself. These results show
that social capital can make a difference—but only in conjunction with capacity_new. The
effect of social capital is refracted; it is magnified or reduced, depending upon how capable
a specific type of agency is within each particular village.
Without the availability of capable agents in the village, social capital becomes an un-
productive resource. Having a high level of social capital enables communities to take up
multiple tasks involving mutually beneficial collective action. But merely because citizens
can act collectively with greater facility does not mean that their actions will always have
the intended impacts. In terms of development, especially, where the state or the market is
the target of collective action by communities (i.e., where the result is not entirely or even
mainly within citizens’ control), it is hardly certain that collective action will not end up
being a wasted effort. To succeed in achieving their goals, citizens must also at a minimum
be well informed about the processes of decision-making in state and market organizations,
and they must be able to gain access to the offices and forums where these decisions are
made and implemented.
Agency capacity matters because information about government programs and market
opportunities is not widespread among villagers and because institutional channels are not
available that can enable villagers gain access. Communications are consequently broken
between villagers and the state. Capable agents help villagers overcome these obstacles to
effective collective action.
A similar picture emerges when we consider the results in Table 22.1 related to political
activity. Literacy loses significance in this analysis, but one other village-level variable, dis-
tance to nearest town, has a significant negative influence, albeit one that is fairly small in
substantive terms. The capacity of new leaders (capacity_new) is significant both by itself
and also in interaction with village social capital. But once again the interaction variable—
constructed by multiplying together each village’s scores on the social capital index with its
scores on the variable capacity_new—is highly significant.
Enhancing groups’ cohesiveness and raising agency capacity should help, therefore,
in raising the overall level of political activity. Social capital helps with the first of these
purposes. High social capital villages are more close-knit and better able to act together for
diverse common ends. But it is not clear what ends they will in fact select for targeting their
collective activities. Capable agents are required to provide the information and the direc-
tion that can gear collective action toward effective participation in democratic activities.
These statistical results came to life when I examined patterns of interaction within the
smaller group of case-study villages where I lived for extended periods of time. I found
that villages, such as Balesariya, that have high levels of social capital are nevertheless un-
able to achieve either high political activity or better development performance. Mangilal,
sarpanch (chief) of Balesariya’s village panchayat, is the only one in this village who has
regular contact with any state or market agency. However, Mangilal is not a very efficient
agent of villagers. He cannot easily cheat villagers—villagers are strongly united, and social
sanctions, including ostracism, are imposed swiftly and firmly, with no scope for appeal—
and Mangilal serves them to the best of his ability; however, Mangilal’s abilities are not very
great. Ability lies in getting to know early about different government programs and market
opportunities and in being able to persuade officials and politicians to allocate schemes and
program funds to one’s village ahead of others. Mangilal is particularly weak in this respect:
Mangilal is among those sarpanchas who sit at the back in each meeting [of sarpanchas of
the local area]. They [the back-bencher sarpanchas] know very little about schemes and
programs, so they don’t dispute whatever officials say. They are thankful for what is given to
them. They don’t know how to fight for more.14
Apart from gaining the entitlements that they cannot be denied, Balesariya’s residents
have been unable to dig more deeply into sources of funding allocated at the discretion of
officials and politicians. Further, even when development projects have been implemented
in this village, the benefits have not been sustained. Quality of basic services, such as health,
education, and water supply, is low in this village because, as Mangilal stated, “officials don’t
listen to us.” The approach road to the village is a muddy path, impossible to negotiate
during the three monsoon months. Drinking water is still taken from the community well,
and there is no piped water supply anywhere in this village. Villagers here make good use
of what they have. Without the support of capable new leaders, however, they have been
unable to add significantly to their existing resource base.
Because it has no effective leaders who can help them reach out and attract additional
resources from the state (or from the market), Balesariya remains an economic backwater.
Until more effective agents emerge or until the need for individual agents gets obviated
through society-wide reforms that help forge the missing institutional links—for instance,
by making panchayats stronger and/or building more effective party organizations—
Balesariya (and other similar villages) will remain disadvantaged. Missing or weak lower-
level links in the institutional chain continue to put a premium on having effective grassroots
interlocutors between citizens and the state.
Low Achievements and Aspirations:

Rising Inequality
Institutional gaps similarly limit achievements in many other ways. Not only collective well
being, but individual achievement is adversely affected. In two Indian states, Rajasthan and
Karnataka, I asked a subset of young villagers—all those aged between 14 and 22 years,
attending schools and colleges at the time of interview—about the careers that they in-
tended to pursue after completing their studies. These inquiries, conducted in 2005 and
2006, several years after high-speed economic growth had begun to be experienced in India,
showed that much is still amiss. Because they feel unconnected from the main currents of
growth, and because they are ill informed about many better-paying opportunities, most
young people in these villages aspire to nothing more than the low-paying positions that
their forebears have achieved in the past. To the vast majority, economic growth in the
country has not made visible any newer or better-paying economic opportunities. I will
argue subsequently that this result is caused, not entirely but in large part, by the weakness
of institutional links at the lower level.
Different career aspirations reported by these young people were divided into two broad
types: those that can conceivably be thought of as high-paying positions and others that
are clearly low-paying ones. Table 22.2 reports these results. A very large number of young
470 Anirudh Krishna
people believe that, despite working hard, they can at most become a village schoolteacher
or police constable. Very few people have any higher prospects in mind.
Around 40 percent of young adults in both states, Rajasthan and Karnataka, aspire to be-
come schoolteachers. Another large group of young people—26 percent in Rajasthan and
34 percent in Karnataka—aspire to become low-level government employees, such as police
constables, bus conductors, typists, and messengers. A third large chunk hopes to become
low-level army recruits. In total, 87 percent of young villagers in Rajasthan and as many as
91 percent in Karnataka aspire only to such low-paying occupations. Most of them know of
no other positions that they could or should aspire to achieve.
The aspirations that young people in these communities presently entertain reflect the
career achievements of the previous generation. Table 22.3 reports the results of another
inquiry conducted at the same time within the same diverse group of Rajasthan villages. In
each village community, we inquired from focus groups of adult male and female residents
about the highest positions—in any walk of life—that residents, both current and former
ones, had achieved over the previous ten years. Hardly anyone from this diverse group of
villages has advanced very far. About a thousand individuals graduated from high schools
during this ten-year period, yet only one became a software engineer, one other became
a civil engineer, one became a medical doctor, and one is practicing as a lawyer in the
district courts. Others who obtained jobs mostly joined government departments at very
low levels; of those who graduated from high school (and some who completed college),
most were unable to find any acceptable position. The same story was repeated in villages
of Karnataka. The highest positions achieved in most communities were those of school-
teacher, army recruit, and police constable.
Table 22.2 Career Aspirations of Young Adults

Rajasthan Karnataka
High-Paying Positions
Accountant Less than 1% Less than 1%
Business manager Less than 1% Less than 1%
Doctor 2% 2%
Engineer 3% 4%
Lawyer 2% 1%
Senior government official 3% 1%
Other well-paid positions 1% 2%
Low-Paying Positions
Schoolteacher 43% 39%
Army recruit 13% 5%
Policeman 11% 12%
Other low-level government 15% 22%
positions
Other low-paid private 5% 11%
occupations
Note: A total of 1,456 respondents aged between fourteen and twenty-

two years were interviewed.
Why should capable and hardworking people not be able to choose from among a wider
range of career choices, exploring a richer set of opportunities? And why should the gen-
eration currently preparing for careers aspire to nothing better than what the preceding
generation has achieved?
In order to get a more complete look at these questions, I examined the contrasting case
of the software industry in Bangalore, compiling and investigating the stories of a random
sample of 150 new recruits, drawn from among all entry-level software professionals
recruited within the past five to ten years by three Bangalore-based software firms. Different
economic and social backgrounds characterize these newly hired software professionals.
The diversity of India finds reflection in this group: Different regions, languages, and caste
and ethnic groups are represented. However, while more than 70 percent of India’s popula-
tion lives within rural areas, only 11 percent of software professionals came from rural areas
and had attended rural schools at any point in their lives.
Being educated in a city appears to convey a distinct advantage. Apart from the quality of
education, there are also other benefits to living in a city, as we will see below.
I also assessed economic conditions in these software engineers’ households of birth by
asking them questions in relation to fifteen different assets. This list of assets included rela-
tively minor ones, such as bicycles and radios, as well as higher-valued ones, such as com-
mercial properties, farm machinery, and stocks and bond.
These results show that not a single software professional grew up in a household that
was entirely without assets. Not one grew up within an urban slum. However, quite restric-
tive economic conditions were faced in several cases. A total of 14 percent of respondents
grew up in households that possessed no assets other than a bicycle or a radio; these results
thus indicate that children from households with straitened circumstances do have a chance
of rising higher.
What differentiates those capable but economically less well-off children who make it to
higher-paying positions from the hundreds of others who do not? The data point toward a
peculiar factor that is common to a vast majority of successful cases—and very uncommon
for Indian society as a whole. More than any other factor, the level of their parents’ educa-
tion clearly distinguishes those who have become software engineers. Table 22.4 presents
these results.
Table 22.3 Highest Positions Reached in Rajasthan Villages
Accountant (2) Lineman (7)

Advocate (4) Panchayat secretary (4)
Computer operator (4) Patwari (11)
Constable (8) Peon (6)
Clerk typist (10) Sub-inspector (4)
Doctor (1) Schoolteacher (50)
Driver (4) Soldier (jawan) (32)
Civil engineer (2) Software engineer (1)
Note: A total of seventy-one villages were considered.

472 Anirudh Krishna
A total of 80 percent of interviewed software engineers have fathers who are college
graduates. Not one father has less than a high school education. Additionally, as many as
51 percent of respondents’ mothers have college degrees, while another 29 percent have high
school diplomas. Thus, 80 percent of mothers have a high school education or better.
This combination of a father and a mother who graduated, respectively, from college and
high school is rarely found in India. National statistics show that among Indians who are
of similar ages as the parents of newly recruited software engineers (between forty-five and
seventy years old), less than 7 percent of all males are college graduates, and less than 4 per-
cent of all females have a high school diploma (or any higher qualification). Considering
rural areas alone, these percentages are lower still.15 Thus, if having two educated parents is
a “requirement” for gaining entry to better-paying jobs, then at best somewhere between 4
to 7 percent of all Indians would qualify.
Why does parents’ education matter so much for individual achievement? Our
investigations revealed that parents’ education acts as a surrogate for two other critical
factors: information and connections. In environments where knowledge about career
opportunities is mostly propagated by word-of-mouth, where institutional gaps prevent
many people, especially rural residents, from acquiring useful information related to career
choices, having two educated parents—who are socially networked with other educated
and well informed people—is the best source of career guidance that any individual can
expect to get. In follow-up interviews that I conducted with a selection of young software
engineers in Bangalore, I asked specifically about the roles played by parents. One young
man informed me that:
There are a set of people who are from more educated families. I know my friends whose
parents were teachers or professors or doctors. Their children have done their bachelor’s,
master’s, or Ph.D. degrees, because that is what they were brought up to do. They were always
very aware of what they wanted to be. . . . People like me? All of us want to get into jobs. We
want to start working. We have no clear objective. No clear idea is given to us by our parents.
Education is not the biggest hurdle; it is the clarity of vision that one grows up with.16
Interviews with other young software engineers and with young residents of different
rural communities helped me learn more about how people’s vision had been limited in
some cases and widened and sharpened in other cases. A very important difference was
made by the availability (or lack) of information about career pathways.
Table 22.4 Education Levels of the Parents of Newly

Recruited Software Engineers
Percentage, by Parent
Education Level Father Mother
Doctoral 3 1
Master’s or equivalent 32 13
Bachelor’s or equivalent 47 37
High school 17 29
Less than high school 0 17
In rural communities such as the ones I had investigated earlier in Rajasthan and
Karnataka, knowledge about higher-paying job opportunities is especially hard to come by.
Many capable young people do not get a chance to know about the range of opportunities
that exist, where to go, how to apply, and what kinds of preparation to undertake in order
to compete successfully with other candidates. Attending a high school or college in a rural
area does not automatically fill these information gaps. Rarely, if ever, do schools provide
any such information. Every individual has to fend for herself.
Investigations conducted separately in Kenya, Uganda, and Peru showed similarly how
low aspirations and low achievements continue to prevail. Among the nearly 120 diverse
communities I studied, home to more than 18,000 households, hardly anyone had risen in
the ten-year period prior to these inquiries to a high-paying position in any walk of life.17
Many talented young people get left behind because no information reaches their communities.
In the absence of institutions providing career information, people’s horizons become limited
to the positions they see in their immediate vicinity. Schoolteachers, low-level government
employees, and army recruits make their presence felt in village communities. The pathways that
lead up to these positions, being often trodden, become better known. Other occupations appear
only hazily on villagers’ cognitive horizons. Low aspirations, arising from low past achievements,
lead to low achievements in the future. A low-level equilibrium is the result.
Inequality gets reinforced within contexts where information about career options is
available only from other members of one’s own social network—and where institutions are
not available or accessible that can help serve the same set of needs. In such societies, better-
off individuals tend to “have a more complex experience of the relationship between a wide
range of ends and means, because they have a bigger stock of available experiences. . . .
Poorer members have a more brittle horizon of aspirations . . . and a thinner, weaker sense
of pathways” (Appadurai 2004, pp. 68–70).
Similar conclusions have been reached by studies undertaken across a swathe of de-
veloping countries. For instance, an examination in eighteen Latin American countries
revealed “how widely separated the various socioeconomic strata are in terms of their ex-
pectations of social mobility. People living in the more vulnerable households have lower
expectations regarding their children’s future well-being than members of households that
are in a better economic position” (ECLAC 2007, p. 20).
More equal societies have invested in building public institutions responsible for pro-
viding career- related information to all. For instance, employment offices, privately
operated or government-run, function in every large and small town in Sweden. Additional
guidance and vocational training opportunities are provided at high schools and through
trade unions and the mass media. In Kenya or Uganda, in India or Peru, such facilities are
unavailable to the vast majority, especially rural people and poorer ones in towns.18
Appropriate institutional links at the grassroots level and just above—links such as
career-counseling agencies, employment exchanges, interactive websites, radio and TV
links, etc.—need to be built with determination and energy. They will not entirely resolve
the low-aspiration, low-achievement problem; many other factors, including poor-quality
health care and education need to be addressed in parallel.
However, absent such institutional links to provide valuable information and connections,
talented individuals will continue to face considerable obstacles to achievement. Inequality
will continue to grow, and the gross national product will remain suboptimal because of
inefficient utilization of the national talent pool.
474 Anirudh Krishna
Conclusion: Agency, Capacity,
and Connecting Institutions
In an influential reexamination of what development means (or ought to mean), Amartya

Sen (1999) has emphasized the roles played by human capabilities and individual agency.
Capabilities denote an individual’s opportunity and ability to generate valuable outcomes.
Freedom to achieve and freedom to choose are important within this understanding. The
associated notion of agency is applied in relation to someone who acts and brings about
change, whose achievement can be evaluated in terms of his or her own choices among
objectives. For capabilities to be realized, choices must exist. Real opportunities must be
available that enable people to develop their individual potentials. In situations where large
numbers of people remain cut off from opportunities, whether in the political or the eco-
nomic realm, where democracy prevails in the land but where the protections and benefits
of democracy are out of reach for many, agency is constrained and capabilities are stunted.
Such situations are brought about when institutional chains are incomplete, when
missing links prevent people from connecting to opportunities. We have seen how collective
energies—social capital, in this case—does not become productive until it can be connected
with programs of the state and with market-based opportunities. Not all village communities
are able to utilize their social capital productively. Since institutional links are missing at the
grassroots level and just above, only those villagers can benefit from high social capital as
are able to overcome institutional gaps by themselves. The presence within some villages of
individuals who have gained knowledge and who have experience of dealing with state officials
and market agencies places them in a favorable position compared to other villages. The avail-
ability of new village leaders is, however, an adventitious occurrence. Not all villages have such
people available, and those that do can lose them at any moment; many new leaders leave
their villages to pursue opportunities elsewhere. Similarly, not all capable and hardworking
young people are able to achieve economic rewards commensurate with their capabilities.
Only those who are especially privileged in terms of information and connections aspire to
and can attain higher-paying positions. The rest have to make do with what they can get, usu-
ally low-paid positions in their immediate vicinity. Individual talents and collective resources
remain underutilized as a result, producing outcomes well below their potentials.
Resolving these unfortunate situations requires investing in institutions, particularly in
strengthening them by elongating their institutional chains. At the local level, institutions are
required that are effective, accessible, responsive to local needs, and, importantly, connect
with higher-level links in the chain of institutions. In many developing countries, such as
India, where the project of state construction has been pursued from the top down, the
last few links in institutional chains—at the grassroots level and just above—have been left
underdeveloped. Further institutional development is essential for making the protections,
opportunities, and benefits of democracy and of economic growth more real and accessible
to the population at large.
The process of institutional development remains, however, poorly understood.
Historical examinations have shown how critical junctures representing a sharp break from
the past—wars, pandemics, decolonization, etc.—have provided promising openings for
institutional innovation. How societies respond to these opportunities is contingent and
uncertain, however, being influenced by history, leadership, other contemporary events,

and political culture (Acemoglu and Robinson 2012). Path-dependence—the retention of
institutional chains inherited from the past—plays a big part in this process, both because
powerful interests are invested in retaining structures that serve their ends and because
assembling coalitions required to overturn the old order tends to run up against collective-
action problems. Consequently, given the contingent nature of the process, we can say more
about episodes of institutional engineering after they have taken place, being less capable of
predicting the likely fate of such efforts.
Nevertheless, several developments currently in play have the potential of strengthening
currently weak institutional chains. Decentralization, for example, which aims to empower
municipal councils, represents one way to strengthen local-level institutions, especially
where such councils are simultaneously linked up organically with higher levels of govern-
ment organization. In the Indian case, while rural municipal councils—panchayats—do
exist and have been granted additional powers over the past two decades, they continue
functioning in the most part as implementing agencies of the central and state governments,
useful for transmitting government programs to villagers, but less adept at and less inter-
ested in conveying political communication in the reverse direction. As Manor (2010, p. 77)
states, “Most state governments in India have been reluctant to empower and fund” these
bodies. And in hardly any state have panchayats been incorporated within well-established
chains of communication, linked with line ministries of the state or central government.
“So despite a few splendid exceptions . . . Indian states’ approaches to democratic decentral-
ization may be chiefly remembered as sad examples of what might have been.” Alternative,
further, and deeper reforms may be mounted, making these bodies more meaningful and
effective, responding to the needs outlined above.
Erecting stronger civil society organizations at the grassroots and intermediate levels
represents a second approach toward building the last few links in institutional chains.
Interest groups, residential organizations, producer associations, labor unions, NGOs,
ethnic and religious groupings, and the like can all potentially fill the gaps of representation
and interest articulation currently experienced by ordinary citizens in India.19 At present,
the reach of such organizations is mostly confined within Indian cities; few organizations
representing citizens function in rural areas (Chhibber 1999; Krishna 2002). A great deal
can be achieved by investing in this endeavor.
Political parties with chains linking all the way up and down, from the village to the capital
city, represents a third way forward—as discussed, for example, by Huntington (1968) and
Kohli (1987, 2011). Unfortunately, political parties are also most often weakly organized in
India, and especially at the grassroots level, have little presence and less vitality. Top-down
state construction has been matched by top-down party building, with the last links receiving
in both cases the least amount of attention. Building local-level party offices, accessible to
ordinary citizens and representing their voices at levels above, can be another way forward
toward institutional development, required in these contexts and many others like them.
All of these likely solutions—and some others, including informal (or traditional) local
organizations, which have been found in some parts of India and elsewhere to be effectively
filling the vacuum of representation from below (Ananthpur 2007; Buur and Kyed 2006)—
need to be explored simultaneously. Some amount of redundancy is not just unavoidable,
it is desirable: Having extra institutional channels that work is far better than having none.
Democracy and development will both be strengthened.
476 Anirudh Krishna
Notes
1. See, for instance, Acemoglu et al. (2001); Acemoglu and Robinson (2006); North (1990);
and Rodrik (2007).
2. See, for example, Blair (2000); Crook and Manor (1998); Fox (1990); Rondinelli,
McCullough, and Johnson (1989); Schönwälder (1997); Smith (1985); Smoke and Lewis
(1996); and Tendler (1997).
3. For example, Etzioni (1998); Fung and Wright (2001); Putnam (1993); and Varshney
(2001).
4. For an elaboration of this argument, for why social capital cannot be measured directly
and recourse must be had to contextually relevant proxy measures, see Krishna (2007).
5. Because a random sample of adults was interviewed in each village, the mean of indi-
vidual scores is an unbiased estimator of mean village score.
6. A bigha is a local unit for measuring land. One bigha is roughly equal to one-fourth
of a hectare. The second alternative would give each person access to more land (12.5
bighas, instead of just 10 bighas, as in the first option), but they would have to work and
share produce interdependently. The question was framed so that the respondent was not
making an assessment of his or her own level of trust, but rather of how trusting other
people in the village were in general.
7. Survey questions for this purpose were adapted from Rosenstone and Hansen (1993) and
Verba et al. (1995). As also found by these authors, voting constituted a separate dimen-
sion of political activity, different from the other three, more active forms. The subse-
quent analysis of the index of political activity, however, reports results that are similar
to those obtained while analyzing voting separately in terms of which variables gained
significance.
8. Space limitations prevent any fuller description of how this particular performance
measure and other measures reported elsewhere in this article were actually constructed.
The interested reader is referred to Krishna (2002).
9. See Manor (2000); Mitra (1992); and Krishna (2002, 2003).
10. Subsequent investigations showed that reliance upon new village leaders is common even
in the southern Indian states of Andhra Pradesh and Karnataka. See Krishna (2011).
11. Interview with Congress Party district coordinator, Udaipur, March 13, 1999.
12. A number of other independent variables were examined in alternative iterations of these
regression models, including the presence of NGO activity; the role played by the dom-
inant caste group in each village; and climate and soils. None of these variables attained
significance.
13. Interactions of the social capital index and each of the other five agency variables were
also separately tested in regression analysis, but these variables did not achieve signifi-
cance, indicating that it is a particular type of agency that mobilizes the stock of social
capital for development purposes in these villages. Case-study analysis, which we will
examine shortly, helps to illuminate these results.
14. Interview with pradhan (chief) of the panchayat samiti (composed of a group of village
panchayats), Bhilwara. Funds from most state programs are allocated to village panchayats
through the medium of panchayat samitis.
15. No more than 3.5 percent of all rural men between forty-five and seventy years of age
have a college education, and less than 1 percent of rural females of this age group have
completed high school. These figures and the ones reported previously are derived from
Census of India 2001, table C8 (“Educational Levels by Age and Sex for Population Aged
7 and above, India 2001”).
16. Interview with Biju George (Bangalore, December 20, 2005). Cited in Anirudh Krishna
and Vijay Brihmadesam. 2006. “What Does it Take to Become a Software Engineer?
Educated Parents, Information Networks, and Upward Mobility in India.” Economic and
Political Weekly, Bombay, India, July 29: 3307–3314.
17. Detailed results are presented in Krishna (2010).
18. An inquiry that I conducted recently in thirteen slum settlements in Bangalore, including
several that have been home to multiple generations of the same family, showed that—
despite living within a city that is one of the world’s best-known software hubs—not a
single individual in these slums is working as a software professional. More worryingly,
not a single individual is studying to be one. The research team did not find a single
young person studying in an engineering college or, for that matter, in a medical school.
19. See, for example, Buur and Kyed (2006); Heller (2001); Posner (2005); Rueschmeyer,
Stephens, and Stephens (1992); and Tsai (2007).
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Chapter 23
T he C om parat i v e P ol i t i c s
of Service De l i v e ry i n
Devel oping C ou nt ri e s
Evan S. Lieberman
During the past decade, scholars of comparative political development have paid increasing
attention to the substantively and theoretically important problem of explaining variation
in the provision of basic public services in low-and middle-income countries. As has been
true for many lines of scholarship in the field, international development agencies were
pivotal in stimulating this research agenda. Among the resulting development activities
and scholarship, one major initiative and one landmark report stand out—respectively,
the United Nations’ Millennium Declaration (2000) and the World Bank’s 2004 World
Development Report.
In September 2000, the United Nations adopted the Millennium Declaration and set
out a series of targets, which have become known as the Millennium Development Goals
(MDGs). The objective of the Millennium Project was to establish time-bound targets
for the needs of the world’s poorest. For the most part, those needs were identified in
terms of basic services. For example, goal 2 is to achieve universal primary education;
goals 4 and 5 are, respectively, to reduce child mortality and to improve maternal health;
goal 6 is to combat HIV/AIDS, malaria, and other diseases, including through the provi-
sion of universal access to treatment; and goal 7, to ensure environmental sustainability,
is defined in part by targeting global access to safe drinking water and basic sanitation.
The establishment of such universal metrics put a spotlight on these basic services and
the role they play in people’s lives, and helped spawn new international investments to
achieve these goals.
The focus of the World Bank’s 2004 World Development Report was “making services
work for poor people.” As the introduction to that work points out, “Freedom from illness
and freedom from illiteracy—two of the most important ways poor people can escape
poverty—remain elusive to many” (World Bank 2003, p. 1). Indeed, whatever disagree-
ment there may be about the role of market versus public solutions for low rates of eco-
nomic growth or sustained unemployment, few serious analysts resist the notion that in
developing-country contexts, illness and illiteracy require public service solutions. That re-
port highlighted the plight of the poor in terms of inadequate delivery of education, health,
The Comparative Politics of Service Delivery 481
water, sanitation, and electricity services; as discussed subsequently, it focused on account-

ability as a major determinant of service provision and access.
In the years since the launch of these two projects, which themselves drew upon ex-
isting and commissioned working papers from a range of social scientists, scholars have
paid increasing attention to the politics of basic service provision. Within the field of com-
parative politics, there has been a decided shift away from studies of the determinants of
economic growth to this alternative determinant of human development. And, unlike the
research commissioned by the international development agencies themselves, which have
focused on more technical solutions, scholars of comparative politics have investigated the
social and political sources of conflict and coordination that affect service delivery.
A basic starting point for virtually all work in this area is that the quality of public serv-
ices enjoyed by citizens is strongly correlated with a country’s level of economic develop-
ment, generally measured as GDP per capita. Moreover, high-quality schools, clean water
access, and reliable refuse removal tend to be accessed only by the wealthiest segments of
society and through private markets in countries with low per capita income. But economic
resources are only part of the answer for why public services vary—and economic growth
is itself a product of human capital, which may be improved by the quality of services pro-
vided in a country. Thus, the question of why the quality of government services is better
in some developing countries than in others is a central one for understanding the very
process of development.
In this chapter, I present an analysis of a systematic review of the published scholarly
literature on the comparative politics of service delivery from 1990 to mid-2011. In the next
section, I define the terms of the study, and describe some patterns in the works identified.
The heart of the review is an analysis of the theoretical arguments and empirical evidence
related to the provision of basic services. While each claim is associated with some caveats
and nuances, at least three key findings seem to be supported:
1. Democracies tend to spend more and generally provide more basic services
compared with otherwise comparable countries governed by autocratic regimes.
2. Services are provided to a lesser extent in settings of ethnic heterogeneity, particu-
larly when ethnic identities are socially or politically salient.
3. In the context of decentralization, the quality of services provided is strongly affected
by local social structures and institutions—with positive effects for institutions that
help connect citizens to local government officials.
Definitions and Scope of the Review
While a distinctive body of scholarship on the comparative politics of development focuses

on the distal causes of human development outcomes, such as life expectancy (e.g., Gerring,
Thacker, and Alfaro 2011), in this review, I consider only those works that explicitly inves-
tigate the determinants of public services. Basic health-and education-related services are
distinct from many other domains of government activity because there tends to be little
theoretical debate that governments ought to be at least one important provider of such
services. Of course, there are many potential causal pathways to improvements in human
482 Evan S. Lieberman
development, including the “wealthier is healthier” association detected by Pritchett and

Summers (1996) and Wigley and Akkoyunly-Wigley’s (2011) finding that regime type di-
rectly affects health, unmediated by policies or specific government services. In this chapter,
however, the focus is on those public services explicitly affected by decision-making in the
political arena.
Public services are those goods funded and directly provided by the state to improve the
welfare of citizens. These include education, the provision of water and electricity, refuse
removal, and health services—all goods that individuals might encounter each day and
that bear directly on an individual’s ability to lead a productive, healthy, and literate life.
This definition does not include regulatory services, minimum wage provision, social in-
surance, or national services such as military security, which might indirectly affect human
development. Strictly speaking, none of the public services discussed here are actual “public
goods,” because all are excludable and their use may be rival. However, within this litera-
ture, a looser notion of a public good is used—one that suggests a development-enhancing
service which has substantial positive externalities for the society-at-large. Moreover, these
public services are at least nominally available to all citizens within the areas that they are
provided.
For the most part, scholars have sought to explain variation in the degree to which basic
services are provided. But this includes several possible endpoints, ranging from policy-
making to the actual consumption of services by citizens. For instance, several scholars
have focused on variation in levels of expenditure on specific service sectors, either on a
per capita basis, as a share of government spending, as a share of GDP, or in some propor-
tion to the magnitude of a particular problem. But, of course, spending does not neces-
sarily imply that people receive the services. Where data have been available, other studies
consider levels of coverage of particular services (e.g., percentage of children immunized)
or self-reported accounts of degree of access. While these are more direct measures, the
tradeoff here is that these data may not be able to distinguish government-provided cov-
erage or perceptions of delivery from those services provided by private and nongovern-
mental agents.
The focus here is on government service provision, not impact. The motivation for such
research is a presumption that good services will lead to higher levels of human devel-
opment in terms of literacy, life expectancy, well-being, and productivity. But, it must be
recognized that in some sectors and places, good service delivery could have no net posi-
tive (or even a negative) effect and that human development is affected by other nonservice
mechanisms (e.g., through goods provided through the market or through environmental
changes). These are separate questions not addressed here.
Given the focus on government, I do not consider here analyses of social service provi-
sion by nonstate actors, such as described in the work of Cammett and Issar (2010). Along
these lines, it is worth noting that in the decades following Bratton’s (1989) important
observations about the rise of NGOs in Africa and the politics of state–NGO relations,
I find extremely little explicit analysis of the determinants of NGO-sponsored service pro-
vision in the scholarly comparative politics publication outlets (described in what follows).1
I also do not include the important state functions of social insurance, poverty allevia-
tion, or policing. These obviously play a critical role in human development, but they are
excluded here because their effects on life expectancy and well-being are arguably more
indirect. For example, McGuire (2010) argues that in terms of survival-related capabilities,
0
1990–93 1994–96 1997–99 2000–02 2003–05 2006–08 2009–11
Figure 23.1 Number of New Citations on the Politics of Service Delivery
total amount of public health spending or health insurance coverage appears relatively in-
consequential, whereas actual provision of basic services is key.
In order to identify the works of comparative politics of government service provision
in developing countries, I instructed a research assistant to locate published scholarly ar-
ticles and books from a set of key sources for the period from 1990 through mid-2011 (see
the appendix for the specific instructions). We identified a total of twenty-five scholarly
articles and seven scholarly books, covering a range of services. Of the studies considered,
fifteen were conducted as statistical analyses of a large group of countries, in most cases for
at least one decade of annual observations; another fourteen involved intensive analysis of
just one or a few country cases; and three studies combined both approaches. As can be
seen in Figure 23.1, which plots “new” citations (i.e., excluding publications from authors
who wrote on essentially the same topic during an earlier year) for the 1990–2011 period,
virtually all of the published research occurred after 2000—notably following the launch of
the MDGs (2000) and the landmark World Bank report (2004)—with more than half of all
publications occurring during the recent 2006–2011 period.
Explaining the Determinants
of Service Provision
What types of political explanations provide the most traction for explaining why some
people enjoy better access to government services than others? Politics is likely to matter
in at least three distinct but related arenas: First, during the process of policy-making,
competing pressures may affect decisions about budget allocations and service priorities.
Second, during the process of policy implementation, politicians and bureaucrats may
either faithfully direct resources in the manner planned by policy-makers, or they may
use their discretion to direct them toward some ends, but not others, including their
own private consumption. Finally, citizens may act individually or collectively to assist in
“co-production” and to monitor and pressure government officials to provide such goods
and services. At each step, competing factions may express different interests concerning
how resources ought to be utilized; depending on their relative power, different outcomes
are likely to emerge.
For the large majority of the works reviewed here, the process generally thought to drive
the quality of service provision through the links between these steps is accountability: the
assignment of responsibilities and a system for making those responsible actually execute
their duties. In Making Services Work, the World Bank (2003) stresses accountability deficits
in three aspects of the service-delivery chain within low-and middle-income countries: be-
tween poor people and providers, between poor people and policy-makers, and between
policy-makers and providers. Keefer (2007b) identifies varied capacities for collective
action and coordination, also noting different degrees of information asymmetries to ex-
plain observed variation in the degree of accountability.
Poor people—particularly in the poorest countries—are routinely unable to hold govern-
ment leaders to account, even in the formal context of democracy. For example, in surveys
of two Indian states, Krishna (2011) finds that more than one-half of respondents say that,
if they “were to make contact with a government official or political leader,” they would be
ignored or receive no response.
This and other scholarship reviewed in this chapter speak to these more general concerns
by identifying four sets of variables that may affect service provision: type of political regime,
ethnic diversity, institutions, and international influences. Such factors are hypothesized to
affect demand-side pressures (the likelihood that citizens will articulate and pressure gov-
ernment to provide them), supply-side pressures (the likelihood that the state will be able
and inclined to provide such services), or both.
Regimes, Elections, and Political

Competition
Undoubtedly the most dominant and normatively attractive explanation for variation in
service provision concerns the degree of citizen political power relative to government. The
very premise of almost all of the research described here is that under democratic political
regimes, people should receive better quality public services because (1) they can remove
or maintain leaders depending on the delivery of services and (2) democratic regimes em-
power citizens to become involved in the provision of goods and services, which they are
assumed to value greatly. From the earliest versions of modernization theory, scholars of
the comparative politics of developing countries have made claims about the likely links
between democracy and development. In the area of service provision, scholars have
attempted to theorize with more specificity about this relationship.
The most positive case for democracy appears in the critical area of education, where
political scientists have asked about the relationship between democracy, on the one
hand, and spending and enrollment, on the other. Brown (1999, pp. 683–686) makes three
claims about the likely effects of democracy: First, politicians are less insulated, and soci-
etal pressures will lead to higher levels of subsidized education. Second, the open flow of
information associated with democracies will lead to the selection of higher quality edu-
cation officials. Third, with more secure property rights, citizens will be more likely to save
and invest, and will develop a higher propensity to invest in human capital. He investigates
the effects of democracy on primary school enrollment across Asia, Latin America, the
Middle East, and Africa, with a set-up that characterizes much of this literature: a statis-
tical analysis of a panel dataset of country-level information about regime type, service
outcome, and a series of relevant covariates. The case of primary school enrollment is a de-
cent but imperfect proxy of government service provision, as it also includes private school
enrollment. Ultimately, Brown (1999) finds that at low-income levels, during the period
1960–1987, democracies did offer a substantial boost to primary school enrollment, but the
effect diminished at higher levels of per capita income, when all regimes begin to achieve
near-universal rates of enrollment.
Lake and Baum (2001, p. 598) take a distinctive theoretical tact—likening the state to
a set of political markets—but derive essentially similar propositions, by arguing that
democracies, as more contestable markets, should produce large quantities of public serv-
ices. They investigate a wider set of proxy measures; from both cross-sectional and time-
series analyses, they also find substantial positive effects on both primary school enrollment
and levels of literacy.
There is also good reason to be concerned with the quality of democracy. Particularly
in young democracies, which are highly prevalent in the developing world, political links
between voters and leaders may be weakly institutionalized and riven by clientelist or
neopatrimonial politics (Bratton and Van de Walle 1997; Wantchekon 2003). In particular,
Keefer (2007a) describes the types of services reviewed here as “nontargeted goods” and
tests the claim that citizens prefer clientelist (targeted) transfers in young democracies,
where it is difficult to make credible promises to the electorate. While he considers a range
of other outcomes, he finds that the age of a democracy positively predicts secondary school
enrollments (while younger democracies produce, for example, higher wage bills).
Regionally specific analyses have generated some mixed results, but still provide
support for the democracy-promotes-education relationship. In the case of Latin America,
Kaufman and Segura-Ubiergo (2001) look at the period 1973–1997 and find that, while shifts
to democracy are associated with higher levels of spending on education, democracies (on
balance) spend less than autocracies. By contrast, Brown and Hunter (2004, p. 849) inves-
tigate education spending during the more recent 1980–1997 period in Latin America and
find that the democracies spend more, arguing that Latin American democracies in this
period are characterized by active media coverage and a broader definition of the electorate
than in previous periods. It would have been useful for the latter study to have paid greater
attention to explaining inconsistencies with the former, but on balance the studies suggest
at least some positive democratic returns to education.
Stasavage (2005a, 2005b) takes the question to sub-Saharan Africa; in two published
studies, he finds yet more support for the democratic thesis. His theory concerns leadership
fears of replacement, and he argues that democratic leaders will have strong incentives to
produce policies that satisfy an electoral majority (2005b, p. 56). He also identifies limits
to the likelihood of observing this relationship, including the fact that many other issues
may simply be more salient. In a case study of political liberalization in Uganda, Stasavage
(2005b) details evidence suggesting that electoral competition in 1996 helped education to
become politically salient: Museveni’s promise of free education helped him to be elected;
and he, in turn, launched universal primary education in January 1997. In a cross-country
statistical analysis of forty-four African countries for the period 1980–1996, Stasavage
(2005a) finds that the argument is generalizeable, as democracies generally spend more on
primary education.
Interestingly, as uniform as the results in the area of primary education appear to be,
studies of public health service provision reveal that democracy has a mixed effect on the
quantity or quality of services provided. While there are democracies that have proven
quite generous and successful in such regards, some nondemocracies, such as Cuba and
China, clearly counter-balance the weight of the evidence. For example, Weyland’s (1996)
study of political reform in Brazil shows that the transition to democracy brought with
it very little in the way of more equitable health care policy, leaving poor people without
substantially better health services than they received under authoritarian rule. While his
study considered a single country in its transition from authoritarian rule to democracy,
he demonstrates that institutional fragmentation was more consequential and stalled re-
form efforts. Weyland’s (1996) specific findings are magnified in Nelson’s (2007, p. 84) more
general conclusion from related literature that “a key element of almost all reform stories
is opposition from vested interests: privileged beneficiaries, service providers and their
unions, sector bureaucrats, and sometimes politicians who use social services as patronage
pools.” In short, the exercise of competitive politics in a democratic arena implies that,
amidst heterogeneous perspectives and interests, gridlock may prevail. There is no obvious
consensus concerning what is in the best “public interest.”
Lake and Baum (2001) consider the effects of regime type and of regime transition
on vaccination coverage and access to safe drinking water. For both outcomes, they find
no positive effect for democracy and a negative effect for any type of regime transition.
However, conditional on some regime transition, they find that countries moving toward
democracy enjoy substantially higher immunization rates.
Asking slightly different questions, and using different model specifications, including a
sample restriction to just low-and middle-income countries, Gauri and Khalegian (2002,
pp. 2124–2125) tell a less optimistic story about the effects of democratic regimes on vaccine
coverage; they find that, among middle-income countries, democratic governments were
associated with lower coverage. They suggest several important possibilities for why this
might be the case: (1) Responsive governments may focus more on “curative” care, which
tends to be more vocally expressed than demand for vaccines. (2) Bureaucratic elites
favoring vertical (stand-alone) programs such as immunization tend to be granted more
autonomy in autocratic regimes. Echoing Weyland’s research, they highlight that DTP vac-
cination coverage rates in Brazil fell from about 65–67 percent in 1984–1985 to 57–58 per-
cent in 1986–1987, a period that coincided with the regime transition. (3) Nondemocratic
communist regimes might have an affinity for immunization programs—pointing out that
Vietnam, Cuba, and China had coverage rates of over 90 percent by the early 1990s.
But other studies have identified democratic benefits to public health. McGuire’s (2010)
book, Wealth, Health and Democracy in East Asia and Latin America analyzes an extraordi-
nary wealth of data from these two regions, using a mix of cross-country statistical analyses
and chapter-length case studies on eight countries. He generally finds substantial support for
the service-enhancing consequences of democracy, but concludes that electoral incentives
should not be overemphasized in making this link. Instead, he argues that democracy has
the effect of shifting preferences because of a norm of equal rights (McGuire 2010, p. 11),
and finds a pattern of better service provision in long-term democracies. However, this
is not true across the board—for instance, while “long-term democratic practice” is as-
sociated with greater family-planning efforts and improved water access, it does not pre-
dict improved sanitation access. Moreover, within his country case studies, he identifies
some complex links across regimes that must be acknowledged. For instance, in the case of
Chile, he highlights that the military government was able to advance relatively inexpensive
public health campaigns, which drew upon infrastructure and expertise that had developed
during a more democratic era (McGuire 2010, p. 118).
Looking at the specific case of HIV/AIDS, scholars have generally found that regime
type has provided little basis for predicting the mode or extent of policy response. For in-
stance, Gauri and Lieberman (2006) found extremely wide variation in policy responses
among two democratic middle-income countries, Brazil and South Africa, suggesting both
the opportunities and the constraints associated with democratic politics. Certain policies
that may be good for the general public health and welfare may not be demanded for
various reasons, including stigmatization of particular health problems and skewed risk
perceptions generated through a tendency to deny risks of socially undesirable conditions.
In cross-country statistical analyses of antiretroviral (ARV) coverage and other HIV/AIDS-
related policies among low-and middle-income countries, Lieberman (2007, 2009) finds
no statistical effect associated with standard indicators of a country’s political regime type.
Dionne’s (2011) study of executive time horizons provides an interesting nuance. She
hypothesizes that under either type of regime, executives should be more aggressive
in responding to HIV/AIDS with longer time horizons–that is, with greater confidence
that they will not be replaced in the short term. While her study finds just the opposite,
she acknowledges that the analysis is based on a very small sample of fifteen countries.
Nonetheless, like others, her study suggests alternative conceptions of political accounta-
bility mechanisms beyond a broadly conceived regime variable.
In a distinctive and far-ranging study, Haggard and Kaufman (2008) explore service
provision not so much as a discrete policy choice, but as a collection of politically forged
agreements to provide some form of “welfare state.” Akin to several of the studies described
previously, they consider the effects of democratization in the Latin American, East Asian,
and East European regions. But they reach back much deeper into the legacies of earlier
patterns of welfare-state creation, finding that those patterns constrained the trajectory of
development in the period of liberalization. They argue that prior commitments established
different types of constituencies for policies, creating different types of stakeholders and
coalitions, and that these political interests, along with patterns of economic organization
and development, must be incorporated into a model that explores the effects of regime
type on welfare provision. Ultimately, they find differential effects of democracy on health
and education spending across the three regions, with no impact in Latin America (con-
sistent with Weyland 1996). Ultimately, they provide a highly cautionary note about their
ability to interpret the effects of regime type, as such effects are clearly conditional on the
highly heterogeneous political and economic circumstances of each country. The coalitions
needed for more expansive social policy are more likely (but not necessarily) provided in
democratic settings (Haggard and Kaufman 2008, p. 362).
And while the study of the effects of regime type or democracy on service provision
has been largely cross-national in scope, some more recent works have used subnational
research designs to get better traction on the effects of democracy, especially in terms of
policy implementation. Hiskey (2003) uses the context of decentralization in Mexico to

consider intrastate determinants of service provision. He tests a hypothesis relating elec-
toral competitiveness to water, sewerage, and electric provision across 237 municipalities
in two Mexican states. While the results are not fully conclusive, he concludes that the
weight of the evidence supports the core hypothesis: Single-party dominant electoral
environments used poverty-fund resources much less effectively. In an analogous study,
Hecock (2006) explores the determinants of primary education spending across twenty-
nine Mexican states, and finds a positive impact associated with greater electoral competi-
tiveness at that level.
So, on balance, there does appear to be an association between the delivery of primary
education and democracy, and scholars have advanced several conjectures about why this
might be so. With Nelson (2007)—who reviews a distinctive, but somewhat overlapping
body of literature on the effects of democracy on social service provision—I share the con-
clusion that the positive effects of democratic regimes are certainly limited. And to the ex-
tent that studies do identify substantial relationships, there is good reason to conclude that
something other than electoral incentives are at work. For the most part, the cross-country
statistical analyses described above—as Brown (1999, p. 683) himself points out—are lim-
ited in their abilities to sort out causal mechanisms, especially given the broad set of char-
acteristics that differentiate democratic regimes from the alternatives.
Ethnic Diversity
A second major theoretical strand in the literature on the politics of service provision
concerns the effects of ethnic diversity. While regime explanations tend to assume that
all citizens generally desire basic services and that the fundamental problem is making
governments accountable for failures, alternative accounts that focus on ethnic divisions
suggest intrasocietal divides. Because the services discussed here are generally not true
public goods—like clean air—and access may be granted preferentially to some groups
and not others, it stands to reason that social divisions might influence policy-making and
implementation.
In this regard, across various areas of investigation and levels of analysis, scholars have
largely found support for the proposition that ethnic diversity impedes the successful pro-
vision of development-enhancing public services. There is less consensus concerning the
particular mechanisms that connect diversity to outcomes. For example, does ethnic di-
versity affect outcomes through taste or preference heterogeneity? Weakened capacity for
collective action? Conflict? In this regard, scholars have drawn on a wide range of theoret-
ical foundations, from social identity theory in social psychology (i.e., Tajfel and Turner
1986), which posits a tendency toward in-group bias, to theories about the “technological”
efficiency of homogeneity, as argued by Deutsch (1953).
Early contributions in the field of political development (i.e., Ekeh 1975; Sandbrook 1989)
helped motivate the idea that various forms of ethnic political competition were likely
to lead to more rent-seeking behavior and lower-quality public services. Subsequently,
Easterly and Levine’s (1997) finding that ethnic fractionalization leads to lower levels of
economic growth proved enormously influential on comparative scholarship conducted by
both economists and political scientists. And while their study is distinctive in focus, the
central mechanism through which diversity was thought to effect growth was through poor
policy choices, such as in the areas of education and health.2
Miguel’s (2004) study of the effects of ethnic diversity in the contexts of Kenya and
Tanzania focuses on the role of communities in funding and ultimately providing key
services. He takes advantage of the observation that while the neighboring countries are
both ethnically diverse, the latter country’s political history was marked by a deeper po-
litical commitment to nation-building, which led to a reduction in the salience of ethnic
differences. He points out that important service outcomes such as the provision of school
desks, latrines and classrooms, as well as water wells, are highly dependent upon collective
action within villages; he posits that ethnic diversity will impede such cooperation when
ethnic differences have not been mitigated by nation-building. In turn, he finds a negative
relationship between ethnic diversity and local provision of those goods in Kenya, whereas
in Tanzania there is no statistically discernible effect.
In a study of ethnicity and public goods provision in Kampala, Uganda, Habyarimana
et al. (2009) find that ethnic diversity is correlated with lower-quality service provision
across communities in a study site. They unpack the mechanisms that might be respon-
sible for this association, and they engage in survey research and a series of clever behav-
ioral experiments within the ethnically diverse context to adjudicate among competing
accounts. They find no evidence for the mechanism that coethnics are more likely to share
preferences or to value one another’s well-being more than ethnic others; instead, they find
that coethnics may find it easier to cooperate with one another because it is easier/more ef-
ficient to do so, owing to ease in communications and shared networks, and may engage in
sanctioning behavior with coethnics for not cooperating.
Lieberman’s (2009) study of the effects of ethnic diversity on the provision of AIDS-
related services finds that while there is only a weak association with diversity per se, it
echoes Miguel’s (2004) finding in the sense that fewer goods and services are provided
in contexts where ethnic boundaries are well institutionalized—that is, in the absence of
strong nation-building strategies or where ethnicity has become politically salient. The study
builds upon earlier notions about the implications of ethnic diversity on policy preferences,
arguing that in the context of a sensitive and stigmatized condition such as HIV/AIDS, risk
perceptions were skewed by the extent to which the condition was associated with decreased
social status. Because risk status is easily mapped onto preexisting ethnic conflicts, and
ethnic leaders have tended to underplay the extent to which “their” group was vulnerable,
policy-makers in divided countries faced greater political disincentives for being aggressive
on AIDS.
Finally, Baldwin and Huber (2010) take up analogous concerns in an examination of
the mechanisms that might relate ethnic diversity to public goods provision, hypothesizing
that the intensity of conflict is likely conditional on economic differences that manifest
at the group level, because such differences lead to perceptions of discrimination and to
organization along class lines. They construct a measure of “between group inequality,”
which reflects the degree of economic disparities between ethnic groups, as a counterpart
to Fearon’s (2003) cultural fractionalization index, which reflects the degree of linguistic
dissimilarity. In turn, they construct a composite index of “public goods provision,” which
includes items such as measles and DPT immunization, sanitation and water provision,
and education spending. They find a robust negative association, albeit for a relatively
limited sample of forty-six countries, between their ethnic economic inequality measure
and public goods, while other “cultural” measures of ethnic diversity are rendered statisti-
cally insignificant.
Institutions
A third strand of research considers the effects of particular institutions on service provi-
sion. As contrasted with the earlier discussion of regime types and political competitiveness,
here I consider those studies that focus on the rules and norms that govern the aggregation
of interests, including political parties; the structure of governance, such as levels of central-
ization or decentralization; and other structures that connect segments of society to state
actors. As contrasted with an earlier generation of research that focused on the need to “get
the prices right” in order to deliver effective services (World Bank 1981; Bates 1981), this
more recent body of research has been focused on “getting governance right.”3 Theoretically,
these studies are more society-centered than politician-centered, making claims about the
specific influence of local actors in helping citizens gain access to state resources. For the
most part, these studies begin with the notion that citizens in developing countries cannot
take for granted that services will be uniformly provided by a remote central government.
Instead, they must organize themselves or find intermediaries to articulate their demands
and to hold service providers accountable. Institutions that facilitate such articulation are
hypothesized to lead to better services.
By far, decentralization has been the most important institutional reform initiative
undertaken in recent decades, and in large part with the goal of improving government
service delivery. The basic premise of devolving the responsibility for making decisions
about and implementing service delivery at the local level is that it shortens the accounta-
bility chain: local needs can be expressed, and there may be greater opportunities for local
citizens to hold decision-makers accountable. On the other hand, particularly in developing
countries, local technical expertise may be weaker. The evidence concerning the effects of
decentralization on specific service outcomes within the comparative politics literature is
relatively limited, and mostly contradicts the predictions of decentralization advocates.
Khalegian (2004, pp. 165–166) highlights that the benefits of decentralization for serv
ice provision are likely to be conditional on a number of factors, including the particular
service in question, levels of local technical capacity, and local social conditions. He finds
that decentralization has differential effects on immunization coverage, conditional on
level of economic development: Among low-income countries, decentralization is an ad-
vantage, but the situation is reversed among middle-income countries, where decentralized
countries fare worse. Another interesting interaction effect is identified with respect to
ethnolinguistic fractionalization. While ethnic diversity generally has negative effects on
immunization coverage, as described previously, decentralization reverses those effects
(Khalegian 2004, p. 177). As he points out, immunization is a critical service, but one with
some unique characteristics in the sense that it is a service with “public good characteris-
tics” and interjurisdictional externalities.
But beyond the question of the effects of decentralization per se, many scholars have
taken a decentralized polity as a starting point and have investigated what drives variation
in service provision across local polities. For example, Olken (2010) asks whether plebiscited
more than direct elections at the local level might lead to distinctive service outcomes. He
conducts a field experiment in Indonesia, randomizing the decision-making process for
villages in terms of two types of policy choices: one for a general project and one for a
women’s project. He finds limited support for the notion that the institution might lead
to different services being chosen, but what he finds more strongly is that the plebiscite
strongly increases citizen satisfaction and perceived legitimacy of the outcome.
An important additional and important set of arguments concerns the institutions that help
citizens gain access to services. Krishna (2011) describes the critical role of intermediaries in
helping poor villagers gain access to welfare services in the Indian states of Andhra Pradesh
and Rajastahn. The key point here is that limited states in developing countries may not be
able to reach all the way to individuals, particularly in more remote rural areas. Even in the
context of decentralization, elites may not opt to facilitate wide access to funded services.
When individuals lack education, they may not feel empowered to express demands to in-
fluential elites. However, naya netas (new leaders)—who are young, between the ages of 25
and 40, middle-school educated, read newspapers, and are more experienced in dealing
with elites—can serve as state–society bridge-builders. According to Krishna (2011), these
intermediaries simultaneously strike bargains with villagers who desire access to benefits
and with service providers themselves. Survey data from 1997 through 1998 show that in
the case of replacing a nonperforming teacher, a full 64 percent of respondents in Rajastahn
said that naya netas would help to gain access to the appropriate agency, as compared with
only 18 percent for Panchayat leaders, 11 percent for caste leaders, and 4 percent for party
representatives. This largely descriptive finding is highly consequential for understanding
the link between government policy efforts, on the one hand, and citizen take up of services,
on the other.
And, in the context of West Africa, Maclean (2002) finds that other forms of informal
institutions, differing in terms of norms regarding the organization of states, families,
and connections between them, help explain the emergence of divergent social policy
trajectories. In particular, despite what she identifies as the potentially homogenizing
pressures of globalization and nominal decentralization, nationally distinctive social welfare
states have persisted, owing to the reproduction of these norms and institutions. In turn,
she finds a greater tendency to target the needy and to rely upon more informal support sys-
tems in Ghana, as compared with more generalized and centrally provided coverage in Côte
d’Ivoire. As a result, citizen access to health-care services was highly structured by deeply
rooted institutions developed during the period of colonial rule.
Whereas most of the studies described here have been concerned with examining the
effects of regime type per se, or variations within democratic or quasi-democratic settings,
Tsai (2007a, 2007b) investigates the determinants of public service accountability and de-
livery in the decidedly nondemocratic setting of rural China. Like Maclean (2002), she
points out that despite the homogeneity of formal institutions, which would seem to pro-
vide very little opportunity for citizen input, unofficial norms allow villagers to enforce
local government obligations. She argues that local officials value “moral standing,” for both
psychic and instrumental reasons, but that such rewards are more likely to be delivered in
villages characterized by solidary groups, which are encompassing (open to everyone) and
embedded (incorporating local officials into the group). Based on case studies and a survey
of over 300 villages, her study finds that public goods and services such as running water
and upgraded classrooms were more likely to be found in the context of solidary groups
that provided these informal accountability institutions.
International Influences
At the outset of this article, I highlighted that a great deal of scholarly attention to service
provision is at least partially related to greater focus on the part of international develop-
ment organizations, who themselves are substantial producers of analytical research. But
that begs the question: Do the greater resources and technical capacity of global govern-
ance organizations lead to better and more uniform service provision across the developing
countries in which they work? In a world that is characterized by increasingly multilevel
governance, how influential are the key donors and development institutions at the pin-
nacle of power?
Echoing earlier findings in terms of donor impact on economic policy (e.g., Van de Walle
2001), the scholarship on the comparative politics of service delivery seems to highlight the
limits of such international organizations to decidedly or uniformly shaped policy outcomes.
For example, in the areas of immunization (Khaleghian 2004; Gauri and Khalegian 2002)
and HIV/AIDS policy (Gauri and Lieberman 2006; Lieberman 2009), international organ-
izations have clearly played a critical role in mobilizing resources and encouraging policy
responses. But scholars have emphasized the mediating domestic factors that explain cross-
country variation.
In the case of education spending, Brown and Hunter (2000) conclude that despite World
Bank initiatives, domestic governments in Latin America have done nothing to invest more
in health care or education. In particular, they find no correlation between World Bank
lending at the country-level and levels of government spending.
Moreover, in their study of Latin American economies, Kaufman and Segura-Ubierga
(2001) find that government spending on education and health have not been adversely
affected by global integration—certainly not in the way that such processes have affected
social security. They conclude that the former sectors are likely protected by a wider group
of stakeholders, with better channels for political accountability. Hecock’s (2006) study
provides mixed results for the educational sector: greater foreign direct investment is asso-
ciated with less spending, but greater Maquiladora export activity is associated with more
spending.
Rudra (2011), however, detects an unambiguously negative effect from increased
trade: decreased access to clean drinking water. Unlike the studies described previously,
her concerns is not directly about service provision, but about the polluting effects of in-
dustrial development associated with increased trade. However, a particularly interesting
and related finding is that the negative effects of trade are mitigated in the context of lower
levels of inequality, which she argues helps to build coalitions for clean-water provision and
access.
To date, scholars of comparative politics have not paid very much attention to the pos-
sible impact of specific global initiatives or campaigns such as the MDGs. To an extent, this
is understandable—given the universal nature of such goals, it is difficult to imagine how
one would parse out their effects. Even from a longitudinal perspective, the promulgation of
the MDGs has occurred over several years, alongside many other important world histor-
ical events, making it difficult to make any causal inferences using statistical analyses. (And
in many cases, to be fair, the timing of the study and available data have not allowed for
much consideration of the impact of MDGs.) However, scholars might consider conducting
in-depth case studies to try to identify whether there is any evidence that such goals affected
the calculations or strategies of actors in developing countries: Did they empower citizens
to ask for more services, demanding greater accountability? Did they incentivize politicians
and policy-makers to consider providing more services, recognizing the potential embar-
rassment of falling short on an international stage relative to other developing country
peers? Future research ought to do a better job of theorizing and empirically examining
these international pressures, including whether such pressures were experienced differ-
ently across social sectors.
Conclusion: Toward Future Research
Scholars of comparative politics have begun to shed light on the factors that affect the quality
of services provided in developing countries—describing patterns and providing important
theoretical explanations for observed variance. A country’s political regime, the nature of
its ethnic politics, its institutions, and its relations with other countries may all affect who
gets access to education, health care, clean water, and sanitation. Indeed, the notion ad-
vanced in the World Bank’s (2003) Making Services Work, that accountability is critical, was
echoed by many of the studies cited here. In addition, other fundamental processes, in-
cluding interparty technology transfers, the development of preferences, and nonmaterial
pressures (like moral standing) also appear to have been influential.
While much of the published research in this area has been carried out at the macro, na-
tional level, more recent research has moved toward the local and individual level, particu-
larly experimental work of the form exemplified by Habyarimana et al. (2009). Such studies
will provide important correctives and new insights, but future work ought to bridge the
gap between micro-and macro-level studies. Given the positive substantive results of the
country-level research, we should not mistakenly infer that the findings from micro-level
studies can be applicable on a wider stage without replication across contexts and without
appreciation for the factors that structure outcomes at those levels. An experiment conducted
in one environment may yield very different results under different background conditions.
And, while the motivation for this set of studies is a concern for the chain connecting pol-
itics to human development, the pathway between the two via service provision comprises a
fairly long set of links, some of which may be highly tenuous. For example, while Stasavage
(2005b, p. 53) highlights democracy’s role in funding public education, he does so with
the caveat, “There has been a dramatic increase in primary school enrollment rates, albeit
with problems involving shortages of teachers and materials.” And McGuire (2010) echoes
Filmer and Pritchett’s (1999) concern that public health spending does not seem to be asso-
ciated with health outcomes. Such concerns clearly warrant further attention.
The foregoing review suggests that the politics of service provision almost surely varies
depending on the type of service in question. Notably, immunization and AIDS-related
services appear to have distinctive characteristics that alter the demand structure and the
likelihood of politician actions and initiatives. But even across the group of more standard
services, such as education, water provision, and basic health provision, services are dif-
ferentially affected by different variables. Scholars of comparative politics know well that
“all good things” do not always go together, and more nuanced theorizing and empirical
work on service provision ought to identify how the political constituencies for different
services may be more or less successful depending upon particular sets of conditions.
Moreover, scholars of comparative politics need to pay greater attention to the role of
nonstate service providers, including political parties and NGOs, and offer more explicit
treatments of the varied role played by donors and other international actors in the pro-
vision of government services. All of these concerns are obvious ones for development
analysts and practitioners, but their role remains undertheorized and underappreciated
among scholars of comparative politics. Given the weakness of states in developing coun-
tries, a comprehensive study of the politics of development-enhancing services ought to
place greater focus on nongovernmental sources of governance.
Notwithstanding these concerns and caveats, scholars of comparative politics are argu-
ably on firmer ground developing and testing theories of government service provision
than they were in exploring the determinants of economic growth. The services that build
human capital rest on fewer contested assumptions about the role governments ought to
play. It stands to reason that a better educated population, one with better access to health
services and with cleaner water, is also more likely to be more economically productive. But
even if it is not, such outcomes are undoubtedly of intrinsic interest from the perspective of
our understanding of human development.
Appendix
Scope of Literature Review
The goal of the literature-identification project was to identify all of the published scholarship
produced on the determinants of public service delivery in the field of comparative politics
between 1990 and mid-2011.
I employed a graduate student (Jennifer Dennard) to carry out a set of tasks that helped
us to arrive at a final set of scholarly studies.
American Political Science Review

World Politics
Studies in Comparative International Development
Comparative Politics
Comparative Political Studies
American Journal of Political Science
Governance
First, she consulted the table of contents of all the following journals from mid-1990
until 2011, selected because they tend to publish works explicitly about comparative pol-
itics. While regional studies journals and public administration journals would surely
have led to a few additional citations, inclusion of this wider range of sources, which
tend to include quite a bit of completely unrelated materials, would have made the review
unwieldy.
Based on the titles of articles, she looked at abstracts to determine the possibility of an ar-
ticle addressing explanations for variation in water delivery, refuse removal, education, and
health services. Articles would only be included if the study was specifically about the actual
provision of services, not about policy reform processes themselves. The article needed to
consider at least one developing country from the world regions of Africa, Latin America,
developing Asia, the Middle East, and North Africa.
Once we agreed upon a list of articles based on the abstracts, all articles were retrieved,
and many were discarded based on more careful consideration of our criteria. I proceeded
to review and to analyze these articles; where relevant studies published in other outlets
were cited, we also tracked down those articles for possible inclusion in the database.
Subsequently, Dennard found relevant books by looking at the book catalogs from the
following university presses: Cambridge, Princeton, Cornell, and Pittsburgh, focusing on
the period after 1990 and following the same approach as above.
Acknowledgments
Thanks to Jennifer Dennard and Jessica Grody for excellent research assistance and to
James McGuire, Lily Tsai, Carol Lancaster, and Nic van de Walle for helpful comments and
suggestions.
Notes
1. Maclean (2010) is an exception. Also, Habyarimana et al. (2009) focus on collective action
rather than government service provision. Scholars in other disciplines, such as sociology
and anthropology, have paid much greater attention to the role of such governance actors
in development.
2. Alesina et al. (2003) finds similarly robust associations between various measures of ethnic
fractionalization and public spending and human development outcomes. Posner (2004)
provides an alternative measure of ethnic diversity, which identifies groups in terms of
ethnic relevance and challenges some of the core insights from Easterly and Levine (1997).
However, both focus on growth as an outcome, and neither study analyzes data on actual
service delivery outcomes.
3. One exception in more recent scholarship is Aralal (2008), who argues that getting prices
and good governance structures in place were critical for water-service provision in
Cambodia.
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Chapter 24
Part y Syste ms a nd
the P oliti c s of
Devel op me nt
Allen Hicken
The overarching question this volume poses is this: How do we explain variation in the
pace and pattern of economic development across both time and space? The chapters in this
volume each explore a different answer to this question. Tasked with designing an empirical
study of development, each chapter represents an argument for including a particular var-
iable or set of variables in our analysis—from conflict, to natural resources, to regime type.
In this chapter, I explore the extent to which certain features of the party system should be
included on the right-hand side of our development regression equations—or whether we
should take the party system into account when selecting cases for a qualitative study of
development.
My conclusion, perhaps unsurprisingly, is yes, but we should take seriously the possi-
bility that the answer might actually be no. As interesting and important as party systems
may be for a whole host of potential outcomes, perhaps we can safely ignore them when
our dependent variable of interest is development. The argument for ignoring party sys-
tems comes in one of two forms: (a) party systems are endogenous, and (b) party systems
are superfluous.
One possibility we must consider is that party-system characteristics are simply endoge-
nous to development. Party systems may indeed be correlated with development, but as an
outcome rather than a cause. Indeed, this is the argument of some versions of moderniza-
tion theory—economic changes drive the demand for and increasing relevance of political
parties (Lipset 1959, pp. 83–84; also, chapter 1 in this volume). Likewise, Mainwaring and
Zoco (2007) argue that key features of the party system vary with levels of development—
specifically the availability of mass communication technologies for political mobilization.
Or consider the well-established link between clientelism and the level of development (see
Diaz-Cayeros, Estévez and Magaloni 2016). Clientelist parties and appeals are more preva-
lent in developing countries and, within a given country, among poorer rather than richer
voters (Brusco et al. 2007; Wantchekon 2003; Keefer 2006, Kitschelt and Wilkinson 2007;
Remmer 2007; Bustikova and Corduneanu-Huci 2009; for opposing views, see Schaffer
2004; Speck and Abramo 2001).1
500 Allen Hicken
As these studies suggest, changes to the level of development can have profound effects
on the party system. But, while researchers certainly need to be aware of the possibility of
endogeneity, as is the case with all social science research, party systems are clearly not
completely endogenous to the level or pattern of development. We cannot straightfor-
wardly infer many key features of the party system from the level of development. The three
dimensions of the party system discussed in this chapter—the number of parties, national-
ization, and institutionalization—do not appear to be strongly correlated with the level of
development.
A second possibility is that the party system’s effect on development is trivial. It could be
that, compared to macro-level variables such as resource endowments, regime type, or the
level of conflict—or to more proximate policy variables such as macro-economic stability
or economic openness—the effect of the party system is simply insignificant. Ultimately
this is an empirical question; however, I argue that, while macro-conditions may shape the
constraints on and opportunities for development, they still leave space for agency, and the
party system helps determine whether that agency is employed in ways that hinder or pro-
mote development.
The party system, as a constellation of institutions, functions in the way that other
institutions function, namely by affecting the capacities and incentives of key actors/deci-
sion makers. There is a strong consensus among development economists that institutions,
both economic and political, are important determinants of development (North 1990,
1997; Rodrik 2007; Acemoglu 2009; Acemoglu and Robinson 2012). The question is whether
institutions related to the party system should be included among the institutions that are
“the fundamental determinant[s]‌of long run growth. . . .” (Rodrik 2007, p. 8). In the rest
of this chapter, I explore some of the ways in which party systems may shape the level and
pattern of development.
The chapter proceeds as follows. I first review three dimensions along which party sys-
tems can vary: the number of parties, the level of institutionalization, and the degree of
nationalization. I then sketch out some necessary conditions for economic development—
focusing on those conditions with roots in policy-making and actor agency. Finally, I re-
view how the number of parties, institutionalization, and nationalization help shape the
incentives and capabilities of policy-makers to adopt policies that promote development.
The Party System in Three Dimensions
There are numerous dimensions along which we can compare party systems. I focus here on
three dimensions with particularly strong implications for development.
The Number of Parties

One of the most common dimensions along which researchers compare party systems is
the number of parties. How we measure or count the number of parties varies with the
research question, from the number of parties standing for election to the size-weighted
number of parties winning votes or seats (the so-called effective number of parties) (Laakso
Party Systems and the Politics of Development 501
and Taagepera 1979). For our purposes the important number is the number of parties in
government and, to a lesser extent, the number of parties in the legislature.
Party-System Institutionalization
A second common dimension along which party systems may vary is the level of party-
system institutionalization. While party institutionalization has been a concern of polit-
ical scientists for many decades (Huntington 1968; Sartori 1976, 1986, 1994; Welfing 1973;
Panebianco 1988), work on the causes and consequences of party-system institutionaliza-
tion can be traced to Mainwaring and Scully’s (1995) seminal book. Beginning with that
book, the existing literature has defined party-system institutionalization in a variety of
ways (see Mainwaring and Scully 1995; Levitsky 1998; Randall and Svåsand 2002; Ufen
2008; Croissant and Volkel 2012; Hicken and Kuhonta 2014). One way to bring these var-
ious definitions together is to divide institutionalization into an external/systemic dimen-
sion and an internal/organizational dimension.2
Starting with the external/systemic dimension, party systems that are more institution-
alized share two characteristics: (a) There is stability in the pattern of interparty competi-
tion. (b) Political actors view parties as a legitimate and necessary part of the democratic
process. By contrast, in weakly institutionalized party systems. there is a high degree of
instability in the pattern of party competition. There is a high rate of party turnover as
new parties enter the system and old parties exit. There is also a high degree of electoral
volatility—the fortunes of individual parties vary greatly from election to election. Finally,
political actors in weakly institutionalized systems view parties as at best superfluous, and
at worse a threat.
The internal/organizational dimension concerns the nature of the party organization
itself and the parties’ links with the broader society. Where parties are institutionalized
they exhibit a high degree of what Levitsky calls “value infusion” (Levitsky 1998)—there are
strong links between parties and identifiable societal interests and groups of voters. Parties
are “rooted” in society to the extent that “[m]‌ost voters identify with a party and vote for it
most of the time, and some interest associations are closely linked to parties” (Mainwaring
and Torcal 2006, p. 7). Party membership is more than just a vehicle to win office, and
it is possible to differentiate one party from another on the basis of its constituency and
policy platform. Where parties are not institutionalized, political parties have weak roots
in society, voters and politicians have few lasting attachments to particular parties, there
are no enduring links between parties and interest groups, and parties have no distinct
policy or ideological identities. Because of these characteristics, weakly institutionalized
parties and party systems are often also associated with high levels of clientelism (Jones
2005; Tabelini 2005; Keefer and Khemani 2009), although this is not necessarily the case
(Kitschelt et al. 1999; Kitschelt 2000). Another characteristic falling under the internal/
organizational dimension is organizational routinization.3 Institutionalized parties have en-
trenched organizations that “matter” (Mainwaring and Scully 1995). Parties are relatively
cohesive and disciplined and are independent and autonomous from charismatic leaders or
party financiers (Levitsky 1998). Where parties are weakly institutionalized, they tend to be
thinly organized, temporary alliances of convenience and are often extensions of or subser-
vient to powerful party leaders.
502 Allen Hicken
Party-System Nationalization
In addition to work on party-system institutionalization and the number of parties, a
growing number of scholars are focusing on the causes and consequences of party-system
nationalization.4 Nationalization refers to the extent to which political parties compete and
win votes nationally, regionally, or locally. A nationalized party system is one where the
major political parties are competitive across a country’s districts and regions, whereas a
regionalized or localized party system is one where the major parties run competitively
in only a select few electoral regions or districts. In essence, the distinction between the
two is the extent of cross-district coordination among politicians. In nationalized systems,
politicians from diverse districts across the nation have strong incentives to run for office
under the same party label. As a consequence, parties are able to field candidates and run
reasonably competitively across all of a country’s electoral districts. In regionalized or
localized systems, incentives for such cross-district coordination are weak, and this gives
rise to parties with geographically narrow political support. Nationalization also has a di-
rect effect on the number of political parties, with less nationalized party systems being
associated with a greater number of political parties (Chhibber and Kollman 1998, 2004;
Cox 1999; Hicken 2009).
Party Systems and Policy
The three party-system dimensions just discussed will be familiar to most students of com-
parative politics and comparative political economy as having a profound effect on repre-
sentation, accountability, and the efficiency and effectiveness of governance (Colomer 2001;
Powell 2002). But do these party system features have any bearing on the capacity of states
to develop? If party systems are going to matter, we have to look at arenas in which parties/
political actors can have a direct influence on development; those arenas are most likely
to lie in the area of public policy. By focusing on public policy, I am necessarily placing
in the background other potential causal factors for development that are discussed else-
where in this volume, such as resource endowments (chapter 12), patterns of ethnic het-
erogeneity (chapter 8), position in the global system (chapter 16–18), even the degree to
which a country is democratic (chapter 21). Each of these factors may have a significant
impact on development, and they may present policy-makers with certain constraints or
opportunities; however, they remain largely independent of the policy and party systems,
at least in the short term.
To make the case that party systems matter for development, I begin with the assumption
that state policies can effect economic development. This is a rather uncontroversial
assumption, as Fish’s chapter in this volume aptly demonstrates. Even those who view
meddling in the economy by political actors as ineffectual at best—and inimical to develop-
ment at worst—still recognize that the policy environment can be more or less conducive to
economic development (see Hill 1997).
If we accept that public policies can affect development, what kinds of policies pro-
duce environments that are the most conducive to long-term growth and development?
This volume has explored a number of debates about which kinds of policies are best (e.g.,
market-vs. state-led, export-oriented vs. import-substituting, fixed vs. flexible exchange
rates), but I’d like to sidestep debates about specific policy content and focus instead on
three general characteristics of development-favorable policy environments.
First, policy environments that respond to the broad public interest by promoting invest-
ment in national/public goods and services are more likely to produce economic develop-
ment than are those that reflect narrower special interests (Olson 1993; Besley and Ghatak
2006). Every political system provides politicians with different incentives and capabilities
to provide broad public policies. These are policies that (a) bring long-term benefits, but
short-term costs, and (b) benefit society as a whole, but impose concentrated costs on some
groups. For purposes of this chapter, I label these long-term, broadly beneficial types of
policies as “national policies” or “national goods.”5 There is a large literature that links the
supply of these kinds of national policies with greater/more rapid economic development
(e.g., Olson 1993; Bardhan 2005; Doner 2009; Acemoglu and Robinson 2012).
Second, policy environments that are stable and credible are more likely to lead to eco-
nomic development than are unstable and unpredictable policy environments (see Rodrik
1991; Dixit 1994; Feng 2001; Jensen 2008; Canes-Wrone and Ponce de Leon 2014; Kang et al.
2014). The effects of policy initiatives on development outcomes depend on more than just
the content of those policies. In fact, expert judgment over which policies are most con-
ducive to growth and development vary across time and across experts (Tomassi 2006).
But while economists and policy-makers may argue about the pros and cons of financial
liberalization, one thing is certain. The effect of any policy on development outcomes is
contingent on the actions and reactions of economic and social agents to those policies
(Tommassi 2006, p. 3). In other words, the credibility of a policy in the eyes of economic
decision makers—whether foreign investors, local businesses, or consumers—is a necessary
condition for development. Take for example, trade policy. Rodrik (1989, p. 2) points to the
critical role of credibility in connecting trade reforms to positive development outcomes:
[I]‌t is not trade liberalization per se, but credible trade liberalization that is the source of
efficiency benefits. The predictability of the incentives created by a trade regime, or lack
thereof, is generally of much greater importance than the structure of these incentives. In
other words, a distorted, but stable set of incentives does much less damage to economic
performance than an uncertain and unstable set of incentives generated by a process of trade
reform lacking credibility.
In short, we know that actors, while they have preferences over policy content, also care
about the credibility of policy. Uncertainty about the policy environment will tend to re-
duce the incentives of those actors to respond favorably to policy initiatives, all else equal.
Third, policy environments that can respond to challenges and opportunities in a timely
manner are more likely to promote economic development than those that are indecisive.
Economic development requires a certain amount of decisiveness and adaptability on the
part of policy-makers (Cox and McCubbins 2001; van de Walle and Rius 2005; Tommasi
2006). Economic shocks may batter the economy; policies that once worked well may begin
to fail; new opportunities for growth and investment may emerge. Governments that can
respond to such developments with the needed reforms will be at an advantage over those
that cannot.
504 Allen Hicken
Each of these three characteristics is necessary for development to occur. Sound national
policies have little effect if they are never adopted or if actors are uncertain of their cred-
ibility. Likewise, decisiveness, stability, and predictability are only virtues so long as they
undergird favorable policies. A kleptocracy is unlikely to produce development, even where
decisiveness is high and the patterns of extraction are stable and predictable. So how does
the party system shape the ability of governments to provide needed national policies in
a timely and credible manner? In the following subsections, I review how the number of
parties, institutionalization, and nationalization work together to affect the incentives and
capabilities of policy-makers to provide the national policies necessary for development.
Let’s start with the party system’s effect on decisiveness and credibility.
Decisiveness, Credibility, and the Party System

Decisiveness and credibility are partial products of the constraints placed on policy-makers.
An environment with few constraints empowers policy-makers to act decisively; however,
the lack of checks against attempts to change the status quo also tends to reduce the cred-
ibility of policy (Tsebelis 1995, 2002; Mainwaring and Shugart 1997; Cox and McCubbins
2001; Haggard and McCubbins 2001; Henisz 2002). The tension between decisiveness and
credibility is one which governments can resolve in a variety of ways, but governments that
find themselves at the extremes of the decisiveness–credibility continuum tend to perform
poorly (MacIntyre 2002).
The party system has its most direct impact on decisiveness and credibility via its effect
on the number of actors (or veto players) involved in the policy-making process. There is a
clear, positive (though not one-to-one) relationship between the number of political parties
and the number of actors. The more parties there are in a given party system, the more
actors there are likely to be in the policy-making process, all else equal.6 In addition to the
number of parties, the degree of party-system institutionalization also has an important im-
pact on the number of actors. Recall that political parties in under-institutionalized party
systems are not cohesive units. Because of the factionalized or atomized nature of political
parties, under-institutionalized systems will tend to produce more actors (and hence more
veto players) than their institutionalized counterparts, all else equal. In short, where the
party system produces multiple actors whose joint agreement is necessary to change the
status quo, credibility is higher, but at the cost of some degree of decisiveness.
The party system can also influence policy credibility in ways other than its effects on the
number of actors. The concept of credibility, while intuitively simple (“Do I believe what
you say you are going to do?”), is analytically more complex. The distrust of government
policies may arise for a large number of reasons; here, I’d like to focus here on two broad
categories of concerns that, when present, undermine policy credibility and ultimately,
prospects for development.
The first is what we might term “reversal risk.” Namely, the chance that the policies the
government announces today may be nullified, reversed, or superseded tomorrow. The
degree of party and party-system institutionalization is directly related to reversal risk.
Institutionalization reflects the degree to which parties stake out distinct, identifiable policy
positions, while investing in and defending the collective reputation of the party. This has
important implications for reversal risk. Where party labels matter, once parties have made
a major policy commitment (e.g., to an international cooperative agreement or to a par-

ticular set of macroeconomic policies), it will be costly for them to change their position.
Thus, in political systems with more institutionalized parties we should observe less fre-
quent policy reversals within governments as well as more continuity across governments of
the same party, all else equal. By contrast, in under-institutionalized systems the collective
reputational costs of a policy reversal by sitting governments are much less, and policy
continuity from one government to another is far from assured, even when the same party
is at the helm. In addition, in under-institutionalized party systems the chance of mav-
erick outsiders coming to power, unfettered by past policy commitments, is much greater
(Mainwaring and Torcal 2006).7
The second category of risk is implementation risk. Specifically, this is the risk that the
governmental policies adopted de jure will not be the policies in practice. It is not hard
to imagine how characteristics of the party system might affect an actor’s calculation of
implementation risk. We know, for example, that certain features of the party system are
associated with higher levels of government instability (e.g., high levels of partisan frag-
mentation and low levels of party cohesion). Short-lived governments will have a much
more difficult time fully implementing new policies. In Thailand, for example, during the
turbulent 1980s and 1990s, where average cabinet duration was around eighteen months,
the Thai bureaucracy was famous for scuttling attempts at policy reform by dragging its feet
until the inevitable change in government brought about change in political principals and
policy priorities. We should also expect a government’s implementation capacity to vary
with the levels of institutionalization. Where institutionalization is high, there should be a
stronger correspondence between what is passed by party leaders and what is implemented
by lower-level party functionaries and bureaucrats. By contrast, where parties are highly
factionalized and where party members have few shared policy preferences, as is the case
in under-institutionalized systems, party functionaries and bureaucrats are likely to be less-
than-perfect implementation agents, and the correspondence between what is promised
and what is delivered should be lower. Finally, to the extent that certain characteristics of
the party system (particularly under-institutionalization and clientelism) are associated
with higher levels of corruption and lower levels of bureaucratic capacity (see chapter 23 of
this volume; Keefer 2007; Kitschelt 2007; Singer 2009; Kitschelt et al. 2010), we should ex-
pect the party system to shape actors’ assessments of the chance of implementation failures
due to graft and mismanagement.
In summary, the party system has a direct impact on government decisiveness and credi-
bility. A system with a large number of parties, especially when they are weakly institution-
alized, is associated with more potential veto players and hence a less decisive, but more
credible, policy-making environment. Additionally, party systems with low levels of institu-
tionalization should suffer from lower levels of credibility due to the greater risk for policy
reversal and failed/partial policy implementation.
National Policies and the Party System

As important as decisiveness and credibility are, they will not move a state along the path to-
ward greater economic development if they are not paired with appropriate policies. Earlier
I discussed the important link between what I labeled “national policies” and development.
506 Allen Hicken
The two key characteristics of these types of policies is that (a) they privilege the interests of
broad over narrow groups and (b) they balance long-term interests and opportunities with
shorter-term exigencies. One of the key challenges related to development is insulating de-
cision makers against “the ravages of short-run pork barrel politics.” (Bardhan 1990, p. 5) In
other words, for development to occur, policy-makers must be more public-regarding than
private-regarding (Cox and McCubbins 2001).8
The party system helps shape actors’ incentives to provide public-regarding national
policies. Let me focus first on party-system institutionalization. Party leaders in insti-
tutionalized party systems tend to have longer time horizons than party leaders in less-
institutionalized systems. They have a strong incentive to protect the party brand as a
valuable cue for voters and mobilization tool for politicians (Jones 2005). Protecting and
investing in the party label means balancing the narrowly focused short-sighted preferences
of individual politicians worried about their next election with the broader, longer term
interests of the party as a whole. Shorter time horizons can also flow from the lack of a
stable, predictable basis of support within less institutionalized party systems. This lack of a
stable support base means that politicians must be more responsive to immediate electoral
prospects, even if that means sacrificing medium-and long-term opportunities. We can
think of a concrete example in the area of trade policy. A party with ephemeral supporters
is much less likely to bear the substantial upfront costs of liberalizing trade than a party that
has a stable constituency and that expects to be around to reap the rewards of trade open-
ness in the future (Hankla 2006a).9 Reaching and enforcing these types of inter-temporal
agreements are crucial for development, as Tommasi (2006, p. 7) argues:
In political environments that facilitate such agreements, public policies tend to be higher in
quality, less sensitive to political shocks, and more adaptable to changing economic and so-
cial conditions. In settings that hinder cooperation, policies are either too unstable (subject
to political swings) or too inflexible (unable to adapt to socioeconomic shocks). They tend to
be poorly coordinated, and investments in state capabilities tend to be lower.
Institutionalization also affects the incentives of politicians to respond to broad, national

constituencies over narrower, particularistic constituencies. Institutionalized party systems,
by definition, are composed of relatively cohesive parties with stable support bases. These
types of parties are much more likely to be responsive to broad constituencies than are
the more factionalized, locally focused parties found in less-institutionalized party systems
(Hankla 2006b). A higher level of institutionalization also makes it more likely that parties
will pursue programmatic strategies—meaning that parties will compete with each other
and voters will assign accountability primarily based on policy platforms and policy per-
formance (Jones 2005).
The degree of institutionalization also affects the ability of party leaders to mobilize and
discipline their co-partisans in support of national policies. National party leaders tend
to have a broader (and longer-term) focus than the average member of the party.10 Thus,
where party organizations are robust and party labels are valuable to both politicians and
voters, national party leaders are more likely to have the incentives and the capacity to
push through policies crafted with a focus on broad, national constituencies (Olson 1982;
McGillivray 1997; Nielson 2003; Hallerberg and Marier 2004; Hankla 2006a). By contrast,
in less institutionalized systems, where party labels are ephemeral and party organiza-
tions anemic, national party leaders may lack the leverage to compel party members to
sacrifice short-term, locally focused policy preferences (e.g., preferences for pork) in favor
of broader, public-regarding policies. Instead, we are likely to get legislative or partisan
logrolls, where each narrowly focused politician secures some particularistic benefit for
his or her constituency, while broader public goods are undersupplied (McGillivray 1997;
Nielson 2003; Hicken and Simmons 2008).
Low levels of party-system institutionalization are also strongly linked with clientelism—
though the correspondence is not perfect. Some clientelist parties may, in many ways, be
highly institutionalized (Japan’s Liberal Democratic Party comes to mind), while some pro-
grammatic parties may lack a stable base or strong party organization. However, the asso-
ciation of clientelism with low levels of party-system institutionalization is a common one
in the literature (see, e.g., Mainwaring 1999; Van Cott 2000; Randall and Svåsand 2002;
Roberts 2002; Mainwaring and Torcal 2006). If the ties that link voters to politicians and
parties are not ideological/programmatic, then a common alternative form of linkage is cli-
entelism.11 Likewise, if shared ideological or programmatic goals do not bring co-partisans
together, then clientelist cords are likely to be the ties that bind parties together.
To the extent that a lack of party-system institutionalization and clientelism do go to-
gether, under-institutionalized party systems will be subject to the many policy challenges
outlined in the large literature on clientelism (see c hapter 23). This includes higher levels
of rent-seeking and particularism, larger public sectors and public-sector deficits, public-
sector inefficiencies (Calvo and Murillo 2004; Gimpelson and Treisman 2002; O’Dwyer
2006; Grzymala-Busse 2008), and a general undersupply of the national public goods and
policies that are to crucial for development (Keefer 2006; Keefer 2007; Hicken and Simmons
2008; Hicken 2011). Politicians who are the chief beneficiaries of clientelist arrangements
also represent the primary source of opposition to needed economic reforms in many coun-
tries (van de Walle and Rius 2005).
There are, of course, exceptions to this general pattern. As discussed, institutionalized
parties are not always programmatic, and Tommasi (2006, p. 23) finds that party system in-
stitutionalization only leads to development when combined programmatic politics. There
are also cases where high levels of institutionalization appear to have hindered the passage
of needed national reforms. Strong links between institutionalized parties on the left and
organized labor undermined the support for much-needed structural adjustment policies
in parts of Latin America (Levitsky 2007). Similarly O’Dwyer and Kovalcik (2007) find
that institutionalization hampered the adoption of “second generation economic reforms”
in Eastern Europe.12 They argue that while party-system institutionalization may result in
higher levels of accountability for parties, this heightened accountability can undermine
the incentives to pursue needed economic reforms, particularly those that bring with them
significant social and political costs. Specifically, the heightened degree of vertical account-
ability between governments and voters in institutionalized systems puts reformers at a
disadvantage. Reformers in institutionalized systems know that costly reforms will likely
generate a coherent and credible opposition, making them reluctant to adopt such policies.
By contrast, in under-institutionalized systems, reformers worry less about facing an organ-
ized and credible partisan opposition, and this provides reformers with the insulation from
social and political pressures necessary to undertake economic reform.
We turn next to party-system nationalization. The influence of party-system nationali-
zation on the provision of needed national policies operates through its effect on the na-
ture of politicians’ constituencies. There is a large amount of work demonstrating the link
508 Allen Hicken
between the size of the constituency to which decision makers are accountable and their
propensity to provide broad public goods. The broader the constituency to which policy-
makers respond, the stronger are the incentives to supply national policies. By contrast,
policy-makers with small, narrow constituencies tend to prefer goods and services that
can be targeted to their particular constituency (Olson 2000; Cox and McCubbins 2001;
Lake and Baum 2001; Bueno de Mesquita et al. 2004; Franzese, Nooruddin, and Long-Jusko
2004; Stasavage 2005; Hicken and Simmons 2008; Hicken, Kollman and Simmons 2008).
The breadth of a politician’s constituency is, in part, a function of the degree of party-system
nationalization.
To be more specific, when there is a high degree of nationalization, political competition
occurs between political parties that each have support across most of the regions in the
country (as opposed to competition occurring between highly regionalized or localized
parties).13 As a result, debates and conflicts over policies at the national level are more likely
to lead to parties competing to offer comprehensive policies that benefit voters spread
across most regions of the country. By contrast, when political competition at the national
level occurs between parties that represent narrow subnational constituencies, then the
outcomes of policy debates and conflicts lead to two potentially damaging kinds of public
policy outcomes: (a) an oversupply of pork-barrel policies, resulting from logrolls across
politicians and regions, which benefit certain constituencies but at a cost in terms of ef-
ficiency and general welfare, and (b) an undersupply of nationally focused public goods.
A number of recent studies have confirmed the link between party-system nationaliza-
tion and the propensity to provide national policies. Nationalized governing parties and
national party systems are more likely to adopt nongeographically targeted public policies
when compared to regionalized government party coalitions and regionalized party sys-
tems (Crisp, Olivella, and Potter 2012; Castañeda-Angarita 2013).14 Lago-Peña and Lago-
Peña (2009) find that nationalization affects the maneuverability and flexibility of state
fiscal policies, while Hicken, Kollman, and Simmons (2008) demonstrate that governments
in nationalized party systems deliver better health outcomes compared to governments in
regionalized or localized party systems. In a new study, Simmons et al. (2016) find that
countries with regionalized party systems have lower levels of foreign direct investment
than countries with higher levels of nationalization. They argue that countries with lower
levels of institutionalization prove less attractive to capital owners because regionalism
increases the probability that investment returns will be appropriated by the national gov-
ernment and used for geographically based redistribution.
Conclusion
One cannot understand the politics of development in democratic settings without taking
the party system into account. I have focused on three dimensions of the party system: size,
institutionalization, and nationalization. Together these help shape the capacity and
incentives of policy-makers to pass and implement the kinds of policies that promote devel-
opment. Through its influence on the number of veto players, the party system influences
the capacity of governments to act in response to new opportunities and challenges. The
party system can also bolster or undercut the credibility of government attempts to promote
development. Perhaps more fundamentally, the party system, specifically institutionali-

zation and nationalization, help shape the incentives of policy-makers to pursue needed
national policies in the first place. In general, institutionalized party systems tend to pro-
duce policy-makers who have longer time horizons and who are responsive to broader
constituencies than is the case in less institutionalized systems. The nature of politicians’
constituency also varies with the level of nationalization, since nationalized parties tend to
have broader constituencies and hence stronger incentives to provide national policies than
do their less nationalized counterparts.
There are, of course, other features of the party system apart from those discussed
here that might bear on development. For example, there remains a vigorous debate in
the literature about whether party ideology is an important determinant of growth and
development. It is certainly the case that extremist ideologies can hamper development;
indeed, when ideological polarization is paired with a large number of parties, the result
can be extreme instability (Sartori 1976). But, apart from these extremes, it is unclear
whether party ideology is systematically related to a state’s prospects for development.
However, it may be the case that party ideology helps shape the pattern of development.
Partisanship, some argue, affects the ways in which parties approach the tradeoffs that
come with growth and development—for example, the balance between the state and the
market (e.g., Hibbs 1977; Alvarez, Garrett and Lange 1991; Boix 1998; Milner and Judkins
2004; Iverson and Stephens 2008). Others contend that the influence of ideology is more
limited (e.g., Jackman 1989; Imbeau et al. 2001; Franzese 2002; Clark 2003; Tavits and
Letki 2009). More work on the link between party ideology and development outcomes
is still needed.
It is also worth exploring whether party systems have any effect on development in
nondemocratic contexts—a question not considered in this chapter. Are authoritarian
regimes that construct institutionalized ruling parties more equipped to manage the dis-
tributional conflicts associated with growth and development? Do they have longer time
horizons than personalist authoritarian regimes? We have some evidence that party insti-
tutionalization in nondemocratic settings improves stability and survival (Lust-Okar 2005;
Gandhi and Przeworski 2007; Brownlee 2007; Gandhi 2008; Magaloni 2008).15 Does insti-
tutionalization also improve a state’s prospects for development?
Notes
1. For a review, see Hicken (2011). In general the evidence of the link between income and
clientelism is strongest at the individual level, but less robust at the country level (Stokes
et al. 2013).
2. The discussion of these two dimensions draws on Hicken (2009) and Hicken (2014).
3. Compare Levitsky’s (1998) discussion of behavioral routinization.
4. See Cox (1997, 1999); Chhibber and Kollman (1998, 2004); Jones and Mainwaring (2003);
Caramani (2004); Morgenstern and Swindle (2005); Hicken (2009); Lago-Peñas and
Lago-Peñas (2009); Bochsler (2010); Hicken and Stoll (2011); Crisp, Olivella, and Potter
(2012); Castañeda-Angarita (2013); Morgenstern, Polga-Hecimovic, and Siavelis (2014).
5. National policies can include classic public goods (such as defense) as well as collective
goods or policies that might not meet the strict public-goods definition (nonrivalrous
510 Allen Hicken
consumption and nonexcludability), such as a secure private-property rights regime or a

national primary-education policy.
6. To precisely determine the number of veto players in the policy process, we need to know
not just the number of actors with power to block changes to the status quo, but also
whether those actors have preferences/ideal points that are distinct from one another
(Tsebelis 1995, 2002).
7. Although, as Geddes (1995) and van de Walle and Rius (2005) point out, where outsiders
are reform-minded this may not be such a bad thing. However, the very features of the
party system that allow outsiders to come to power (lack of institutionalization and a
concomitant lack of party cohesion and discipline) may also hinder their ability to govern
effectively.
8. Olson uses a similar approach in his discussion of encompassing actors versus special-in-
terest actors. (Olson 1982).
9. This assumes that those core supporters are not strongly opposed to trade openness. If a
party’s core constituents are likely to be harmed by trade openness, then we should expect
institutionalized parties to oppose liberalization.
10. Though this is not always the case. See Stokes (1999).
11. Other forms of linkage are also possible—for example, charismatic or personal ties
(Kitschelt 2000).
12. These are reforms designed to attract business and investment, and include things like
deregulation, reform of the tax code, incentives for foreign direct investment, cuts in
government spending, and weakening of labor regulations.
13. This paragraph draws on Hicken (2009).
14. For Crisp et al. (2012), this holds as long as the electoral constituencies are demographi-
cally similar.
15. See Wright and Escriba-Folch (2012) for the counter-argument.
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Chapter 25
P opulism and P ol i t i c a l
Representat i on
Kenneth M. Roberts
Like the proverbial cat with nine lives, populism seems to reemerge every time it is
dismissed or defeated, often taking on new political forms that attest to its formidable
adaptive properties and political malleability. After receding in Latin America in the
1980s, populism returned with a vengeance in the 1990s and early 2000s, and it may
well be finding new and hospitable political terrain elsewhere in the developing world
as democracy spreads to countries and regions with more limited experiences with mass
politics. In recent years populism has—according to many observers, at least—reared its
head in parts of Africa, Southeast Asia, India, and Eastern Europe, and it has shaken even
Western Europe’s highly institutionalized political establishment.
The resiliency and mass appeal of populism continue to perplex many scholars, not to
mention mainstream parties and political elites, who routinely dismiss the phenomenon as
a degradation of democracy by demagogic, irresponsible, and autocratic leaders. As Laclau
(2005, p. x) states, populism has long been equated with “a dangerous excess” that “puts the
clear-cut moulds of a rational community into question.” Similarly, Canovan (1999, p. 2)
notes that populist movements are often treated as “pathological symptoms” of social ills,
rather than as “phenomena that challenge our understanding of democracy.” Beyond this
normative disdain, serious scholarly analysis of populism is impeded by the conceptual
morass that surrounds the term, as scholars continue to apply the “populist” label (or, more
accurately, the “populist” epithet) to a bewildering variety of political leaders, movements,
discourses, and policy initiatives. Although Latin Americanists have increasingly settled on
a political definition of populism, thus disentangling the concept from its historical associ-
ation with particular stages or models of socioeconomic development (see Weyland 2002;
Panizza 2005; de la Torre 2009), its core dimensions and attributes continue to be debated,
and the concept is often used loosely in other parts of the developing world for highly dis-
parate political phenomena that bear a familial resemblance to the archetypal forms.
Populism may be, as Laclau (2005) and Canovan (1999) suggest, intrinsic to democratic
politics, but it is hardly ubiquitous. To understand the phenomenon, it is essential to an-
alytically demarcate the specific forms of poplist discourse and representation. As such,
this article attempts to clarify what is distinctive about populism as a mode of political
518 Kenneth M. Roberts
representation in a cross-regional, comparative perspective, and to develop some pre-

liminary propositions as to why it appears to be thriving—and, arguably, spreading—in
many parts of the developing world. Populism, I argue, is a natural (though not inevitable)
mode of appealing to and incorporating mass political constitutencies where representative
institutions are weak or widely discredited, and where various forms of socioeconomic or
political exclusion leave many citizens marginalized or alienated from such institutions.
In short, populism emerges and thrives under conditions that are present in many young
democracies in the developing world—and in more than a few established democracies in
rich and poor countries alike. Populism is thus likely to retain its prominent role in many
polities where it has long been present, and it may well emerge in others where its political
forms are far less familiar.
Political and Economic

Conceptualizations of Populism
An air of resignation often surrounds scholarly usage of the populist concept, as many
social scientists—frustrated with the term’s multiple and contested meanings, its concep-
tual imprecision, and its casual application to widely varying political phenomena—have
recommended that it be dropped altogether from the lexicon of serious scholarly analysis
(see, e.g., Roxborough 1984). The fact that “populism” is routinely used as a term of dis-
paragement in common political parlance makes it especially problematic for scholarly
purposes; as Comaroff (2011, p. 100) notes, populism “is generally less an identity claimed,
than attached to one by others.” Nevertheless, scholarly usage of the populist concept has
not only continued, but arguably proliferated as the phenomenon—or at least elements as-
sociated with it—have appeared in novel settings.
This proliferation is undoubtedly encouraged by the fact that populism—however its
essential or “core” properties are defined—is invariably experienced in multidimensional
forms. This can be readily seen in the traditional usage of the populist concept in the anal-
ysis of Latin America’s development experience, when scholars appropriated a term that
had previously been associated with agrarian movements in nineteenth-century U.S. and
Russian politics. For Latin Americanists, the early study of populism in the middle of the
twentieth century was conducted against the historical backdrop of the rise of socialism (and
fascism) in Europe, and it aimed to differentiate working-class politics in late-developing
regions from that in the industrialized world (di Tella 1965; Laclau 1977; Germani 1978).
This differentiation occurred along two primary dimensions: The first was economic, and
included major policy implications. The second was more political, referring to the political
subjectivity of the working class and other “popular sectors” and their mode of incorpora-
tion into the political arena.
On the economic dimension, Latin American populism at the middle of the century
represented an intermediate or “third way” between the respective development models
of economic liberalism and state-directed socialism. It emerged in the aftermath to the
Great Depression in the 1930s, which undermined commodity export–based models of ec-
onomic liberalism and fostered new forms of import-substituting industrialization (ISI).
Populism and Political Representation 519
Classic populist figures like Juan Domingo Perón in Argentina, Getúlio Vargas in Brazil,
and Lázaro Cárdenas in Mexico were especially vigorous proponents of ISI, and they em-
ployed state power to nurture and protect national industries, expand domestic markets
and mass consumption, and develop social programs for the middle and working classes.
They did not, however, introduce socialist development models; rather than eliminating
private property and market transactions, they sought to regulate and harness them in the
service of national developmentalist goals. Along economic and policy dimensions, then,
classical populism was statist, nationalist, and redistributive, but it was not socialist. It
spawned state-led models of capitalist development that were alternatives to market liber-
alism on the right and socialism on the left (Conniff 2012).
On political grounds, classical populism in Latin America also differed from socialism in
its sociological bases and modes of popular political subjectivity. Arising in societies with
delayed industrialization and relatively small industrial proletariats, populist movements
typically had core working class and labor union constituencies, but they mobilized rela-
tively broad, multi-class coalitions among groups that shared a common interest in state-led
development and social welfare programs. At times, these coalitions included industrialists
producing for protected domestic markets, middle classes who benefited from an expan-
sion of public employment, and elements of the urban poor and the peasantry who stood
to gain from social programs or land reform. Consequently, the new, mass-based political
parties established by populist figures were not class parties like their socialist counterparts
in Europe; and, outside Argentina, their labor-union bases were far less extensive.
Indeed, given the relative debility of autonomous working-and lower-class organization
and the social heterogeneity of popular sectors, charismatic leaders typically played a major
role in populist mobilization in Latin America. They mobilized and organized popular
subjects from above, and they welded together diverse popular constituencies into elector-
ally formidable, if often poorly institutionalized, political movements (Collier and Collier
1991). In most cases, then, populism was less party-centric than either the social democratic
or Leninist forms of working-class mobilization in Europe. It was also more ideologically
eclectic; whereas leaders like Cárdenas in Mexico and Victor Raul Haya de la Torre in Peru
leaned to the left, others like Perón in Argentina and Vargas in Brazil were influenced by
Italian fascism and state-corporatist models of working-class control.
Clearly, the Latin American experience in the middle of the twentieth century—when
newly enfranchised working and lower classes were politically incorporated in a context of
state-led development—was tailor-made for combining economic and political properties
into an integral, multidimensional conceptualization of populism. The question, then, is
whether and how the populist concept should be extended to other spatiotemporal settings
where elements of the archetypal “package” are present but not necessarily bundled to-
gether. The prevalent usage of the populist concept in contemporary scholarship to refer
to widely varying political and economic phenomena signifies that many scholars are not
content to relegate populism to a unique historical setting or stage of development when
its multiple properties were jointly present. Instead, they have relaxed the integral concep-
tualization of populism in one of two ways: by disaggregating its properties, to separately
analyze distinct traits (such as populist policies, coalitions, rhetoric, or leadership), or by
insisting on a reductionist “core” property that comprises the essence of populism, with
other features constituting ancillary traits that may or may not be present in specific cases
(and which thus account for much of the cross-case variation in populist phenomena).
The disaggregation strategy lends itself to the identification of partial or “diminished”

subtypes of populism. It is especially prevalent in studies that focus on the economic and
policy dimensions of the phenomenon. Dornbusch and Edwards (1991, p. 7), for example,
lump together strikingly diverse political phenomena under the populist rubric by fo-
cusing on shared macroeconomic policies—namely, “expansive fiscal and credit policies
and overvalued currency to accelerate growth and redistribute income . . . with no concern
for the existence of fiscal and foreign exchange constraints.” So conceived, macroeconomic
populism is synonymous with “self-destructive” and “unsustainable” policies that produce
cycles of rapid growth and redistribution, but inevitably culminate in fiscal and foreign ex-
change bottlenecks, severe inflation, and wrenching stabilization measures.
From a comparative perspective, however, the specific content of populist policies is far
from clear. In Asia, for example, policies that defend nationalism, localism, and agrarian-
based communal development over the market-driven forces of globalization and industri-
alization are sometimes labeled as “populist” (see McCargo 2001; Hewison 2001). In Africa,
the term has been applied to market-based administrative reforms that prioritize civil so-
ciety over the statist provision of public services (Harrison 2001), as well as to more con-
ventional government programs designed to promote social inclusion or welfare. In the
latter case, Resnick (2012) persuasively argues that African political leaders are increasingly
prone to populist strategies for mobilizing support among the urban poor by promising
housing, employment, and public services that enhance social inclusion. In Latin America,
economists continue to apply the “populist” epithet to a broad range of heterodox, statist,
and redistributive policies that are deemed to be fiscally profligate or economically ineffi-
cient (Edwards 2010).
On economic grounds, it is difficult to identify the least common denominator or a
point of intersection where these diverse policy orientations converge. Given the de facto
collapse of socialism as a development model, there is little rationale for thinking of popu-
lism as an intermediate “third way” in the post–Cold War era, and the concept should not
be employed as a default, catch-all label for macroeconomic heterodoxy or redistributive
policies. Some of the redistributive or inclusionary policies analyzed by Resnick (2012) can
surely be adopted in the absence of the macro-level destabilizing tendencies emphasized
by Dornbusch and Edwards (1991); in recent years even the IMF, the World Bank, and
conservative governments in Latin America have converged in their support for market-
compatible redistributive policies that reduce social inequalities. It isn’t clear, then, whether
economic populism in recent times refers to the content of specific policies or simply to
the unsustainability of policy orientations that disregard macro-level market constraints.
One could easily assert, for example, that Hugo Chávez was an economic populist (despite
his avowed aim of creating “socialism for the twenty-first century”). But what ultimately
accounts for the label—his heterodox statist and nationalistic policies? His redistributive
social “missions”? Or the dubious sustainability of his fiscal, monetary, and exchange-rate
policies? Would the last even be considered populist if they were implemented in a context
of fiscal sustainability?
Increasingly, political scientists have paid little heed to such questions, as they have
adopted the second strategy for managing populism’s intrinsic multidimensionality: They
have largely stripped the concept of its economic connotations and defined populism in terms
of essential or core political attributes. Weyland (2001, p. 1) is especially pointed in asserting
that populism belongs to the political sphere—that is, the sphere of domination—rather
than that of distribution. So conceived, populism connotes a political logic that cuts across
major policy and programmatic distinctions, allowing the label to be attached to wide range
of antiestablishment leaders—even those who adopt neoliberal reforms and dismantle rent-
seeking arrangements exploited by organized interests (Roberts 1995; Weyland 1996). In
essentialist political terms, both the neoliberal Alberto Fujimori and the socialist Chávez
can be categorized as populist, despite the manifest differences in their economic projects.
Ultimately, however, the political sphere itself is multidimensional, and populism’s precise
location within it remains highly contested. What, then, is the shared political logic—the
essential core—around which various forms of populism converge? And in what domain of
the political sphere is populism to be found?
Some of the best recent scholarship seeks to locate the shared political logic of populism
in the cultural, or ideational, dimension of politics—that is, on a discursive and rhetorical
plane. This approach generally identifies the core of populism in the ideological and dis-
cursive construction of the political order in terms of a binary elite/popular divide (see
Laclau 2005; Hawkins 2009; de la Torre 2009; Mudde and Rovira Kaltwasser 2012). This
binary construct produces a moralistic political discourse that exalts the common people,
condemns dominant elites who neglect or exploit them, and promises redemption in the
form of a renovated political order (or at least a renovated political leadership) that is more
responsive to popular needs. Populism, then, in Canovan’s (1999, p. 3) terms, entails “an
appeal to ‘the people’ against both the established structure of power and the dominant
ideas and values of the society.” So conceived, populism invokes an appeal to popular sov-
ereignty in contexts where political authority is widely deemed to be unrepresentative or
unaccountable to more authentic, broad-based societal interests.
This discursive approach liberates populism from any definitional association with a
given set of economic policies or development models, in part because it can challenge a
broad range of elite actors and appeal to diverse popular interests or identities. Dominant
elites, obviously, may be defined in class terms as an economic oligarchy, in which case
populist discourse is likely to emphasize redistributive economic measures of the type as-
sociated with iconic Latin American figures like Perón and Chávez. Alternatively, however,
a populist discourse may denigrate cultural and intellectual elites who hold “cosmopol-
itan” views that place them out of touch with “heartland” or mainstream values—a staple
of conservative populisms in many parts of the world. Such forms of populist discourse
may have some grounding in socioeconomic or class distinctions, but they clearly activate
a cultural dimension of political cleavage that can cut across class divides, separating the
cultural “high” from the “low,” or the cosmopolitan from the particular (see Ostiguy 2009).
As such, they are conducive to the construction of cross-class political coalitions that are
compatible with a broad range of economic policies, and need not entail class-based redis-
tributive measures. Appeals to cultural authenticity may also be used to activate cross-class
nationalist identities in opposition to the multicultural influences of foreigners, migrants,
or ethnic minority groups—and in opposition to domestic political elites that shield or
tolerate their presence (Mudde 2007). Such cultural and nationalist appeals have been es-
pecially pronounced in right-wing populist mobilization in Europe (Mudde and Rovira
Kaltwasser 2012).
Even more prevalent, perhaps, is an antiestablishment populist discourse that vilifies
a dominant political caste for its avarice, insularity, or detachment from popular needs
and concerns (Barr 2009). Such populisms appeal not so much to a subaltern class as to
politically excluded or disaffected groups—“outsiders,” so to speak, to a closed and often

professionalized leadership caste. Like appeals to cultural authenticity, antiestablishment
discourses can cut across class distinctions and be harnessed to highly disparate economic
projects—from tax revolts on the right to radical redistributive measures on the left—
depending on the socioeconomic bases of politically dominant and disaffected groups and
the ideological constructions of populist leaders.
Clearly, these different types of populist or antielite discourses are not mutually exclu-
sive, even if they are analytically distinct. Effective populist leaders and movements may
find ways to ideationally bundle together different types of elites into an undifferentiated
power bloc that is counterposed to a socially heterogeneous but politically cohesive popular
bloc; such is the logic of populism’s binary construction of the sociopolitical order. Much
of the variation across different forms of populism, including its conservative and leftist
expressions, is conditioned by the extent to which they contest elitism in multiple social
fields. In that sense, it could reasonably be argued that a Hugo Chávez who challenges po-
litical, economic, and cultural hierarchies is more thoroughly populist—and certainly more
leftist—than a leader like Alberto Fujimori, who contested Peru’s political establishment
while forging pro-market alliances with business elites (after getting elected, that is).
The primary advantage of a cultural or ideological conceptualization of populism, then,
is that it can locate and identify common populist discourse in otherwise disparate political
movements attached to widely varying economic doctrines or public policy orientations.
The disadvantage, however, is that it lumps together quite different types of political mo-
bilization that may share discursive elements in common, but otherwise represent distinct
modes of political incorporation and representation. By conflating different patterns of po-
litical mobilization, therefore, it becomes difficult to distinguish populism from other polit-
ical phenomena—such as leftist parties or social movements—that also employ antielite or
antiestablishment discourses.
Of particular importance is the relationship (if any) between populism and the top-
down or bottom-up character of political mobilization. For a strictly discursive or ideo-
logical conceptualization of populism, the directionality of political mobilization does not
matter. A bottom-up, grassroots movement—such as the agrarian movements of the late
nineteenth-century American South and Midwest that are usually labeled populist, or the
more recent mass sociopolitical movements that came into power in Bolivia—can be just as
populist as a movement that is mobilized from above by a dominant or charismatic leader,
like a Perón or Chávez. But what, then, distinguishes populism from most social movements
that discursively claim to represent the interests and values of “the people” against an unre-
sponsive political elite? Do most antiestablishment popular uprisings—say, the “colored” or
“electoral revolutions” in postcommunist Eurasia (Bunce and Wolchick 2010), or the mass
rebellions of the Arab Spring—get absorbed into the category of “populist,” or do they be-
long to a different genus?
The analytical distinction goes beyond a mere question of political style or leadership
patterns. It is, more fundamentally, a question about the political autonomy and subjec-
tivity of mass constituencies—that is, their capacity for independent collective action and
political expression, including the creation of their own organizational, leadership, and par-
ticipatory structures. This was important in some of the earliest scholarship on populism,
which sought to understand how Perón’s populist mobilization of the Argentine working
class differed from that of socialist working class mobilization in Europe (di Tella 1965;
Germani 1978). The differences had to do not merely with the class composition or social
coalitional bases of Argentine Peronism, but also with the verticality and political subordi-
nation of its mobilizational patterns—that is, Perón’s ability to harness popular movements
to his personal political project by controlling the rhythms, organizational development,
and political expression of labor mobilization. As Kurt Weyland succinctly puts it, “popu-
lism does not empower ‘the people,’ but invokes the people to empower a leader.”1
More recent scholarship has also made note of the distinctions between bottom-up and
top-down mobilizational patterns. In a particularly insightful essay, Robert Barr (2009)
distinguishes between mobilization based on plebiscitary and participatory linkages
(or interaction patterns) between citizens and party or movement leaders. Both types of
linkages can be used by antiestablishment actors who seek to correct deficiencies in gov-
erning institutions by making them more authentically representative and accountable to
citizens. The corrections they offer, however—both variants of direct democracy—are quite
different. Participatory linkages aim to replace or supplement existing channels of repre-
sentation with the direct engagement of citizens or civic associations in deliberative and
policy-making activities—in short, allowing citizens to “represent themselves” (Barr 2009,
p. 37) as political subjects. Plebiscitary linkages, on the other hand, rely on direct forms of
electoral accountability between citizens and an antiestablishment figure who promises to
represent the “popular will” more effectively than traditional political elites. Plebiscitary
linkages, according to Barr, are intrinsic to populism; participatory linkages, on the other
hand, such as those promoted by bottom-up social movements and self-constituted civic
associations, belong to a separate category of antiestablishment politics.
Although these two types of linkage have quite different political logics and mobilizational
dynamics, they aren’t mutually exclusive; movements may find ways to combine them. Hugo
Chávez, for example—a populist figure par excellence (Hawkins 2010a)—relied heavily on
unmediated, antiestablishment plebiscitary appeals to capture presidential office, bypass
congress, and draft a new constitution that refounded Venezuela’s political institutions. In
office, however, he also established a wide range of social programs tied to new community-
based participatory channels that provided ample opportunities for grassroots mobiliza-
tion that was structured but not entirely directed from above (Hawkins 2010b; Collier
and Handlin 2009). The Bolivian case under Evo Morales presents an even more compli-
cated articulation of the two linkage patterns; like Chávez, Morales employed plebiscitary
strategies to refound the constitutional order, but his political leadership was deeply and
organically rooted in the bottom-up mobilization of coca growers unions and largely in-
digenous social movements. These popular movements launched a series of mass protests
that challenged Bolivia’s neoliberal economic model, toppled two presidents, and spawned
a new mass party organization that elected Morales to the presidency (Madrid 2008). The
bottom-up, participatory dynamics and the self-constitution of popular subjects in Bolivia
created movements with a much higher degree of political and organizational autonomy
than in Venezuela, subjecting Morales to considerable pressure from below. As Barr (2009,
p. 38) states, “Plebiscitarian and participatory linkages have very different implications with
respect to the extent of citizen control or involvement in government, and the prospects for
manipulation by elites.”
Even if we concede the possibility of hybrid linkage and mobilizational patterns, Barr’s
formulation is instructive for differentiating populist from nonpopulist expressions of an-
tiestablishment politics, at least in their ideal/typical forms. In that sense, he differs from
Comaroff (2011, p. 103), who claims that populism is a “necessary condition of all antiestab-
lishment movements,” whether progressive or conservative (emphasis in the original). More
important for our purposes, however, Barr locates the populist phenomenon squarely in the
domain of political representation, where it properly resides. Populism is first and foremost
a response to failed or ineffectual political representation—a response that challenges es-
tablished political elites and, typically, the parties or other intermediary institutions that
buttress their rule, then offers citizens an alternative leadership that claims to be a more au-
thentic representative of their values, interests, and sentiments. The plebiscitary linkage be-
tween this leader and mass constituencies is often, but not necessarily, unmediated; parties
and civic associations may be formed around the leader, but they remain subordinate to the
leader’s political interests. As such, populism does not replace a political establishment with
a participatory, self-governing citizenry; it evokes the principle of popular sovereignty, but
embodies and exercises it through the mediation of a specially endowed leader—a counter-
elite, so to speak.
An antiestablishment ideological discourse is integral to this alternative mode of repre-
sentation, and such discourse may certainly be labeled populist. On its own, however, the
discourse does not constitute populism as a mode of representation in the absence of the
type of plebiscitarian linkages identified by Barr and a top-down pattern of political mobi-
lization. As a mode of representation, then, populism is best characterized as the top-down,
antiestablishment political mobilization of mass constituencies who lack a capacity for au-
tonomous political expression.
So conceived, is populism on the march in the developing world today? If so, what
explains its spread, and what forms is it taking, given its widely recognized capacity to
adapt and serve a diverse array of antiestablishment projects? It is to these more empirical
questions that I now turn.
Structural and Institutional

Conditions for Populism
Populism is, arguably, a permanent temptation where mass politics exists, as it provides a
critical discourse that aspiring counter-elites can wield to mobilize popular opposition to
established leaders, parties, and governing institutions. That said, populism is not equally
likely in all circumstances. As a form of antiestablishment politics, populist discourse and
leadership are more likely to resonate with citizens in some contexts than others. These
contexts must be understood if we are to explain the prospects for a spread of populism in
the developing world today.
Political and Institutional Contexts

Strictly speaking, populism does not require the presence of mass democratic institutions.
Populist figures can certainly employ antiestablishment appeals to mobilize mass oppo-
sition to authoritarian rulers, as Haya de la Torre did in twentieth-century Peru. Indeed,
populism can activate and channel mass demands for political inclusion and representation
in contexts of authoritarian rule or oligarchic exclusion. In such contexts, populism has an
intrinsic democratizing character, at least as an oppositional force, as it aims to pry open
closed or elitist political systems. For this reason, the classic expressions of populism in
Latin America corresponded to the early onset of mass politics following a century of ol-
igarchic rule, and populist figures like Perón in Argentina, Cárdenas in Mexico, Vargas in
Brazil, and Haya de la Torre in Peru sponsored the initial political incorporation of working
and lower class citizens (Collier and Collier 1991; Conniff 1999).
By definition, however, authoritarian regimes employ coercive resources to limit or re-
press oppositional political mobilization. The political space for aspiring populist counter-
elites to become public figures and appeal to mass constituencies is often quite limited,
therefore, in nondemocratic contexts. The rise of populist figures in recent decades in
the Philippines (Thompson 2010), Thailand (Hewison 2010), Eastern Europe (Weyland
1999), and Africa (Resnick 2012) thus occurred primarily in the post-transition stages of
democratization, rather than in opposition to authoritarian rulers per se. Even in Latin
America, where the populist tradition is more deeply rooted, the democratic movements
that contested military dictatorships in the 1970s and 1980s were decidedly civic rather than
populist in their mobilizational logic. That is, they relied on extensive participation by par-
tisan, religious, and civil-society networks, creating forms of civic mobilization around par-
ticipatory rather than plebiscitary linkage patterns. The resurgence of populism in the 1990s
and 2000s in Latin America thus followed democratization, rather than preceded or (much
less) caused it. Indeed, it found fertile terrain in the crisis of representation (Hagopian 1998)
that plagued new (and a few old) democratic regimes as they grappled with the political
fallout and social dislocations attendant to economic crises and market liberalization.
Democracy, then, may not be a precondition for populism, but it seemingly offers the
most hospitable terrain for it. Democracy provides political space for contestation, along
with representative institutions of widely varying levels of effectiveness and accountability.
Where citizens become alienated from those institutions, the electoral mechanisms of rep-
resentative democracy provide institutional channels that populist figures can use to de-
velop plebiscitary linkages to mass constituencies—in effect, turning the institutions of
democracy against the political establishment itself. It is hardly surprising, then, that forms
of populism have emerged in countries where it has not been known previously as mass
politics and democratic competition have spread to unfamiliar terrain.
Hypothetically, presidential systems should be more prone to the development of these
plebiscitary linkages than parliamentary systems. Parliamentarism certainly does not im-
munize democracy against populism, as the recent European experience demonstrates
(Mudde 2007; Mudde and Kaltwasser 2012), but it does discourage the development of
completely unmediated plebiscitary linkages; populist figures can only access executive
office by building party intermediaries that achieve parliamentary representation, how-
ever subservient such parties might be to personalistic interests. It is not surprising, then,
that populist mobilization in Europe tends to occur through party organizations, in con-
trast to the prevalence of independent, antiparty populist leadership in Latin America.
A Rafael Correa can get elected president of Ecuador as a populist outsider without a party
to sponsor candidates running for legislative office (Conaghan 2011), but he could not be
elected prime minister in a parliamentary system with such a purely plebiscitary appeal.
As Samuels and Shugart (2010) argue, the separation of constitutional powers and separate
electoral mandates of executive and legislative branches foster a personalization of party

organizations under presidentialism; it could be added, however, that these institutional
properties of presidentialism are conducive to personalistic and plebiscitarian forms of
representation more generally, including the kinds of antiparty politics in which populists
often engage.
Although populist figures can arise within established political parties, typically by posing
maverick challenges to traditional leaders or ruling factions (see Barr 2009), they are more
likely to emerge outside of and in opposition to existing parties. It is trivial, perhaps, to
say that this requires the existence a large number of voters (or potential voters) who are
alienated or detached from established parties, and thus amenable to mobilization by an
antiestablishment figure. It bears mentioning, however, that there are at least three different
democratic scenarios in which this detachment may be found. The first, as mentioned
above, is during the early stages of mass political incorporation, when large numbers of
new voters without prior partisan commitments are being enfranchised or politically in-
corporated for the first time. In recent times, the Thai case under Thaksin Shinawatra may
be the best example of this pattern, which was prevalent during the classic period of Latin
American populism in the middle of the twentieth century.
A second scenario is where party systems are highly fluid and inchoate, leaving large
numbers of “mobile” voters without fixed partisan identities. In such contexts, serial forms
of populism may arise, with one independent personality after another rising to promi-
nence (albeit, most likely, with varying levels of antiestablishment discourse). Peru and
Ecuador have exhibited elements of this pattern in recent decades after historic parties
largely broke down during periods of economic crisis in the 1980s and 1990s. A third sce-
nario is the obverse of the second: Where established parties become so entrenched in
power that they form a closed and insulated governing caste—what Katz and Mair (1995)
refer to as “cartel parties,” and popular discourse simply labels partitocracia (Coppedge
1994)—populist outsiders may be able to capitalize on discontent with the status quo
and foster a voter backlash against the establishment. The rise of Chávez in Venezuela
is a paradigmatic case of this pattern, and elements of it can also be found in the right-
wing nationalist mobilization of populist parties in Europe that contest traditional party
establishments. Outside the European context, Hawkins (2010a) finds that this type of
antiestablishment backlash is especially likely when political corruption is widespread and
the rule of law is ineffective in protecting citizens and checking the behavior of rulers (see
also de la Torre 2009).
Although it is generally assumed that the rise of populism reflects a “crisis” of polit-
ical representation, the nature of such a crisis is often left ill-defined. The three different
scenarios outlined above point to quite different types of representational failures. The first
corresponds to restricted representation, or what is sometimes referred to as political ex-
clusion; it is more likely in new or emerging democracies where large numbers of citizens
are in an initial stage of political incorporation. The second scenario could be characterized
as weak or poorly institutionalized representation; it is also likely under new democracies
where party systems have yet to congeal, but it could also be found in older democracies
where party systems have broken down or simply remained inchoate. The third scenario
refers to unresponsive or unaccountable representation; it is most likely where democratic
rule is long-standing, but significant blocs of voters are alienated from established parties
because of cartel-like collusion and corruption, the exclusion of particular issues or interests
from the competitive arena, or major policy failures or crises. It is this latter dynamic that
could easily spawn populist responses to southern Europe’s recent economic travails.
These scenarios clearly locate populism in the larger study of political representation
and, more specifically, in the failures of party institutions. Consequently, the diffusion of
mass politics and liberal democracy—or at least semi-democracy—to new parts of the de-
veloping world, in contexts where the strength and representativeness of party systems are
in question, is surely conducive to the spread of populism as well. Where new citizens are
being politically incorporated, where voters lack firm name-brand loyalties to established
parties, or where such parties have formed a closed and nonresponsive governing caste,
potentially large audiences will exist for the antiestablishment appeals of populist figures.
Economic Conditions
As mentioned above, populism understood as a political phenomenon is not attached to
any specific stage, model, or doctrine of economic development, and it can coexist with a
wide range of orthodox and heterodox economic policies. That does not mean, however,
that populism is unrelated to economic conditions. Indeed, economic conditions may be
integral to the aforementioned representational failures that facilitate the rise of populism,
largely by detaching voters from established parties and political elites. This is most obvious,
perhaps, where severe or prolonged economic crises erode support for governing parties, or
even entire party systems, provoking a voter backlash against anyone tainted by an associa-
tion with the status quo. Crisis conditions, therefore, may weaken the establishment, while
encouraging citizens to search for a “savior” from outside the traditional elite—typically,
one who promises a new set of policies that serve the interests of “the people” rather than of
a corrupt and incompetent elite.
Part of what allows populism to coexist with a wide range of policy orientations is
this response to crisis conditions. Simply put, populist policy prescriptions to “fix” the
problems may vary with the nature of the crisis or the character of the preexisting model
that has broken down. Consequently, the early forms of populism that emerged in Latin
America in the aftermath of the Great Depression supported state-led industrialization
and other nationalistic policies as an alternative to the liberal commodity export–based
models that collapsed in the 1930s. Conversely, the collapse of statist models in the debt
and hyperinflationary crises of the 1980s set the stage for a new breed of populist leaders
who harnessed antiestablishment appeals to neoliberal projects for market reform (Roberts
1995; Weyland 1996). More recently, the East Asian financial crisis of the late 1990s and its
reverberations across much of the developing world spawned a number of different popu-
list reactions, generally entailing a critique of neoliberal globalization and support for na-
tionalistic policies in both Asia and Latin America (McCargo 2001; Hewison 2001; Hewison
2010; de la Torre 2009).
These cycles suggest that populism, rather than being the political correlate of a par-
ticular stage of economic development—namely, early state-led industrialization—may
instead be associated more generally with crisis-induced inflection points or transitional
periods in development models. These inflection points produce major realignments of
states, markets, and social actors that alter the ways in which parties mediate state–society
relations; where parties fail to incorporate rising social actors or respond to the demise of
old ones, party systems can become unhinged from their social moorings, and populist fig-
ures may emerge to fill the institutional void. Populism, therefore, may not be structurally
determined, given the contingent effects of political agency and leadership on any populist
movement; it would appear, however, to have favorable structural conditions in contexts of
major economic transitions and social dislocations. Contemporary southern Europe, again,
is a case in point.
Finally, high levels of socioeconomic inequality also provide structural inducements for
populism. Poverty and underdevelopment per se may not be conducive to populism, as they
put constraints on the political resources and mobilizational capacity of popular subjects.
Indeed, they often leave the poor dependent on patron–client exchanges that reinforce
traditional social and political controls. Where low-income groups are not incorporated
within clientelist networks, however, and severe inequalities exist, economic marginaliza-
tion is often buttressed by political exclusion—or, at least, easily framed as such by populist
figures. Economic elites have ample resources that allow them to access public office and
influence public policies, whereas low income citizens have little other than their vote and
their collective weight in numbers—in other words, the raw ingredients for populism when
turned against a political establishment that is allied with (or indistinguishable from) eco-
nomic elites. Populism—particularly in its more leftist and redistributive manifestations—
thus feeds off the inherent tensions between democratic citizenship and socioeconomic
exclusion.
Social Conditions and Civil Society

Populist figures may eventually build mass-based party, labor, or civic organizations, espe-
cially where they take public office and contest economic elites. Given the structural power
of such elites in the economy, and their control or influence over communications media
and other civic (or sometimes military) institutions, populist leaders may not be able to
protect themselves politically or advance their agenda if they rely strictly on unmediated
plebiscitary linkages to their followers. Mass organization—instigated and directed from
above—may then become the political counterweight to the structural power of capital
(Roberts 2006). Such organizations, however, rarely usher populist figures into power, as
antiestablishment appeals and plebiscitary linkages to mass constituencies may suffice to
win in the electoral arena.
Indeed, such top-down linkages may be easier to establish when mass constituencies are
relatively disorganized—that is, where civil society is weak, fragmented, or demobilized.
As Oxhorn (2011, p. 43) suggests, populism is best able to provide an “overarching identity”
where other “collective identities capable of unifying the lower classes” are absent and “the
potential for autonomous lower-class collective action” is limited. Although rising populist
figures may be able to “capture” or coopt preexisting networks and incorporate them within
a broader populist project, the larger, stronger, and better-organized such groups are, the
more likely they are to have autonomous leadership structures with the organizational re-
sources needed to defend against vertical takeover attempts (as Evo Morales has surely dis-
covered in Bolivia).
Strong civil societies, then, create organizational rivals to populism, along with forms of
grassroots participation and interest intermediation that are antithetical to plebiscitarian
linkage patterns. As the recent European experience suggests, however, even robust, well-
organized civil societies are unlikely to fully incorporate the citizenry in intermediary
institutions or preclude antiestablishment populist mobilization. The rise of right-wing
populist parties in countries like France and the Netherlands demonstrates that disen-
chanted voters—including many who used to support class-based parties of the left—can be
found for antiestablishment nativist movements even where civil society is robust (Berezin
2009; Mudde 2007).
The complex and potentially contradictory relationships between civil society, social
protest, and populist mobilization are also interesting to ponder in light of the massive
social uprisings that rocked the Middle East in 2011. In the Egyptian case, the shift from
street protests to electoral contestation provided powerful evidence of the strength of po-
litical Islam in civil society—not to mention the corresponding weakness of the “liberal”
and young professional networks that garnered so much international attention for their
creative use of social media to organize mass protests. The Islamist strength, however, was
hardly plebiscitarian or populist in its mobilizational dynamics. It was the fruit, as Sheri
Berman (2003) presciently predicted, of several generations of subterranean, counter-
hegemonic political and social service work at the grassroots level of Egyptian society.
Islamic activists built autonomous forms of associational life that hollowed out the state
long before a frontal assault was launched (initially by other actors) against the Mubarak
regime. In a manner with parallels to Bolivia’s hybrid forms of class, ethnic, and partisan
mobilization, not to mention Europe’s historical working class “parties of social integra-
tion,” this Islamo-Gramscian strategy captured civil society from the bottom-up and linked
vast civic networks to a “movement party” (Kitschelt 2006) that swamped its liberal rivals
in the electoral arena (and ultimately led many into a secularist authoritarian alliance with
their erstwhile military adversaries to drive the Islamists from power). Although the Islamic
movement was surely antiestablishment and routinely invoked “the people,” it relied heavily
on participatory rather than plebiscitary linkage strategies, and it built complex layers of or-
ganizational intermediation between top leaders and mass constituencies. As such, it is an
unlikely spawning ground for top-down populist mobilization.
Future Research Directions
As the preceding section suggests, recent scholarship has identified a number of societal
factors that are thought to influence the prospects for populism. Systematic empirical re-
search on the topic is in woefully short supply, however. This is surely attributable, in part,
to the conceptual confusion that surrounds the use of the term. This confusion encourages
a proliferation of conceptual and descriptive studies that attempt to clarify the meaning of
the term or assess its utility for interpreting a particular case. It also makes it difficult to pin
down the empirical properties of the phenomenon so that it can be subjected to more rig-
orous causal theorizing and hypothesis testing.
Given these gaps in the field, recent work by Kirk Hawkins (2009; 2010a) is especially wel-
come, as it breaks new ground in the cross-national measurement of populist discourse (see
also Armony and Armony 2005) and the empirical testing of its causes and consequences.
Hawkins used a content analysis of presidential speeches to codify populist discourse and
compare its prevalence across a broad range of contemporary and historical cases. He also
conducted rigorous statistical tests of the individual-level correlates of support for Hugo
Chávez and the cross-national determinants of populist discourse by political leaders. His
findings link populism to political and economic factors that undermine support for es-
tablished elites—namely, high levels of political corruption, weak rule of law, and policy
failures such as economic crises.
Unfortunately, the other key dimension of populism— the plebiscitarian linkages
identified by Barr—has not received comparable attention in empirical studies. Future re-
search would do well to address this lacuna; although straightforward measures may not be
available for plebiscitarianism and related factors like intermediary organizational develop-
ment, there are surely ways to measure personalism in voting behavior, and recent scholar-
ship has made significant advances in the empirical study of grassroots participation under
populism and the interconnections between civic, partisan, and movement networks (see
in particular Collier and Handlin 2009; Hawkins 2010b).
Similarly, while there is much scholarship that explores the impact of populism on po-
litical and economic affairs in individual countries, there is a dearth of systematic empir-
ical research on the consequences of populism. If populist leaders are not bound to any
specific set of public policies, do they at least have elective affinities for certain types of
policies? Does their performance in public office differ from that of nonpopulist leaders in
terms of standard indicators of governance, economic management, popular participation,
or public opinion? Recent work by Mudde and Rovira Kaltwasser (2012) addresses some of
these issues by focusing specifically on populism’s relationship to democratic governance.
Building on Dahl’s classic two-dimensional conceptualization of polyarchy, they hypoth-
esize that populism tends to enhance democratic inclusion or participation by appealing
to citizens who were previously excluded or alienated. At the same time, however, it can
undermine democratic contestation by weakening the rule of law, institutional checks and
balances, and protections for political minorities. The double-edged nature of populism’s
relationship to democracy is also a central theme in de la Torre (2009) and de la Torre and
Arnson (2013), which shed new light on the tensions between plebiscitary expressions of
popular sovereignty and the institutionalized pluralism of representative democracy.
Finally, as the various strands of this article suggest, much could be gained from linking
the study of populism more explicitly to the study of political parties and social movements.
McAdam and Tarrow (2011) have recently called for an integration of scholarship on so-
cial movements with that on parties and elections—one could easily add populism to this
mix, as all of these refer to different ways in which common citizens can participate or gain
representation in the political process. In short, all belong to the larger field of political
representation, but they relate to each other in complex ways, sometimes overlapping or
complementing each other, while at other times comprising radically different modes of
popular sector political incorporation.
These alternative modes and the conditions that spawn them can be readily seen in
Latin America’s political shift to the left since the late 1990s, in the aftermath to widespread
market liberalization. With virtually every country in the region witnessing the emergence
or strengthening of a leftist alternative since the late 1990s,2 it is safe to say that a generalized
Polanyian response to market insecurities dominated the region’s political agenda for the
first decade of the twenty-first century (Polanyi 1944). The political character and effects
of these responses varied dramatically, however. In some countries—particularly Brazil,
Chile, and Uruguay—societal resistance to market liberalism was channeled into established
parties of the center-left that opposed market reforms implemented by more conservative
political actors. The political dynamics of market reform in these countries aligned partisan
competition programmatically in ways that discouraged antiestablishment populist
mobilization; simply put, the “establishment” contained institutionalized parties of the
left that were capable of channeling much of the existing social discontent.
In countries like Argentina, Bolivia, Ecuador, and Venezuela, however, societal resist-
ance was expressed through mass protest movements with strong anti-neoliberal and an-
tiestablishment orientations. Traditional party systems partially or completely broke down
in these countries, with plebiscitary populist leadership eventually emerging in Venezuela
and Ecuador, and personalistic leaders with stronger partisan (Argentina) or movement
(Bolivia) bases taking power in the other two cases. In these four countries, the political
dynamics of market liberalization were very different from those in Brazil, Chile, and
Uruguay, as traditional center-left or populist parties played major roles in reform pro-
cess. Consequently, party systems were programmatically de-aligned—that is, left without a
major established party to channel societal resistance to liberalization policies. Where such
resistance developed, it was quickly directed into antiestablishment forms of social and
political mobilization, in both electoral and extra-electoral arenas. These mobilizations all
had populist discursive tendencies—best captured, perhaps, in the Argentine protest slogan
“Que se vayan todos”3—even if they varied in their levels of plebiscitarianism, organiza-
tional intermediation, and grassroots autonomy.
The main lesson of this regional experience is to show how similar kinds of social and
economic challenges can have quite different political effects, depending on the competitive
alignments of political actors at key policy-making choice points. Some sort of societal re-
sistance to market liberalization was perhaps inevitable in Latin America, given the degree
of social exclusion, but a populist backlash clearly was not. Whether or not one occurred
depended on the broader matrix of political representation—in particular, the program-
matic alignment or de-alignment of party systems, and how this affected their capacity
to channel societal resistance into institutionalized representative arenas rather than an-
tiestablishment forms of social protest and electoral mobilization. The prospects for pop-
ulism, and the form or content that it takes, are thus heavily conditioned by the related
fields of partisan politics and social protest; studying the phenomenon in isolation from
these other fields is sure to produce a skewed or incomplete understanding of the populist
phenomenon.
Conclusion
When populism is conceptualized as a mode of political representation— one that

is characterized by the top- down, antiestablishment political mobilization of mass
constituencies who lack a capacity for autonomous political expression—it becomes clear
that the conditions for it are present in much of the developing world today. Indeed, fa-
vorable institutional and structural conditions have surely been created by the diffusion of
liberal democracy to countries where representative institutions are weak, fragile, or unac-
countable, and various forms of social and economic exclusion are rampant. The years ahead,
therefore, may well see a proliferation of populist movements in the developing world—and
quite possibly in wealthy countries as well. Populism, however, is not the only form of anti-
establishment politics, and its prospects are inevitably conditioned by developments in other
related fields of political representation, including party systems, civil society, and social
movements. Only by placing populism within the multidimensional field of political repre-
sentation can we fully understand its origins, multiple forms, and diverse effects.
Notes
1. Personal communication with the author, January 15, 2012.
2. Between 1998 and 2012, leftist alternatives captured national executive office in eleven out
of the eighteen Latin American countries, an unprecedented occurrence in the region. In
most of the other countries, leftist alternatives have emerged or strengthened electorally,
without taking power at the national level.
3. This translates loosely, in classic antiestablishment terms, as “Let them all go” or, more col-
loquially, “Throw the bums out.”
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Pa rt V
R E G IONA L
A N D C OU N T RY
P E R SP E C T I V E S
Chapter 26
Africa’s P ol i t i c a l
Ec onom y i n t h e
C ontem p or a ry E ra
Peter M. Lewis
What are the political sources of institutional change? What are the political requisites for
economic transition in low-income developing countries? These questions frame the re-
search and policy frontiers in understanding Africa’s economic pathways in the contempo-
rary era. The region’s economic dilemmas are rooted in political questions of elite incentives,
collective action, and institution-building. Africa’s problematic economic performance has
been covered by an array of structural explanations, historical accounts, policy critiques,
geographical perspectives, and regime typologies.1 These diverse perspectives have often
stressed tenacious limitations to the performance of African economies. In recent years,
however, economic growth has gained momentum in many African countries, giving rise to
increasing variation in economic profiles across the continent. Still, most African economies
have not appreciably diversified from a base in primary production, and the region has yet
to move up the value chain in global export markets. A pressing concern, therefore, is how
to advance strategies and consolidate institutions for an economic transition. The answers
in Africa will be different from those in Asia or in other emerging economies.
The challenges of economic growth and structural change throughout the developing
world have been especially pronounced in sub-Saharan Africa. Formed in the colonial cru-
cible, African economies have been dominated by smallholder, rain-fed agriculture and
natural-resource extraction; apart from South Africa, there has been limited development
of manufacturing or high-value services. At independence, these societies were over-
whelmingly rural, poor, and possessed of limited skills or technology. In most states, infra-
structure was concentrated around administrative or trade hubs, while legal and financial
systems provided few supports for private economic activity. In the ensuing decades, the
foundational questions of improving livelihoods, increasing productivity and employment,
diversifying output, and building institutions for development have continued to define the
African dilemma.
Since the late colonial era, African states and economies have passed through phases of
expansion, crisis, retrenchment, and revitalization. Following World War II, the leading
538 Peter M. Lewis
European colonial states accelerated their investments in local production and services,
seeking to extract greater revenues from the colonies (Hopkins 1973; Austen 1987). The
revenue needs and political calculations of the ruling powers fostered growth in mercan-
tilist systems under authoritarian control. This largely framed the developmental agenda
for the early decades after colonialism, commencing in the late 1950s. The state functioned
as a crucial “gatekeeper” in regulating commodity-based open economies (Cooper 2002).
Most of the newly independent regimes of Africa, though inaugurated through nominally
competitive elections, soon established autocratic structures dominated by single parties or
military rulers. The impulse toward political control also drove expansion in the scope and
prerogatives of the state, often framed as a catalyst for economic transformation. African
economies grew at moderate rates as governments sought to establish foundations of in-
frastructure, social services, and industry, most often through public initiative or subsidy.
The developmental aspirations of autocratic regimes faltered in the middle of the
1970s, a consequence of both internal weaknesses and exogenous shocks. Rising energy
prices, growing debt, and deteriorating terms of trade for non-oil exports eroded the fiscal
conditions of many states. Strategies of import substitution and populism yielded poor
returns on investment, while expanding deficits and debt financing. The rapid expansion of
state functions, especially amid deteriorating resources, placed enormous stress on public
institutions and ruling compacts. Investment and services faltered, production sputtered,
and contentious politics proliferated. By the early 1980s, sub-Saharan Africa was increas-
ingly viewed as a negative outlier among regions of the developing world, as economic de-
cline and capital flight affected dozens of countries.
By the 1980s a period of contraction, donor-induced adjustment, and partial reform
was underway. Output, investment, and livelihoods declined from the late 1970s well into
the middle of the following decade. Economic crisis was accompanied by the widespread
decline of state institutions and capabilities. Fiscal and debt pressures brought numerous
countries under the tutelage of the multilateral financial institutions, and policy condition-
ality shaped economic programs in Africa for two decades. Economic distress and state
failure were superseded by austerity and the retrenchment of public institutions. Guided by
orthodox economic policies, adjustment programs sought to reduce the scope and roles of
the state, as the enhancement of market mechanisms was proffered as a route to renewed
growth. Adjustment directly challenged the political prerogatives of African regimes, and
leaders commonly sought to attenuate the political liabilities of liberalization programs.
A regional malaise persisted to the turn of the century, fostered by diffident reform, flaws in
the orthodox agenda, and weak global economic conditions.
A new trajectory has taken direction during the past decade. African economies resumed
steady growth by the late 1990s, while the following decade saw more robust and resilient
expansion. From 2002 through 2011, aggregate GDP growth in Africa averaged 4.9 percent
while mean growth per capita was 2.3 percent.2 Africa’s improving economic performance
has been linked to a number of external trends including the rise of Chinese economic
engagement, sustained buoyancy in global commodity markets, and donor-managed debt
relief. Domestic factors have been equally apparent, such as basic shifts in policy orienta-
tion, governance reforms, and the rise of new actors in markets and the public sphere. The
current phase of growth raises basic questions about the requisites for economic transition
and political change. While African economies are more dynamic, there is limited evi-
dence of increased productivity, rising employment, or improved distribution. A decisive
Africa’s Political Economy in the Contemporary Era 539
shift toward shared growth, of the type achieved in Asia, will require substantial institu-
tional changes to foster production and investment. These, in turn, suggest shifts in gov-
erning strategies and political coalitions that will sustain a new equilibrium of economic
transition.
Understanding Economic Performance
The literature on economic performance in Africa is large and contentious. In the years
following independence, systemic theories of development sought to broadly account for
the paths of the new states of the postcolonial world. Modernization theory stressed im-
manent processes of social and economic change, which might be advanced by prudent
infusions of foreign capital. A counterpoint emerged from the structuralist framework,
which emphasized the impediments of colonial production and trade patterns embodied
in the open economy. Primary commodity exports, manufactured imports, and trade tax-
ation framed these systems (Cooper 2002; Kilby 1969; Bevan, Collier and Gunning 1990).
Succeeding theories of dependency placed stress on unequal relationships in the global
economy and domestic elite agendas as catalysts of underdevelopment. By the 1980s, the
turn in development theory focused on state capabilities and agency in the process of ec-
onomic change, drawing inferences from newly industrializing states in Asia and Latin
America.3
Africa’s path of crisis and stagnation diverged markedly from emerging economies in
other regions during this period, calling for distinctive explanations of the continent’s di-
rection. Political analysts focused on state-centered frameworks that emphasized the limits
of infrastructural capacity as well as the ruling strategies of African regimes. The problems
of the state in development generated such characterizations as “lame Leviathans,”
“neopatrimonial” regimes, and “shadow” states (Callaghy 1987; Clapham 1982; Van de Walle
2001; Reno 1995). These formulations called attention to the weak capabilities of African
states, despite expansive ambitions for promoting capital formation and productive accu-
mulation. The neopatrimonial model emphasized the role of personalized power, clientelist
patterns of political control, and the discretionary use of resources to sustain regime sta-
bility. In circumstances of extreme state weakness, such as in Sierra Leone or Liberia, the
appropriation and disbursal of revenues to client networks formed “shadow” structures that
eclipsed the façade of the state (Reno 1995).
Policy analysis and political perspectives also sought to explain comparative economic
performance, especially Africa’s lagging profile in the contemporary era. The multilateral
financial institutions and donor agencies outlined a broad critique of economic policies
in Africa and a prescriptive agenda of reform. The “Washington consensus,” outlined an
agenda for reducing the scale and scope of state intervention, liberalizing markets, and
pursuing political reform. This approach was essentially voluntarist and confined to the
realm of prescription, with few political underpinnings for explaining the dynamics of re-
form. The “new political economy” filled part of this gap by furnishing a model of elite
incentives and challenges for policy change (Bates 1995). However, the focus on individual
agents and utility-maximizing behavior overlooked collective action problems and contex-
tual factors, notable the institutional setting.
540 Peter M. Lewis
An entirely different set of arguments were embodied in a renascent economic geog-

raphy (see Bloom and Sachs 1998; Collier 2006; Diamond 1999). Here, the focus returned
to structural factors that inherently constrained growth and diversification. Africa’s phys-
ical geography includes large areas of sporadic rainfall, easily depleted soils, high disease
burdens, and parasites that diminish human productivity and animal range. The political
geography of the continent is even more consequential. The colonial legacy includes sixteen
land-locked countries with difficult access to global markets, along with small states that
embody limited domestic markets and labor resources, and ethnically fragmented societies
that are presumably hampered in integrating markets or achieving policy consensus
(Easterly and Levine (1997). The natural resources in many African countries create fur-
ther challenges of the “resource curse,” fostering volatile growth, economic distortions, and
endemic problems of governance. From this vantage geography is destiny, at least without
encompassing policy correctives.
This procession of theories, models, and debates has yielded important insights into the
factors shaping African economic performance, yet these approaches have not sufficiently
accounted for the role of choice and change in the political economy of development.
Modernization and dependency theories, with their sweeping forces, fail to explain variation
and divergent trajectories in the developing world. The early generation of state-centered
analysis identified the importance of institutions and government initiative, but did not
specify how developmental states emerge and persist. Models of state failure focus on chronic
stagnation rather than possibilities for reconstruction or state-building. Orthodox policy
analysis cannot explain why certain leaders, but not others, adopt and implement reforms;
the new political economy illuminates incentives at the micro-level without sufficiently
bringing in collective interests or institutional paths. As with dependency, economic geog-
raphy presents a “tragedy of the tropics,” with little appreciation for developmental advances
in Southeast Asia, Brazil, or other tropical states that have navigated these problems.
Institutions, Politics,
and Economic Change
The new era of growth across Africa adds urgency to our search for an understanding of
the foundations of development. Policy profiles have changed across the region, along with
significant political reforms in dozens of countries. Many economies have risen in global
indicators of business conditions and improved in rankings of corruption. Shifts in policy
and governance, however, have often been insufficient to bring about substantial changes
in investment and production. Institutions form a crucial element in economic transition.
Institutional analysis is part of the lineage traced above. Institutions are embodied in
norms, regulations, laws, and organizations. By framing expectations and shaping behavior,
the institutional setting fosters incentives for economic and political actors. Property rights,
contracting, and access to information create an essential context for economic activity
(North 1990). Institutions embedded in a rule of law may call forth greater risk, entrepre-
neurial drive, and long-term commitments to capital formation. Alternatively, a weak or
uncertain institutional context primarily fosters hedging, rent-seeking, and capital flight.
The foundational work from Douglass North and Oliver Williamson outlined the central
importance of institutions in economic change, while North offered an account of tran-
sition derived from European experience (Williamson 1985); North 1981). More recently,
Daron Acemoglu and James Robinson focus on the role of institutions in the colonial and
postcolonial world, tracing divergent paths to the origins of institutions in different states.
In colonies with primary commodity exports and few metropolitan settlers, “institutions
of extraction” facilitated centralized collection of rents, enabling exploitive control by
rulers and broad discretion over distribution. In lands of settlement, a foundation was
created in “institutions of property” that created a general framework for property rights
and contracting (Acemoglu and Robinson 2012; Acemoglu, Johnson and Robinson 2002).4
In Africa, the contrasting institutional framework in Guinea or Ghana on the one hand,
and South Africa or Namibia on the other, illustrates the distinction. This model parallels
the comparative analysis of Douglass North, John Wallis and Barry Weingast, delineating
“closed access orders,” in which rulers regulate entry to markets and power, and “open
access orders,” in which competitive institutions mediate the economic and political do-
main (North, Wallis and Weingast 2012).
When applied to contemporary processes of development, these models leave open im-
portant questions. Institutional analyses can offer distinctions in different types of systems
and their economic consequences, but they are less clear on processes of change from one
type to another. One answer to this problem has been historical treatments that focus on
bargaining between rulers and strategic social groups (whether elites or popular sectors) in
the process of institutional change. The outcome of such bargains may be to limit the dis-
cretion of rulers or their control over property through the establishment of law and coun-
tervailing institutions. A broader “protection pact” may coalesce when a regime credibly
imposes order on a conflict-ridden territory, trading security and the ensuing prosperity
for public acquiescence.5 Political contention and social compacts form dynamic processes
at the heart of long-term economic change.
Another line of inquiry from the field of international development considers sufficient
conditions and inflection points for shifts in economic performance. In countries with
weak institutions and stagnant economies, modest improvements in institutional quality
can yield substantial gains in investment and output. The prevailing standards of interna-
tional donors, who stress “best practices” in governance, are miscast against the realities of
incremental change and uneven development. Instead, we should look to “good enough”
governance, sufficient rather than ideal standards of performance, and acknowledging po-
litical realities in the pursuit of reform (Grindle 2004; Rodrik 2008; Booth and Crook 2011;
Andrews 2013).6
This suggests three prominent factors in contemporary economic change in Africa. The
first has to do with the institutional threshold for substantial increases in investment and
productivity. Even in contexts lacking a fully realized rule of law or transparently insti-
tutionalized economic governance, sufficient guarantees and sanctions can foster capital
formation. In particular circumstances, governments may provide credible policy and
legal commitments to asset-holders, foster pockets of administrative capability, and con-
tain the scope of rent distribution and predatory behavior by officials.7 A second broad
dimension is the emergence of new coalitions to support developmental models. Alliances
between governments and key producer groups—including rural smallholders and urban
manufacturers—are crucial, as seen in the positive features of economic change in Mauritius
542 Peter M. Lewis
and South Africa (Handley 2008; Bräutigam, Rakner and Taylor 2002; Brautigam 1997).8
At the same time, regimes require workable compacts over distribution, as the troubled
examples of Kenya, Zimbabwe and Nigeria make clear. Finally, institutional development
and social bargains often arise from effective leadership. While leadership often appears as a
fortuitous variable, notably in Rwanda and Ethiopia, patterns of recruitment and succession
(embodied in constitutional processes and governing parties) can influence the character
and prerogatives of leaders over time, as suggested by the experiences of Botswana and
Ghana (Sebudubudu and Molutsi 2009; Gyimah-Boadi 2001).9 Executive commitments—
bolstered by delegation, coalition-building, and institutional development—are the basis of
transitions in economic governance and performance.
The Politics of Economic Change

in Independent Africa
These broad comparative issues are reflected in Africa’s developmental history.

Decolonization began in sub-Saharan Africa with Sudan in 1956 and continued through
the middle of the next decade. The years after independence formed an era of political
turbulence and policy experimentation. Politically, most African regimes were established
through competitive elections held under the tutelage of the departing colonial powers.
They attained independence as supposedly democratic constitutional orders. Fairly quickly,
however, political space narrowed as civilian rulers consolidated power and military officers
toppled politicians. In many states, new leaders sidelined or suppressed political rivals,
forcing mergers with the ruling political party, creating laws that diminished opposition
power, or banning competitive parties outright and establishing single-party states. Ghana,
Senegal, Kenya, and Tanzania exemplified these dynamics, echoed by numerous other
regimes. In a number of states, political turbulence or contention within governing elites
prompted a reaction from the military, which ousted the politicians and established more
or less provisional regimes. As 1960 was the year of independence, 1966 became known as
the year of coup, with two coups in Nigeria along with coups or revolts in Ghana, Central
African Republic, Upper Volta, Togo, Burundi and Sudan (Marshall 2005).
Apart from the institutional makeup of regimes, ruling groups fashioned remarkably
similar strategies of political control. Individual leaders or ruling committees often formed
an inner circle of allies and confidants and fostered support coalitions among key ethnic
or regional groups close to the leadership. These alliances could reflect personal bonds,
ethnic affiliations, or security concerns, though they were most often cemented through
patronage outlets and the formation of client relationships. Governing styles varied widely
from the civil pragmatism of Leopold Senghor’s Senegal, to the instrumental machinations
of Jomo Kenyatta’s Kenya, the repressive “mobilization” of Guinea under Sekou Toure, or
the brutality of Jean-Bedel Bokassa in the Central African Republic (Jackson and Rosberg
1982). In most states across the region, however, clientelist rule and restrictive coalitions
were the organizing frames of power. These governing strategies entailed a high degree of
discretion over public resources, and extensive state control over access to resources and
markets.
Ideological contention also defined this era. African states emerged in a world framed
by the strategic rivalries of the Cold War and competition among ideas of development.
African elites were often disposed to reject the capitalist ethos associated with the former
colonial order, and many were attracted by the transformative potential of socialist or
orthodox Marxist models. Strategic alliances with the Soviet bloc, and to a lesser degree
China, provided further inducements for some leaders. The Non-Aligned Movement
offered a less categorical choice for rulers who wished to assert a degree of autonomy while
maintaining space to maneuver between different affiliations. Within African states, the
language of socialism gained currency and framed prominent strategies of development.
Kwame Nkrumah embarked on a plan for state-led industrialization in Ghana, while Julius
Nyerere charted a program of rural collectivization in Tanzania. Military rulers such as Siad
Barre in Somalia and Mathieu Kerekou in Benin adopted a mantle of “scientific socialism”
for their regimes (Callaghy and Rosberg 1979; Keller and Rothchild 1987). The appeal of so-
cialism was by no means universal, as many African governments gravitated toward market
models and sought to preserve strong economic relationships with the former colonial
powers. In Ivory Coast or Gabon, this could take the form of a close-knit, “neocolonial”
relationship between rulers and French elites; in Kenya or Nigeria, rulers took a more in-
dependent stance politically, though they worked with the prevailing commodity export
model, promoted domestic business, and sought private investment as a driver of growth.
Personalities and doctrinal labels could often obscure the continuities in policy approaches
across the countries of independent Africa. The new regimes converged around nation-
alist orientations and statist approaches to economic development. Nationalism prompted
overarching goals of economic autonomy and encouraged policies that promoted domestic
production over trade or foreign enterprise. Given the weakness of local manufacturing,
finance, and business groups, African governments also asserted the need for state agency
in planning and advancing economic development. These animating ideas gave rise
to some core strategic choices. First, import-substituting industrialization (ISI) was a
linchpin in nearly all planning during this period. Governments sought to promote local
manufacturing through trade protection, investment regulations, subsidized finance, and
direct public ownership. The latter initiative fed into another strategic element, the prefer-
ence for state-owned enterprise (SOEs). Regardless of ideological profile, governments ex-
panded colonial-era companies or established new ventures in public utilities, agricultural
markets, manufacturing, infrastructure, and services such as finance and tourism. Planners
and politicians commonly invoked a need for control over the “commanding heights” of
the economy, along with the importance of intervening strategically to promote linkages,
resolve market failures, and serve distributive goals. The affinity for public enterprise was
part of a broader expansion of state agencies and prerogatives, extending to the civil service,
the education and health sectors, and often the military and police.
Another element in African policy regimes was a bias toward urban interests and
markets (Bates 1987; Michael Lipton 1977). African economies in the 1960s and 1970s were
predominantly rural and agricultural, yet trade and investment policies commonly fa-
vored manufacturing activities, urban services, and consumption. Government marketing
boards, through their monopsony power, taxed rural producers at high rates by setting
local producer prices well below world prices for export crops. The resulting surplus was
usually directed toward general budget demands or urban investments rather than rural
production and welfare. Overvalued exchange rates, urban food subsidies, and politically
544 Peter M. Lewis
controlled rural projects further served patronage needs and distributive priorities for
African regimes. Farmers had limited ability to mount effective collective action to change
policies, but they commonly responded to adverse prices by shifting into local food pro-
duction or selling their produce to cross-border traders. The loss of export revenues signif-
icantly undermined growth in a number of African economies.
Domestic and global circumstance facilitated policy experimentation. A number of
African governments gained a degree of fiscal space in the years after independence as a
result of inherited surpluses from commodity marketing boards, natural resource exports,
and inflows of foreign direct investment (FDI). Terms of trade for African economies were
generally stable until the early 1970s, while growth in extractive industries furnished new
revenues for resource exporters. Many African leaders were able to maneuver internation-
ally between socialist and capitalist blocks, leveraging resources and support from different
countries and multilateral donors. Also, mainstream doctrines of economic development
supported basic import-substitution goals and state initiatives to compensate for market
failures. Flows of development assistance, and some foreign investment, helped to finance
the development plans of African governments. Differences in performance appeared
early, as market-driven strategies in Ivory Coast and Kenya yielded rapid (though unequal)
growth, while socialist policies in Guinea, Ghana, and Tanzania were associated with vola-
tility and economic malaise. Yet the period of expansive state-led development and ideolog-
ical competition lasted well into the 1980s, notwithstanding dramatic shocks and changing
domestic constraints.
A Tipping Point—States under Stress

in the 1970s
The development strategies charted at independence soon came under stress from internal
and global factors. Claude Ake’s observation that Africa was poorly served by both capi-
talist and socialist models was certainly evident by this time (Ake 1996). Africa’s socialist
states lacked the capabilities to implement policies of production and redistribution, while
market-oriented regimes were politically mediated and noncompetitive. Governments rarely
made effective commitments to infrastructure or education, and most countries lacked
the legal or regulatory provisions to foster productive investment. Domestically, import-
substitution models faltered through poor planning and management, insufficient funding,
and encompassing protection and subsidies. Public official were able to make clientelist
allocations to private agents through controls on foreign exchange, credit, licensing, em-
ployment, and trade, as well as directly through state enterprises. Business elites, varying in
scope and depth, largely gravitated toward seeking rents from the regulated economy, which
fostered private sectors largely reliant on state subsidy and tutelage (Kennedy 1988; Handley
2008). Industrial ventures often had little economic viability, and domestic manufacturing
was inherently constrained by the limits of small, low-income markets with few linkages.
Import substitution in most African states incurred high costs while yielding limited pro-
ductive output or financial returns. Rising budgetary demands for industrial policy and
diminishing revenues from export agriculture created fiscal pressures on many governments.
The regional trajectory changed decisively, however, with the impact of external trade
shocks and shifts in global finance. Owing to major increases in oil prices during the 1970s,
adverse trends took hold in terms of trade, external balances for many African countries,
and the conditions of public finance. Through the waxing cartel power of OPEC, global
oil prices rose from about $3 to more than $13 per barrel during 1973, following the Yom
Kippur/October War and the ensuing oil embargo. Prices continued to rise during the next
several years, with another spike after the 1979 Iranian revolution, bringing the bench-
mark above $36 in 1980 (BP 2013). The abrupt rise in energy costs affected outlays for fuel
imports, prices for imported manufactures, and domestic inflation that reduced competi-
tiveness. Net barter terms of trade deteriorated markedly for most non-oil exporters from
the mid-1970s through the following decade (Svedberg 1991, p. 564; FAO 2004).
In the face of high energy costs and stagnant exports, governments commonly borrowed
in order to maintain expenditures. Africa’s external debt increased ten-fold during the
course of the 1970s, and more than doubled again in the following decade.10 Although
oil exporters and several mineral producers saw rising revenues, they also succumbed to
fiscal practices that incurred high debt. Economic plans across the region slated ambitious
spending for public services, industry, and infrastructure, while public sector employ-
ment and extensive subsidies further increased recurrent costs. There were strong political
constituencies for these fiscal obligations, which largely precluded adjustment in the face of
external shocks. Bilateral and multilateral borrowing were the most common recourse for
African governments, though resource exporters could also tap private international banks,
which were flush with liquidity and ready to lend to sovereign states.
When the second oil price shock buffeted the global economy in the wake of the Iranian
Revolution in 1979, a numbers of changes were set in motion that tipped African economies
into crisis. The most direct impact was a sharp negative turn in the balance of payments
for most countries in the region. The cost of energy imports escalated abruptly, along with
general prices for manufactured goods, reflecting costs of production. After incrementally
building up debt in the preceding decade, obligations soon accumulated, and borrowers
faced rising debt-service obligations. Moreover, concerns about debt loads and creditwor-
thiness led to a drought in new long-term lending, leading cash-strapped governments and
public enterprises to turn to more expedient credit outlets with a resulting run-up of short
term debt. These options retreated very quickly and payment obligations become insup-
portable. Adjustment measures by the United States and European countries aggravated
the debtors’ dilemma, as interest rates doubled and shifts in exchange rates increased the
nominal value of debt stocks.
For many African countries, these large shifts in external finances meant double-digit
fiscal deficits, heightened inflation, critical financing gaps for major projects, looming
defaults on foreign payments, further import compression, and shortfalls in public payrolls.
Faced with sprawling domestic obligations to supporters and clients, a need to sustain pa-
tronage, and political commitments to development programs, leaders were reluctant to
embark on adjustment measures that would require austerity or reduce their economic
prerogatives. Instead, most authorities preferred ad hoc measures that preserved po-
litical control and sustained much of the base of their regimes. Governments variously
resorted to widening deficits, monetary expansion (and higher inflation), selective non-
payment of salaries for government workers (notably teachers), occasional retrenchment
of public-sector employees, cutbacks in services and maintenance, and holds on funding
546 Peter M. Lewis
for major capital projects. Authorities tightened capital controls including import licenses
and clearances through the central banks, and often extended trade protection as cover for
domestic producers. Commodity marketing boards and public enterprises also served as
potential sources of discretionary income, leading to further reduction in public invest-
ment. The resulting decline in economic growth, employment, services, and institutional
performance further undermined the business climate in beleaguered African economies.
The departure of international firms, along with import scarcity and weak investment, ag-
gravated a process of deindustrialization across much of the continent.
These rapidly worsening resource constraints gave rise to political pressures as
governments sought to maintain a semblance of development spending while preserving
the support of key allies, clients, and constituencies. Many leaders perceived the adverse
trends of the late 1970s as temporary shocks, though with the passage of years it was evident
that deeper distress was in process. In the throes of fiscal crises and the political strains of
austerity, African governments turned to the multilateral financial institutions for essential
bridging resources, debt workouts, and (in some instances) policy assistance. The leverage
of the multilateral institutions became encompassing as the crisis wore on, fostering basic
changes in economic governance throughout much of the continent.
Decline and Adjustment in the 1980s:

The State in Retreat
Economic distress deepened across Africa in the wake of the debt crisis triggered in Latin
American in 1982. Amid worsening debt pressures and fiscal quagmire, African states un-
derwent marked shifts in development strategy and policy orientation. The International
Monetary Fund (IMF), the World Bank, and leading donor agencies of the G7 countries
attained growing leverage over economic policy across the region, as conditional lending
framed programs of stabilization and structural adjustment. Over the next two decades,
the economic policy agenda in Africa was substantially influenced by prescriptions and
requirements emanating from donor institutions largely centered in Washington. This gave
rise to the idea of a “Washington consensus,” a package of associated measures focused
on macroeconomic stabilization, the expansion of market mechanisms throughout the
economy, and reduction in the scope and scale of the state (framed by Williamson 1989).
Over time this framework also came to be associated with governance reforms including
transparency mechanisms, competitive elections, and other formal democratic features.
The era of adjustment, broadly construed, remains a highly contentious period in Africa’s
postcolonial economic transition.
The multilateral financial institutions operated in tandem, though not always in
unison, during this period. Distressed governments commonly turned first to the IMF,
which underwrote standby arrangements to provide bridge finance and certification for
debt rescheduling with the two creditors’ cartels, the Paris Club and London Club. In
line with its core mission of financial stabilization, IMF conditionality focused on fiscal
balance, low inflation, monetary restraint, trade and financial liberalization, the removal
of subsidies, and steps toward privatization and other reductions in the public sector. The
World Bank, a development finance institution, authored and financed structural adjust-
ment programs, which emphasized long-term changes in relative prices, investment, and
institutional reform, with a view to shifting allocations and production throughout the
economy. Stabilization programs were initially framed as short-term interventions of one
to three years, with structural adjustment considered a successive reform agenda of three
to five years. In practice, stabilization and adjustment programs overlapped, recurred, and
lengthened, leading many African countries to virtually permanent donor-supervised re-
form for more than a decade (e.g., Ravenhill 1993; Callaghy 1990; Rodrik 1990, p. 933).
Although donors and creditors shaped the policy agenda for most African countries,
the process of attempted reform was characterized by complex bargaining among ex-
ternal agents, African governments, and a variety of domestic interests. As stabilization
and adjustment programs expanded, the multilateral institutions commonly increased the
number and scope of policy conditions, extending to sectoral policies, institutional reform,
and detailed spending priorities. Conditionality far exceeded the implementation capacities
of African governments as well as the monitoring capacities of external agencies (Ravenhill
1988; Martin 1993). Moreover, African leaders were cross-pressured by the requirements of
creditors and the compelling political incentives of maintaining their regimes and interests.
In consequence, governments often complied with macroeconomic policies that could be
enforced through executive fiat and readily measured by donor institutions. Devaluation,
subsidies, fiscal deficits, inflation targets, tariffs, and agricultural producer prices were
among the “easy” fixes affected by African officials in the early stages of adjustment.
Substantial domains of reform, however, called on more complex technical abilities, mul-
tiple agencies, or extensive administration throughout national territories. These areas in-
cluded privatization, financial-sector reform, public-sector restructuring, and the shifting
composition of investment in services and infrastructure. Because of the protracted, ex-
pansive nature of these policies, donors also had greater difficulty in measuring or assessing
progress, giving rise to much greater flexibility in implementation across countries.
In the process of donor-induced policy change, African governments often delivered
sufficient performance on key external targets to sustain aid flows and debt relief, while
deferring or finessing sectoral and institutional changes that might prove more politically
challenging. Reforms were managed in ways that sought to preserve core interests for
support networks, key allies, and constituencies (Callaghy 1993; Van de Walle 2001). For
instance, privatization transfers could be directed to insiders; dual exchange rate regimes
allowed for arbitrage; financial-sector reform opened the way to speculation and currency
manipulation; and selective changes in trade protection or regulatory enforcement allowed
cronies to make windfall gains. Even as austerity took hold, it was frequently possible for
officials to target retrenchments, public enterprise restructuring, or cutbacks in subsidies.
Proponents of structural adjustment insisted that austerity would be offset by shifting to
“pro-poor” expenditures in services and infrastructure, though shrewd leaders recognized
that fiscal balance was a sufficient target for most creditors, and domestic costs could be
shifted to marginal groups in both rural and urban areas. Through such tactics, adjust-
ment fostered significant contraction in the scope of rents and perquisites for elites while
visiting greater hardships on popular sectors through user fees, reduced access to services,
greater unemployment, and higher prices for essential goods and services. The syndrome
of “partial reform” was marked by intra-elite struggles over the preservation and alloca-
tion of rents, along with popular struggles over social provisions and livelihoods. Austerity
548 Peter M. Lewis
and attempted reform placed great stress on the prevailing coalitions surrounding African
regimes.
Social conflict and political mobilization followed in the wake of stabilization and struc-
tural adjustment (‘Bayo Adekanye 1995; Olukoshi 1997; Jega 2000). The removal of subsidies,
jobs, and services provoked sharp protests in a wide range of countries, including Tunisia,
Senegal, Mali, Benin, Nigeria, Gabon, Sudan, Congo-Brazzaville, Zambia, and Madagascar.
Economic hardships galvanized trade unions, student groups, professional associations in
health and education, and many local or communal organizations. A new arena of civic
activism also arose among urban and rural groups seeking to resist or cope with austerity.
Governments typically relied on familiar tactics to suppress protests or co-opt opponents,
though limited fiscal space, shrinking public sectors, and diminished regulation signifi-
cantly reduced the available tools for retaining support coalitions. Contentious politics and
increasingly evident challenges to the status quo were evident across Africa in the decade
following the emergence of regional crisis. These social and political stresses reflected the
cumulative effects of economic decline, externally imposed austerity, and waning state
capabilities.
The inconsistent outcomes of adjustment created additional challenges for both regimes
and external proponents of reform. Many governments in Africa made substantial changes
in macroeconomic policy by the 1990s, including market-determined exchange rates,
lower inflation, stronger fiscal balances, higher agricultural producer prices, reduced trade
barriers, and fewer restrictions on investment. Yet broader institutional reforms clearly
lagged behind these nominal signals (Naim 2000, p. 515; Pritchett, Woolcock, and Andrews
2010). Privatization and the restructuring of public enterprises proved to be incremental
and frequently opaque processes with limited near-term dividends. Reforms of the civil
service, peak regulatory agencies, or major banks and financial markets were even more ep-
isodic and slower to take effect (Lewis and Stein 2001). Investments in major infrastructure
dwindled, while diminishing access to such key services as education and health further
undermined weak endowments of human capital. Reputational factors and perceptions also
weighed heavily on the decisions of economic actors, as both foreign firms and domestic
asset holders largely withheld investment in fixed capital. Despite policy changes, adjust-
ment programs conspicuously failed to create supply responses in key productive sectors,
notably manufacturing and export agriculture. While donors admonished governments to
sustain and expand reform, promises of external investment and trade rarely materialized,
as African countries became increasingly marginal to the global economy.
By the turn of the century, nearly two decades of orthodox economic reforms had yielded
significant macroeconomic stabilization but very little adjustment in production, invest-
ment, trade, or factor markets in African economies. Growth remained anemic through the
late 1990s, private investment stagnated, economies across the region were mired in dein-
dustrialization, and there were few measurable gains in agriculture. Narratives of popular
hardship were accompanied by evidence of declining school enrollments and poor health
outcomes. The sources of economic stagnation were adamantly debated. Observers from the
multilateral institutions and donor agencies insisted that adherence to the structural adjust-
ment package would produce results over time, and cited sporadic policy implementation
and weak commitment from African governments as key impediments to revitalization.11
Critics of orthodox reform argued that neoliberal agendas and globalization were culpable
in undermining African economies, emphasizing the liabilities of eroding state capabilities
and unregulated exposure to exploitive investment and trade influences (Schatz 1994; Stein
1995; Carmody 1998; Mkandawire 2005). The place of politics and institutions were fre-
quently overshadowed in these discussions. External observers raised the importance of a
liberal “governance” agenda that included property rights, transparency, and democratic
accountability, while structuralists urged the rehabilitation of state capacities and oversight.
Growing attention to the institutional foundations of development, emerging from a va-
riety of fields in the social sciences, analyzed the micro-foundations of economic behavior
and the structure of incentives surrounding reform dilemmas.12 In the new millennium, a
more frankly political approach to economic transition framed questions of policy change,
supply response, donor interventions, and government priorities. Regimes, elite incentives,
changing coalitions, and institutional change framed these perspectives.
A New Tipping Point? State Recovery

and Economic Constraints in the 1990s
The years of economic decline, crisis, and diffident reform gave rise to profound changes as
the Cold War ended and pressures for political reform spread through Africa. Weakened by
economic stagnation, the contraction of state capabilities, and eroding legitimacy, African
regimes had fewer resources or tactical options in the face of growing popular restiveness.
The collapse of regimes in eastern Central Europe removed both models and sponsors
for a number of ostensibly socialist governments, while the end of superpower conten-
tion prompted aid reductions and policy retreat by western G7 countries. When economic
protests fed into political dissension in Benin, Zambia, Mali, Congo, and other countries,
a spate of political transitions, beginning in 1990, were instigated across the continent
(Bratton and van de Walle 1997). Major donors admonished African leaders to adopt dem-
ocratic rule, while the language of the multilateral institutions encouraged political lib-
eralization as a requisite for economic improvement (Callaghy 1993, p. 477). Numerous
military or single-party regimes adopted multiparty electoral constitutions, and at least a
dozen countries inaugurated competitive polls and broadly opened political space. Several
governments including Ethiopia, Rwanda, Uganda, Tanzania, and Burkina Faso made lim-
ited steps toward political pluralism but increasingly consistent efforts toward economic
reform. A range of transitions emerged, from democratic openings in Benin and Ghana, to
constrained liberalization in Senegal and Tanzania, and armed revolutionary challenges in
Ethiopia and Somalia. Cumulatively, however, diffuse regime changes in Africa shifted the
premises of economic governance throughout much of the continent.
Political reform raised prospects for more developmentally oriented management of
African economies. Given the depth of malaise and the clear impediments to the region’s
economic performance, there were few expectations of virtuous cycles among political and
economic liberalization; yet the opening of politics in a number of countries had the po-
tential to shift elite incentives and popular coalitions in ways that might favor develop-
mental change (Przeworski 1991; Elliott Armijo, Biersteker, and Lowenthal 1994; Haggard
and Kaufman 1995; Lewis 2000; and Fosu 2012). The transition to electoral rule introduced
important institutional elements of accountability as leaders increasingly had to gain
550 Peter M. Lewis
legitimacy from voters and contend with challenges from political rivals (Bienen and Herbst
1996; Widner 1994). Broader scope for independent media and civic associations fostered
a more receptive public sphere allowing for the advancement of interests and debates over
policy. Groups and organizations, including business associations, trade unions, and sec-
tional or professional bodies, could advocate more directly and independently. The clear
links in many countries between economic grievances and the failure of the old regime also
suggested that new leaders and social forces might have stronger agendas for policy change
or institutional renovation.
Political reform gained ground in much of the region over the course of the decade,
though with diffident and inconsistent effects on economic performance. Politics in
many countries were increasingly shaped by electoral pressures, political competition,
institutional constraints on government, widening civic advocacy, and popular protest.
Notwithstanding such influences, many African economies traced familiar paths while
growth remained sluggish throughout most of the 1990s. A number of factors weighed on
economic outcomes. First, the character of the region’s emerging democracies fostered con-
tradictory influences with regard to public expectations and the economy. Though elec-
toral governments sought to deliver a semblance of economic improvement, there was
limited accountability to voters or checks on the use of government power.13 Executives
retained broad authority and considerable discretion over rules and resources, enabling
many leaders to construct new patronage structures or to reconfigure networks of clients
to support their rule. Ruling political parties also maintained dominance in most coun-
tries, even if they now participated in electoral exercises at regular cycles. With limited
prospects for turnover or viable opposition, ruling groups faced only modest pressures to
deliver better performance.
Although democratic reform often disrupted prevailing coalitions, emerging po-
litical alliances did not necessarily shift toward developmental agendas. Even as poli-
tics changed, perennial challenges of collective action hampered the formation of elite
compacts around production, as well as broader popular pressures for the provision of
public goods. The persistence of political clientelism afforded ruling groups the opportu-
nity to deliver preferential benefits and cultivate support networks. The opening of polit-
ical space for public discourse, advocacy, and protest frequently gave rise to contentious
pressures from groups with divergent interests. Business clusters often pressed for special
preferences, trade unions demanded social provisions and protected labor markets, sec-
tional associations aired grievances of marginality and claims for equity, and diverse civil
society organizations voiced wide-ranging, often disparate demands for transparency,
service provision, anticorruption efforts, and opposition to globalization or populist ec-
onomic programs.14
Neither was democratization a rapid catalyst for state revival. Indeed, political turbu-
lence often disrupted tenuous functions in countries undergoing transition (Young 1994;
Reno 1999). The period of political upheaval surrounding the shift of regimes invariably
undermined administration, security, and economic performance, even for countries
that experienced relatively smooth democratic transitions, such as Benin, Mali, Ghana,
and Zambia. In more extreme instances, such as Liberia, Sierra Leone, Somalia, Rwanda,
Burundi, and Congo, challenges to the old regime fostered political breakdown, civil vi-
olence, and protracted economic decline.15 States that effectively embarked on political
reform nonetheless grappled with inherited weaknesses in the bureaucracy, judiciary,
legislature, regulatory agencies, and police. These institutional limitations yielded meager
checks and balances among branches of government, uneven administration, pervasive
insecurity, and sparse legal provisions—all of which hampered governments seeking to
change the environment for economic activity. The erosion of public services and infra-
structure had also depleted human and physical capital, furnishing tenuous foundations for
recovery under new regimes. Leaders had greater latitude, however, in senior appointments
and political backing for peak institutions in the economic bureaucracy. Finance ministries,
central banks, and other central agencies were increasingly staffed by capable officials, and
managerial functions at the center improved in a number of countries.
External factors also framed the trajectory of African economies. Multilateral institutions
and bilateral creditors continued to dominate the policy space, allowing for minimal exper-
imentation among new leaders in the region. The reform agenda was driven by priorities of
macroeconomic stabilization and neoliberal approaches to the state Mkandawire 2006; see
also Noman, Botchwey, Stein, and Stiglitz 2012). The leverage of external agents was even
more pronounced as a growing debt overhang weighed on African economies. External
obligations continued to accumulate throughout stabilization and adjustment programs,
as fiscal pressures lingered and a sequence of rescheduling schemes failed to reduce debt
stocks. The situation was aggravated by the increasing proportion of debt owed to multilat-
eral institutions, which was not eligible for renegotiation. By the middle of the 1990s, sub-
Saharan African states carried some $235 billion in obligations, amounting to 260 percent
of exports and 76 percent of total GNI.16 For a number of low-income countries the ratios
were even more formidable. There was no plausible scenario under which African countries
could significantly reduce their foreign obligations, as debt-service liabilities represented a
serious drag on the economies of numerous countries. In 1996 the multilateral institutions
and official creditors set out the Heavily Indebted Poor Countries (HIPC) Initiative, which
outlined a program for absolute discounts in debt stock. It would be a decade, however, be-
fore the provisions of the program took effect.
Africa’s global marginality created basic constraints to economic revitalization. By the
end of the 1990s, Africa accounted for about 2 percent of global trade and merely 1 percent
of the world’s foreign direct investment (FDI). Aid flows dwarfed investment, as develop-
ment assistance to the region in the middle of the 1990s ($22 billion in 1995) was nearly
four-fold that that of foreign investment ($5.9 billion).17 Inward FDI to Africa was but a
fraction of the $47 billion directed to East Asia that year. Incipient reforms in policy and
governance were not sufficient to overcome the serious reputational liabilities of African
economies, along with persistent infrastructural problems and rising levels of conflict
during the decade. Domestic political changes, new social engagement, and shifts in in-
ternational markets soon converged to change the paths of many economies in the region.
A New Era of Growth
The new century did not dawn auspiciously for Africa. Much of the region appeared to
be entering a third decade of economic stagnation. Political turbulence continued to roil
numerous countries including regional hubs such as Nigeria and Kenya. Conflict affected
economic fortunes as continuing wars in Sudan, Congo-Kinshasa, Angola, Somalia, Sierra
552 Peter M. Lewis
Leone, and Burundi had consequences for both domestic and regional security, while
Rwanda, Liberia, and Mozambique struggled to recover from deadly strife. The advent of
conflicts with core economic agendas, fought in countries with abundant natural resources,
added new and seemingly intractable dimensions to African security problems (Collier and
Sambanis 2002).
Surprisingly, however, political and economic trends soon began to move in more fa-
vorable directions. Economic growth accelerated in many countries, gaining greater mo-
mentum after 2003 and flagging only briefly with the economic downturn of 2009 before
resuming an upward trend. As seen in Table 26.1, GDP growth in Africa averaged close
to 5 percent, whether measured from the beginning of the decade through the eve of the
global crisis, or during the ten year period beginning with accelerated growth in 2002.
This rate of growth, the fastest since the initial decade of independence, allowed for signif-
icant increases in per capita income, yielding some tentative indications of reduced pov-
erty in many countries. Not only was growth resilient in the aggregate, but closer analyses
suggested that economic performance was improving among a variety of countries, regard-
less of size, location, resource endowments, or history (IMF 2009, p. 62; Sala-i-Martin and
Pinkovskiy 2010).
These changes registered slowly with observers on the continent and beyond, whether
policy-makers coping with austerity and uncertain prospects, average citizens struggling
with tenuous livelihoods, aid constituencies seeking to maximize resources, or academic
analysts focused on structural impediments to economic change. By mid-decade, however,
a number of voices began to challenge the prevailing narrative. The Chinese-sponsored
Forum for China-Africa Cooperation (FOCAC) held its first summit in Beijing in 2006,
attended by more than forty heads of state from across the continent, providing a vivid
signal of China’s assertive economic engagement. The World Bank produced some influen-
tial assessments of the growth trend in the region, bolstered by analyses of global economic
developments that offered some insight into the drivers of growth.18 The consulting firm
McKinsey and Co. published a report, Lions on the Move (2010), emphasizing economic dy-
namism and market opportunities in Africa, followed by pieces in a similar vein from Ernst
and Young and others (Roxburgh et al. 2010; Otty and Sita 2011). Mainstream perspectives
on African economies, which focused on inertia, poverty, and the importance of external
Table 26.1 Economic Growth in
Sub-Saharan Africa, 1961–2013
Average GDP growth
Years rate (%)
1961–1970 4.92
1971–1980 3.65
1981–1990 1.50
1991–2000 2.07
2001–2010 5.25
2003–2013 5.16
Source: Calculated from the World Bank, World

Development Indicators.
assistance, were challenged by new accounts of African economies that stressed private
investment, trade, innovation, accelerated growth, and resilient performance. In one es-
pecially telling development, just a few years following the 2005 Gleaneagles summit of
the G8 countries, which had pledged unprecedented level of development assistance to the
continent, foreign direct investment rose to exceed aid as a leading source of capital flows
to the region.
These contending narratives have generated debates about the dimensions of African
economic performance as well as the sources of changing trends. Some observers have
been dismissive of the headline growth numbers, arguing that they are merely an artifact of
heightened commodity prices or other external resource flows (Economic Commission for
Africa 2013, p. 6; Stein 2008, p. 3). Even when recognizing the acceleration of many African
economies, it is clear that indicators of poverty and employment have not shifted in line
with macroeconomic improvements, indicating that benefits are not being widely shared
and the focus on broad growth obscures deeper distributive problems. Moreover, enhanced
growth has not been associated with increasing signs of productivity or structural change.
The counterpoint, however, emphasizes more varied and durable sources of growth, as well
as possible distributive gains among fast-growing economies. Recent analyses of African
economic performance indicate that only a portion of the recent expansion is linked to
commodity revenues (Roxburgh et al. 2010, p. 2; World Bank 2013, p. 8). Some of the fastest
growing economies, such as Ethiopia, Rwanda, Malawi, Lesotho, and Mozambique, are not
rich in natural resources (Economist Online 2011). Both macro-level studies and country
perspectives from economies as varied as Ethiopia, Ghana, and Uganda provide indications
of improved welfare and poverty reduction in the recent era of growth (Sala-i-Martin and
Pinkovskiy 2010; see also UNDP 2012, p. 18).
There is less controversy about the sources of accelerated growth and economic per-
formance. External factors certainly loom large in any explanation, as world economic
trends moved in directions that were largely favorable to African economies. Driven by
rising demand from Asia, prices for nearly all global commodities increased markedly in
the early years of the decade. One analysis holds that the international economy has expe-
rienced the longest and sharpest commodity boom in a century (Broadman 2007; World
Bank 2009). Substantial price increases have buoyed not only petroleum and heavy
metals, but also most agricultural commodities. After decades in which terms of trade
for African economies were stagnant or deteriorating, many countries saw the benefits
of improving conditions. In addition, both foreign investment and official development
assistance expanded substantially during the decade. Private investment is the more note-
worthy trend, providing large inflows of capital after a long period of stagnation. Flows
of foreign direct investment increased six-fold, from $9.6 billion to $58.9 billion, between
2000 and 2008.19 In the preceding ten years, FDI had little more than tripled from a low
base of $2.8 billion. Trends in official development assistance were even more dramatic,
though the magnitudes differed. In 2000, net official flows to Africa were $14 billion, a
little less than half the level of ten years earlier, reflecting the contraction of development
aid in the wake of the Cold War. Aid was elevated over the next few years, however; by
2009 net flows had increased to $51.9 billion, a large increase from the beginning of the
decade. Despite the growth of official flows, private investment significantly exceeded
aid by the late 2000s, shifting the relative values that had prevailed for decades since
independence.
554 Peter M. Lewis
Changes in trade and investment reflected the entry of new external actors in African
economies. The most prominent has been China, which expanded trade with African
countries from about $2 billion in 2000 to over $120 billion by 2011, overtaking the United
States as the leading trading partner with the region. Investment and aid flows are less well
documented, but credible estimates place direct investment at above $2.5 billion annually.20
India’s trade with Africa exceeds $63 billion, and Brazil’s $27 billion, with investment also
growing rapidly in recent years in energy, mining, telecommunications, construction, and
other areas (Stolte 2012; Sen 2013). Malaysia may currently be the largest Asian source of
FDI in the region, while other countries such as Turkey and South Korea have been increas-
ingly engaged (Star Online 2013). The focus on external involvement frequently obscures
the important role of South Africa as a dynamic player across the continent. At the end of
the apartheid era in 1994, South African firms held a scant $1 billion in investments in sub-
Saharan Africa. By 2011 FDI stock exceeded $20 billion, with investments found in a variety
of activities across the region (UNCTAD 2012, p. 7). Africa has become a rapidly growing
destination of “greenfield” investment, especially from BRICS countries, which comprise a
significant portion of new engagement.
An additional fillip for economic performance, stressed by Steven Radelet, has been the
rapid and substantial reduction of Africa’s external debt obligations in the 2000s (Radelet
2010). The HIPC Initiative, launched in 1996, was slow to take effect, but after the 1999
launch of HIPC II, a growing number of eligible countries moved through the often-
cumbersome process of policy change, poverty reduction programming, and debt cancel-
lation. In 2005 the HIPC Initiative was supplemented by the Multilateral Debt Reduction
Initiative (MDRI), which together realized more than $125 billion in debt reduction by 2012,
including thirty-four low-income African countries (IMF 2013). After the reductions, debt-
to-GDP ratios diminished by about two-thirds, and debt-to-export ratios dropped by more
than 75 percent for the countries in the program. Most of these states reached the comple-
tion point prior to the 2009 economic shocks, affording some degree of fiscal flexibility in
meeting the downturn.
Along with international conditions, changing domestic circumstances have been in-
tegral to Africa’s recent economic resurgence. Shifts in the political context and institu-
tional character of African economies have enabled better macroeconomic management,
improved conditions for investors, and the workout of external debt. Political changes from
a variety of directions have fostered the decline of predatory regimes and personalized
clientelist systems. Democratization and political opening, while tumultuous and un-
certain in the 1990s, stabilized in a number of countries. The passage of several electoral
cycles has regularized political turnover, stabilized party systems, and consolidated a range
of interactions among legislatures, the courts, and bureaucracies (Gyimah-Boadi 2004;
Posner and Young 2007). Political reforms have been partial and sporadic, with evident
problems in democratic performance. Yet electoral rule has made many governments more
accountable to a mass public for overall economic performance, while placing some institu-
tional checks on policies and public functions. From South Africa, Botswana, Namibia, and
Lesotho in Southern Africa, to Malawi, Mozambique, Zambia, Kenya, and Tanzania in the
east, across the continent in Benin, Ghana, Cape Verde, Senegal, and even to some degree
Nigeria, greater predictability and exigencies for performance have affected the landscape
for economic policy, administration, and market activity.
A class of authoritarian regimes has also moved toward institutionalization and develop-
mental goals. In Ethiopia, Rwanda, Uganda, Angola, and Burkina Faso, rulers have pursued
agendas of economic change as a strategy toward legitimation and stability. Several of these
countries have targeted strategies in such areas as agriculture, manufacturing, and infra-
structure, seeking to accelerate growth and structural change. A range of regimes have
made fiscal oversight, budgeting, the administration of trade and investment, selected
areas of regulation, and broad monetary oversight more predictable and transparent.
Technocratic oversight of peak agencies, including ministries of finance and central banks,
has become a norm, broadly improving the framing of strategy and the credibility of gov-
ernment commitments.
Peace has also contributed powerfully to economic recovery. The wars that wracked
Africa through the 1990s—in Sudan, Congo-Kinshasa, Angola, Rwanda, Burundi, Liberia,
Sierra Leone, Somalia, Ethiopia, and Eritrea—were largely resolved or dissipated by the
mid-2000s, leaving major states and subregions free of the dislocation and liabilities
of violent conflict. Residual conflicts flared in Sudan, South Sudan, eastern areas of the
Democratic Republic of the Congo (DRC), Somalia, Central African Republic, Mali, and
Nigeria, though the toll in casualties, displacement, and economic upheaval was but an echo
of the cataclysmic events of the preceding decade. Postconflict regimes in Mozambique,
Liberia, Sierra Leone, Angola, Rwanda, Ethiopia, and Uganda have embarked on economic
reform, with varying changes in governance that are intended to consolidate security and
political stability.
The adverse shocks that swept African economies during the global economic crisis
of 2008–2009 proved an important test of the new trajectory. Within a year, interna-
tional trade contracted by 14 percent and commodity prices collapsed, including a two-
thirds drop in the price of crude oil. Apart from South Africa, economies in the region
were not well integrated in global financial markets and avoided the worst effects of
crashing real estate and securities values. However, negative effects were transmitted
through declining trade, export revenues, investment, and even in some instances de-
velopment assistance, posing major challenges to the path of growth that had taken
shape earlier in the decade (Lewis 2010). Across sub-Saharan Africa, GDP growth
declined from an average rate of 7 percent in 2007 to just 2.7 percent in 2009. In the
event, these shocks proved transitory and most economies accelerated fairly quickly,
averaging above 5 percent in 2010 and maintaining the pace in subsequent years (IMF
2009, p. 69). With diminished debt burdens, relatively sound macroeconomic balances,
and (for some resource exporters) substantial external reserves, most governments
were able to weather the fiscal stresses of the downturn. Economic managers gener-
ally pursued pragmatic policies, with little recourse to populism, protectionism, or
a new round of external borrowing. The multilateral institutions furnished modest
bridging resources with low conditionality, treating the downturn as a temporary trade
shock rather than a set of domestic policy syndromes. Prices for most commodities
rebounded by late 2009, while foreign investment, though diminished from its apex
of 2008, remained historically strong. Improving external conditions and domestic ec-
onomic governance fostered widespread recovery from the 2009 global crisis, rather
than the type of sustained decline that had been instigated decades earlier under more
brittle political conditions.
556 Peter M. Lewis
Developmental States in Africa?
With stronger growth and improved economic governance, the context of African eco-
nomic performance has changed in the past decade. New realities in the region pose a
challenge to earlier models premised on stagnation, dependence and dysfunctional
regimes. In the current setting, two challenges are salient: The first can be called growth
without transformation; the second, growth without prosperity. These speak to essential
questions of economic structure and distributive politics. Much of the expansion of the
past decade has been driven by improved fiscal circumstances and rising domestic con-
sumption, rather than by investments in fixed capital or productive diversification.21 While
some new activities have grown—notably telecommunications, information technologies,
banking, tourism, and other services—African economies have, in the main, added little
value in manufacturing and registered only modest improvements in agricultural produc-
tivity. Despite buoyant growth, countries in the region show few indications of deepening
linkages, an expansion of nontraditional exports, or more general movement up global
value chains in production and trade (Timmer et al. 2012). Strategies for economic change,
especially in critical sectors, are lacking in most economies. More consistent investments in
human and physical capital, notably education and infrastructure, will also be required in
order to realize greater dynamism.
In addition, upbeat economic estimates are not reflected in broad expansion of em-
ployment and incomes for the majority of Africans. Unemployment in Africa’s leading
economies, South Africa and Nigeria, has likely increased in recent years, while general
indicators of income and welfare across the region show only diffident gains. Indices of
human development are rising modestly, and many countries remain well short of attaining
key Millennium Development Goals by 2015. In short, growth has not been broad-based,
feeding either into urban employment in manufacturing and services or into increased
returns to agriculture for the mass of smallholder producers. Sharp inequalities are regis-
tered in most countries as gains are captured by political elites, business cronies, sectional
groups, and emerging middle strata in the principal urban areas. Distributive tensions are
a driving force in range of African economies, ranging from former settler societies in the
south, to petro-states in the west, states with sectional rivalries (such as Malawi and Mali),
or an array of postconflict regimes (such as Burundi and Liberia).
There is an instructive contrast between recent experience in sub-Saharan Africa and
earlier development experiences in Southeast Asia (Berendsen, Dietz, Nordholt, and
van der Veen 2013). Both regions have emerged from comparable colonial histories, eco-
nomic structures, and contentious social heterogeneity. In Singapore, Malaysia, Indonesia,
Thailand, and Vietnam, economic expansion was driven by investments in infrastructure
and social services, a focus on exports, the development of manufacturing, and (in the
latter four cases) sustained attention to agriculture and rural welfare. These economies
achieved rapid growth in a context of structural change, rising employment in labor-
intensive industry, and increasing incomes in the rural economy, especially as green revo-
lution technologies took hold. Economic transition was framed by developmental regimes
with consistent commitments to shared growth and production. Elite incentives, producer
coalitions, and institutional change converged around goals of development. The leading
questions for contemporary Africa are whether such developmental systems can take hold,
and what types of political change will sustain a shift of regimes.
The experiences of Southeast Asian states highlight the importance of broad political
bargains at the center of developmental systems. Dan Slater has elaborated the emergence
of “protection pacts” that emerged in Southeast Asian states in response to critical secu-
rity challenges and elite concerns about stability (Slater 2010). Faced with external security
challenges, insurgencies, or restiveness among rural populations, rulers in such countries
as Malaysia and Indonesia charted paths of domestic state-building and relatively inclusive
development. Generalized economic gains and guarantees of security were key stabilizing
factors in the articulation of authoritarian developmental regimes. In Africa, political rulers
have instead relied on “provisioning pacts” that dispense patronage and access to state re-
sources for elites and selected constituencies on a discretionary basis. From an economic
perspective, the central distinction is between regimes that foster capital formation as a
basis of rule and those that rely on ad hoc distribution and expedient consumption.
For African states, institutional change is crucial for changing economic paths. The lia-
bilities of clientelist rule, economic crisis, and neoliberal reform have been evident. The in-
stitutional threshold needed for economic transition, however, remains a central question.
Recent analyses have challenged predominant views of governance and the politics of
growth, noting first of all that uneven and incremental changes in institutions are often
sufficient to foster a shift to better economic performance. Although many observers and
practitioners have emphasized settled property rights, a rule of law, and “best practices”
in institutional reform, comparative experience suggests that countries grow rapidly and
diversify economic activities with a range of institutional development. Several analysts
have stressed the importance of “good enough” institutional performance and “second
best” reforms, pointing to a modicum of stability for property and exchange as the cru-
cial threshold (Grindle 2004; Lewis 2007; Rodrik 2008; North, Acemoglu, Fukuyama, and
Rodrik 2008; Pritchett, Woolcock, and Andrews 2010). The capability of peak agencies such
as ministries of finance and central banks is often sufficient for enhanced growth, even
if broader regulatory, administrative, and legal functions are not well institutionalized.
Modest improvements in institutional performance may yield large growth dividends, es-
pecially at lower levels of development.
Second, institutional change is essentially a domestic political process, not driven by
donor interventions. In countries that have substantially advanced administrative or legal
performance, political elites commonly invested in core institutions as an adjunct to polit-
ical control and resource extraction. External efforts at institutional reform and “capacity
building” have a poor track record, as outside actors usually lack contextual knowledge,
resources, or leverage to induce changes in norms and behavior (Andrews 2013). Moreover,
donor programs have commonly substituted outside agency for local administration,
undermining the process of practical learning that is essential to institutional change (Van
de Walle 2001; Moss, Pettersson, and van de Walle 2006). Institutional development is in-
trinsic to the state-building strategies of local ruling groups, and the incentives of elites
guide institutional paths.
Political bargaining and shifting coalitions therefore frame the context for policies and
institutions. The process is shaped by business groups, emerging middle classes, sectional
interests, political incumbents and opposition, youth, and many diaspora communities.
At a minimum, producer alliances will be crucial for economic transition in Africa. To the
558 Peter M. Lewis
degree that governments foster credible policy regimes and secure conditions for invest-
ment, this can encourage asset holders (whether large international firms or smallholder
farmers) to invest in fixed capital, forming the basis of new production and supply response
(Winters 1996; Lewis 2007). Direct consultation with sectoral groups, associations and
firms may also provide the information and confidence needed to advance linkages and
diversify economic activity. In Rwanda and Ethiopia, there is some evidence of emerging
alliances with key producers, including state-owned enterprise, private ventures, and rural
groups (Handley 2008; Booth and Golooba-Mutebi 2012; Kelsall 2013).22 In Nigeria and
Ghana, business–state interactions are moving toward more regular and possibly coop-
erative directions. It is difficult to identify a current model for collaborative (as opposed
to collusive or adversarial) relations between business interests and government, yet bar-
gaining and engagement has taken on a more public and constructive tone in a number of
countries.
Distributive bargains with key popular sectors or electoral constituencies can also be
important. South Africa, Zambia, Kenya, and Nigeria illustrate both the difficulties of
distributive settlements based on targeted sectional strategies and the turbulence that
arises from pervasive inequalities and perceived disparities. The core challenge for most
African countries is to chart a path of growth that relies on general improvements in rural
livelihoods and opportunities for gains in the large informal sector, along with employment
in manufacturing and services. In Nigeria, for instance, only 2 percent of the labor force is
employed by the formal private sector, indicating that a strategy of inclusive growth must
focus on gains in productivity and income for agriculture and self-employed urban groups.
Growth strategies are integrally linked to distributive pacts.
The modes of authoritarian development that succeeded in Asia are not likely to be
replicated in Africa. Many African countries are established on a path of electoral democ-
racy, while others face broad pressures for political opening. The authoritarian regimes in
Africa that have pursued economic reform cannot build on the types of domestic capabilities
or regional “neighborhood effects” that benefitted most of their Asian counterparts. African
regimes approach the issues of institutional change, coalition formation, and inclusive
growth in a distinctive historical context. Hybrid forms of political rule and fragmented bar-
gaining relationships are important factors that shape political responses to the economy.
The structure of rents and rent distribution is also a crucial factor. A number of countries
in Asia have pursued shared growth in economies with high levels of corruption and per-
vasive rent-seeking. These regimes, however, have been able to limit predation, regularize
channels for rent distribution, and impose expectations of performance from business
cronies and public officials (Khan and Sundaram Jomo 2000). The reconfiguration of rents
and corruption in systems where these elements predominate is a requisite for the shift
to productive accumulation. Recent evidence (from countries as diverse as Ghana, Kenya,
and Rwanda) suggests that these factors are being tentatively renegotiated in some hybrid
African regimes.
Institutional change and political bargains will ultimately rely on the tenor of leader-
ship and elite incentives across African states. Leadership is sometimes fortuitous, but
often influenced by selection processes and the broader configuration of interests across
the system. The appearance of more accountable and developmentally oriented leaders in
a number of African countries has influenced policy settings and political strategies across
the region. Greater institutional constraints and the rise of a public sphere also place checks
on rulers that did not exist a generation ago. Elites in many African countries, including
most electoral regimes, remain focused on negotiating clientelist systems and sharing rents.
Yet they are also pressured by organizational limits and popular demands that call for ac-
countability and improved government performance. Economic change is shaped by the
contentious bargaining relationships among elite segments, and the growing influence of
popular sectors, especially articulate middle-class grouping that have emerged in many
countries within the past decade.
African economies have entered a new period in which enhanced performance and a more
propitious context create opportunities for a shift in developmental trajectories. Growth
has not yet translated into structural change or broad gains among popular sectors. An
array of policy priorities, institutional changes, and reconfigured social relations influence
the possibilities for economic transition. These are essentially political problems, engaging
questions of elite incentives, public engagement, institutional checks on leaders, and coalitions
for development. The research frontier in African political economy is to identify the modes
of economic change in Africa’s hybrid regimes and the political circumstances that can chart
new directions in development. The political sources of institutional transition frame basic
questions as researchers and practitioners contemplate a different future for Africa.
Notes
1. For representative statements, see Amin (1972), Collier and Gunning (1999), Bloom and
Sachs (1998), Bates (1981), Callaghy (1988), and Van de Walle (2001).
2. Calculated from World Bank, World Development Indicators, online at http://data-
bank.worldbank.org/data/views/variableSelection/selectvariables.aspx?source=world-
development-indicators.
3. These changes are surveyed in Killick (1980) and Lewis (1996).
4. On the importance of institutions more generally, see Rodrik, Subramanian, and Trebbi
(2004).
5. See, for example, Tilly (1990); Winters (1996); Haber, Razo, and Maurer (2003); and Lewis
(2007). The concept of the “protection pact” is explicitly outlined by Slater (2010).
6. Fukuyama (2004) has noted the fallacy of “getting to Denmark” as an idealized end-state
of development.
7. Dixit (1996) has elaborated issues of agency and credibility. On uneven capabilities among
states, see Evans (1995) and Kohli (2004). Khan (2000) emphasizes the varying types of
rents and the possibilities of managing rent distribution in developmental directions.
8. From a comparative vantage, important discussions of growth coalitions are also found
in Evans (1995) and Haber, Maurer, and Razo (2003).
9. For a general perspective, see Posner and Young (2007).
10. Estimated from United Nations Conference on Trade and Development (UNCTAD) debt
statistics, online at http://data.worldbank.org/data-catalog/international-debt-statistics.
11. The contention is summarized well by Summers and Pritchett (1993). The World Bank
(1994) report on African reform argued that growth and economic performance were
closely related to the extent of policy reform.
12. Important works in the institutional lineage include North (1990); Ensminger (1996);
Stark and Bruszt (1998); Bates (2009); Haber, Maurer and Razo (2009); North, Wallis,
and Weingast (2012); and Aceoglu and Robinson (2012).
560 Peter M. Lewis
13. On party systems, see Van de Walle (2003) and Pitcher (2012).
14. Different modes of contentious group politics are discussed by Sandbrook (1993); Berman,
Eyoh, and Kymlicka (2004); Handley (2008); LeBas (2011); Herbst and Mills (2012).
15. Though none of these countries democratized in the 1990s, transitional programs were
initiated in Rwanda, Burundi, and Congo, leading ultimately to instability and violence.
16. World Bank, “World Debt Indicators,” online at http://data.worldbank.org/data-catalog/
international-debt-statistics.
17. United Nations Conference on Trade and Development (UNCTAD) data, online at
http://unctad.org/en/Pages/Statistics.aspx/.
18. See, for example, World Economic Forum, World Bank, and African Development Bank
(2007), and various issues of World Bank, Africa’s Pulse (2009–2012).
19. UNCTAD data on current prices, online at http://unctad.org/en/Pages/Statistics.aspx/.
20. The U.S. Government Accountability Office (GAO 2013, p. 35) estimates that FDI from
China to Africa totaled $12.7 billion 2007–2011.
21. Statistical methods may also play a role, as upward revisions of economic activity have
heightened growth estimates. See Jerven (2013).
22. A perspective on the political conditions underlying such strategies is provided by
Whitfield and Therkildsen (2011).
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Chapter 27
The P oliti c s of
Devel opment i n L at i n
America and E ast Asia
James W. M c Guire
From 1960 to 2010 the capitalist economies of Latin America grew more slowly, with higher
income inequality, than the capitalist economies of East Asia. This chapter explores the
reasons for this development divergence. The first section reviews levels and changes of
GDP per capita and income inequality from 1960 to 2010 in eight Latin American and
East Asian economies. The second section identifies government policies that help to ex-
plain why development in Latin America diverged from development in East Asia, focusing
on land tenure, education provision, manufactured export promotion, and macroeco-
nomic management. The third section explores historical legacies and social-structural
circumstances that help to account for these cross-regional (as well as some intra-regional)
policy differences, focusing on colonial heritage, the post–World War II geopolitical situa-
tion, natural resource endowment, and class structure. A concluding section addresses the
issue of the autonomy of policy-makers from the historical legacies and social structures
that shape and constrain their actions.
The conventional wisdom that East Asian economies have developed more success-
fully than Latin American economies tends to be based, on the East Asian side, on the
experiences of South Korea, Taiwan, Singapore, and Hong Kong (the “four tigers”) and, on
the Latin American side, on the experiences of Argentina, Brazil, and Mexico. This study
extends the universe of cases to Chile, Costa Rica, Indonesia, and Thailand, leaving Hong
Kong, Singapore, and Mexico for future study. The analysis thus focuses on eight cases: four
in Latin America (Argentina, Brazil, Chile, and Costa Rica) and four in East Asia (South
Korea, Taiwan, Indonesia, and Thailand). Each of these eight cases had a middle-income
economy for most or all of the period from 1960 to 2010, and each is covered by good data
and a large secondary literature.
Analysis of the new set of cases largely confirms the conventional wisdom, based on the
comparison between the four Asian “tigers” and Argentina, Brazil, and Mexico, that manu-
factured export promotion and cautious macroeconomic management contributed to faster
economic growth and lower income inequality in East Asia. At the same time, however,
568 James W. McGuire
incorporation of the nontraditional cases highlights the crucial role of small farms, the
public provision of basic education, and state promotion of labor-intensive production in
explaining not only the development divergence across the two regions, but also certain
important differences within each region. Small farms, basic education, and labor-intensive
production are often mentioned in studies that compare Latin American to East Asian de-
velopment, but have yet to be incorporated systematically, along with manufactured export
promotion and cautious macroeconomic management, into a comprehensive account of
the impact of alternative government policies on economic growth and income inequality.
Incorporation of the nontraditional cases also illuminates the impact of colonial legacies,
post–World War II geopolitics, natural resource endowment, and class structure on gov-
ernment policies themselves, as well as on development outcomes in ways not mediated by
policies.
An advantage of a largely qualitative, but systematic, historical comparison such as the
one reported here is that close attention can be paid to the processes that led to the policies
and outcomes. The philosopher David Hume (1978, p. 86–94) recognized that even the
contiguity, succession, and constant conjunction of a hypothesized cause and an observed
effect is insufficient to infer causality. Statistical analysis has a hard time going beyond
such inference. Large-scale statistical analyses permit a more rigorous evaluation of the
correlates of outcome variation than can be achieved using qualitative historical compar-
ison alone, but qualitative historical comparison is more versatile in identifying, through
“process-tracing,” causal mechanisms behind the empirical associations detected in large-
scale statistical analyses. An inevitable cost of the nonrandom selection of cases in small-
scale comparisons is that findings may not be generalizable to societies outside the sample.
Some of the findings should be relevant to other middle-income countries, however, and
even to some low-income and high-income countries as well.
Economic Growth and Income Inequality

in Latin America and East Asia
In 1960 Argentina was more than three times as rich as South Korea or Taiwan—each of
which was poorer than Honduras or Nicaragua, which were among the poorest countries
in Latin America in both 1960 and 2010 (Heston, Summers, and Aten 2012). In 1960 Brazil,
the poorest of the four Latin American countries, was richer than Taiwan, the wealthiest
of the four East Asian societies (Table 27.1a and b). From 1960 to 2010, however, among
110 cases with GDP per capita figures for both years, South Korea and Taiwan ranked
second and third at economic growth (calculated from Heston, Summers, and Aten 2012),
trailing only Equatorial Guinea, a tiny West African nation where oil was discovered
in 1996 and in which 60 percent of the population still lives on less than $1 per day. By
1985 South Korea and Taiwan had surpassed Argentina in GDP per capita, and by 2010
these East Asian societies were each more than twice as rich as Argentina. Not only South
Korea and Taiwan, but also Indonesia and Thailand, each registered faster GDP per capita
growth from 1960 to 2010 than any of the four Latin American countries (Table 27.1b),
or indeed than any of nineteen Latin American countries for which data are available
Table 27.1a GDP per capita Level, 1960–2010
Year Taiwan South Korea Thailand Indonesia Chile Brazil Costa Rica Argentina
1960 1,861 1,656 954 665 3,687 2,483 4,920 6,043

1965 2,508 1,912 1,166 647 3,853 3,062 5,496 6,692
1970 3,539 2,808 1,566 816 4,429 3,853 6,366 7,617
1975 4,932 3,788 1,852 1,162 3,609 5,536 7,235 8,043
1980 7,424 5,179 2,406 1,500 4,957 6,960 8,229 8,496
1985 9,263 7,191 2,974 1,733 4,244 6,143 7,008 6,997
1990 13,638 11,643 4,404 2,162 5,520 6,145 7,330 6,928
1995 18,542 15,889 6,105 2,891 7,971 6,646 8,076 8,323
2000 23,065 18,729 5,651 2,750 9,339 6,839 8,864 8,909
2005 26,693 22,577 6,966 3,224 11,068 7,234 9,939 9,671
2010 32,105 26,609 8,065 3,966 12,525 8,324 11,500 12,340
Source: Heston, Summers, and Aten 2012, variable RGDPCH (PPP converted GDP per capita, chain series, at 2005 constant prices).
Table 27.1b GDP per capita Average Annual Percent Change, 1960–2010
Period Taiwan South Korea Thailand Indonesia Chile Brazil Costa Rica Argentina
1960–1965 6.1 2.9 4.1 -0.6 0.9 4.3 2.2 2.1

1965–1970 7.1 8.0 6.1 4.8 2.8 4.7 3.0 2.6
1970–1975 6.9 6.2 3.4 7.3 -4.0 7.5 2.6 1.1
1975–1980 8.5 6.5 5.4 5.2 6.6 4.7 2.6 1.1
1980–1985 4.5 6.8 4.3 2.9 -3.1 -2.5 -3.2 -3.8
1985–1990 8.0 10.1 8.2 4.5 5.4 0.0 0.9 -0.2
1990–1995 6.3 6.4 6.7 6.0 7.6 1.6 2.0 3.7
1995–2000 4.5 3.3 -1.5 -1.0 3.2 0.6 1.9 1.4
2000–2005 3.0 3.8 4.3 3.2 3.5 1.1 2.3 1.7
2005–2010 3.8 3.3 3.0 4.2 2.5 2.8 3.0 5.0
1960–2010 5.9 5.7 4.4 3.6 2.5 2.4 1.7 1.4
Average annual growth of GDP per capita during the indicated period, calculated using the RATE compound growth function for Microsoft Excel.
Source: Heston, Summers, and Aten 2012, variable RGDPCH (PPP converted GDP per capita, chain series, at 2005 constant prices).
The Politics of Development in Latin America and East Asia 571
(Heston, Summers, and Aten 2012). The purpose of this study is to explore some reasons
for these outcomes.
Demographic factors deserve close scrutiny in explanations for economic growth. A so-
ciety receives a demographic dividend when a baby-boom generation enters the labor force
just as fertility (and thus the number of children) starts to decline, but before population
aging raises significantly the number of retirees. As the baby boomers enter the workforce,
the dependency ratio initially falls (there are fewer children, but not yet many more eld-
erly), retirement savings initially rise (more people are paying in than taking out), women
enter the labor force (thanks to falling fertility), and parents invest more in each child’s
education (because they have fewer children). Rapid fertility decline can thus contribute to
faster GDP per capita growth not only by making the number of inhabitants—the denom-
inator of the GDP per capita quotient—smaller than would otherwise be the case, but also
by temporarily reducing the dependency ratio. Demographic factors fall short, however,
in explaining why GDP per capita grew more slowly in Latin America than in East Asia.
Fertility not only fell rapidly in South Korea, Taiwan, and Thailand from 1960 to 2010; it also
dropped notably in Chile, Costa Rica, and Brazil, and was low at the outset in Argentina
(McGuire 2010, p. 321). A demographic dividend probably accelerated economic growth in
both East Asia and Latin America, but not appreciably more in the former region than in
the latter. Different age structures are estimated to have accounted for less than 10 percent of
the growth gap between the regions from 1965 to 1990 (Bloom, Canning, and Sevilla 2003,
pp. 57–59).
Income distribution is another important aspect of the development divergence between
East Asia and Latin America. Higher income inequality has been linked to poorer popula-
tion health status, even taking poverty into account (Wilkinson and Pickett 2010). Higher
income inequality has also been found to slow economic growth by limiting the size of
the domestic market (Murphy, Schleifer, and Vishny 1989), by raising social and political
instability (Alesina and Perotti 1996), and by pressuring policy-makers to enact market-
distorting income-redistributive policies (Alesina and Rodrik 1994; Persson and Tabellini
1994; Sachs 1989). Accordingly, it is well worth exploring why, for most of the period from
1960 to 2010, income inequality was higher in each of the four Latin American cases than
in any of the four East Asian cases (Table 27.2).
From 1970 to 2000 income inequality rose in Chile, Costa Rica, and Argentina and stayed
very high in Brazil, but remained fairly constant in the East Asian cases (in Indonesia,
however, surveys indicate a sharp rise between 1999 and 2005). Around 2002, however, in-
come inequality began to fall in all four Latin American countries. Reasons for the decline
included economic resurgence (which reduced unemployment), higher commodity prices
(which raised incomes in rural areas), a fall in the wage premium paid to skilled labor
(partly because of expanded secondary education in previous years), and the proliferation
of noncontributory pension schemes and conditional cash transfer programs targeted to
the poor (Barrientos 2011; Gasparini, Cruces, and Tornarolli 2011; Gasparini and Lustig
2011; López-Calva and Lustig 2010). Even in 2010, however, all four East Asian cases still
had lower income inequality than any of the four Latin American countries (Table 27.2).
This lower income inequality resulted from policies in the same areas that led to East Asia’s
faster economic growth: land tenure, basic schooling, manufactured export promotion, and
cautious macroeconomic management.
Table 27.2 Gini Index of Income Inequality, 1960–2010
Year Brazil Chile Costa Rica Thailand Argentina Indonesia Indonesia South Korea Taiwan
Unit income income income income income income consumption income income
1960 53.0 — 50.0 43.7 — — — 32.0 —

1965 — — — — 36.0 — 33.3 35.2 32.8
1970 59.0 46.0 43.0 43.8 36.4 — 30.7 33.3 29.9
1975 63.5 — 46.4 42.8 36.8 43.3 34.0 39.1 28.1
1980 56.0 53.2 47.6 45.1 42.5 — 34.2 38.6 27.7
1985 58.9 54.9 43.2 — — 40.4 35.7 34.5 29.0
1990 60.5 55.1 47.9 43.6 44.4 38.7 31.9 33.6 30.9
1995 59.1 54.8 47.5 43.7 48.1 39.6 36.5 33.5 31.5
2000 58.9 55.2 45.8 42.9 50.4 — 30.8 37.2 31.9
2005 56.4 51.8 47.2 42.4 48.8 — 39.4 33.0 34.0
2010 53.7 51.9 48.0 40.0 44.2 — 37.6 34.1 34.2
Mean 57.9 52.9 46.7 43.2 43.1 40.5 34.4 34.9 31.0
Change −5.3 5.9 6.7 −3.8 7.8 — 6.9 0.8 4.3
1970–2010
Source: For 1960–2000: WIDER 2008. Selection criteria: McGuire (2010), web appendices B1 and B2. For 2005 and 2010: Argentina, Brazil, Chile, and Costa Rica
from SEDLAC (2012). Indonesia: 2005 from WIDER (2008); 2010 from Hayashi, Kataoka, and Akita (2012, p. 32). Thailand: 2005 [2006] and 2010 [2009] from
Vora-Sittha (2012, p. 490). South Korea: Statistics Korea (2012). Taiwan: Taiwan CEPD (2012, p. 23). The quantity surveyed is income, except in Indonesia, where
income and consumption expenditure Ginis are given separately. “Argentina” is Greater Buenos Aires (1965–1990); fifteen metropolitan areas (1995); twenty-eight
metropolitan areas (2000, 2005); or thirty-one metropolitan areas (2010). In 2003, the three sets of metropolitan areas surveyed up to that time had similar income
distributions (Gasparini 2004, p. 33). Surveys are from the indicated year, except in the following cases when the survey is from a nearby year: Brazil 1976, 1999,
2009; Chile: 1971, 1996, 2006, 2009; Costa Rica 1961, 1971, 1974, 1981, 1986; Thailand: 1962, 1969, 1981, 1996, 2006, 2009; Argentina: all surveys from indicated
year; Indonesia (income): 1976, 1984, 1996; Indonesia (consumption): 1964, 1976, 1984, 1996, 1999; South Korea: 1961, 1976, 1988, 1998, 2006; Taiwan: 1964,
1976, 1999.
Economic Policies
and Development Outcomes
Policy explanations for the contrasting development achievements of Latin America and
East Asia fall broadly into market-friendly and industrial policy approaches. The market-
friendly approach holds that the smaller the state’s role in the economy and the more open
the economy to international trade and capital flows, the faster the rate of economic growth
(Balassa 1988; Hughes 1988). The industrial policy approach holds that East Asia achieved
faster economic growth than Latin America mainly because of industrial policies that
overrode market forces, and that these policies were facilitated by state autonomy from class
pressure (Evans 1995; Gereffi and Wyman 1990; Haggard 1990). Even if the central claim
of the market-friendly approach were true—an issue that will not be adjudicated here—it
wouldn’t help to explain why economies grew faster in East Asia than in Latin America. In
South Korea and Taiwan the state was intimately involved in economic development, not
only by redistributing land, skills, and jobs, but also by restricting international flows of
goods, capital, and labor.
The industrial policy approach accords better than the market-friendly approach with
the historical experiences of economies in the two regions, but remains itself incomplete.
Scholars writing from the industrial policy perspective often recognize that the redistribu-
tion of land, skills, and jobs accelerated economic growth in South Korea and Taiwan, but
tend to downplay the significance of these factors relative to the promotion of manufac-
tured exports. This chapter will pay more systematic attention to land tenure, education, and
the promotion of labor-intensive industry, as well as to the historical and social-structural
factors that shaped and constrained policies in these areas. By showing how policies in each
of these areas contributed to faster economic growth and lower income inequality in East
Asia, and by noting the ways in which the absence or more tepid implementation of such
policies limited the development achievements of countries in Latin America, this study
will provide a comprehensive explanation for the development divergence between East
Asia and Latin America from 1960 to 2010.
Land Tenure and Agrarian Reform

In 1960 agrarian reform was urgent but neglected in Brazil (Pereira 2003); needed but
avoided in Costa Rica (Edelman 1999); begun in the 1960s but reversed in the 1970s in
Chile (Jarvis 1985); and largely off the political agenda in Argentina, which lacked a large
sedentary peasantry (O’Donnell 1978). Land was much more evenly distributed in East
Asia. Smallholding had prevailed for centuries in most parts of Indonesia and Thailand,
and governments in South Korea and Taiwan enacted land reforms in the 1950s that created
smallholder majorities. Hence, from 1960 to 2010, large estates and an uneven distribution
of land persisted in the Latin American countries, whereas smallholding and a more even
distribution of land prevailed in the Asian cases.
Agrarian reform—or widespread smallholding—reduces income inequality by giving
rural people higher incomes and steadier employment (Campos and Root 1996, p. 50;
Thiesenhusen 1995, pp. 159, 172). Smallholding also promotes economic growth. Small
farms usually yield more per acre than big farms (Cornia 1985; Dorner 1992, pp. 23–29)—
even though big farms are often more profitable owing to privileged access to credit, inputs,
and markets (Johnson and Ruttan 1994). Smallholding discourages property speculation,
reducing the amount of capital tied up in unproductive activity (Wade 1990, p. 301). Land
reform disperses the political clout of agricultural elites, increasing the state’s economic
steering capacity; boosts rural incomes, raising the demand for consumer goods; helps
to pacify the peasantry, reducing pressure for growth-inhibiting, income-redistributive
policies; and promotes land titling, making land available as collateral for loans (Campos
and Root 1996, p. 51). Even the possibility of land reform creates an incentive for more ef-
ficient management, as when legislation subjects underutilized land to expropriation (De
Janvry and Sadoulet 1989; Thiesenhusen 1995, p. 165). Governments in South Korea and
Taiwan used agrarian reform to facilitate the transfer of resources from agriculture to in-
dustry, but helped beneficiaries through agricultural extension, rural infrastructure, and
credit and marketing assistance (Kay 2002; World Bank 1993, pp. 32–37).
Agrarian reform is not a panacea. By 2010 the share of the population living in cities was
higher in Argentina, Brazil, and Chile than in United States, so there was a limit to what
land reform could do in these Latin American countries to reduce income poverty and in-
come inequality. Moreover, land reform disrupts production and can have other negative
consequences as well. If the male head of household receives title, the bargaining position
of the woman in the household may deteriorate (Kay 1998, p. 20). Land reform can also
disadvantage migrant laborers if they lose the opportunity to work on farms that have been
divided among former tenants or resident laborers (Thiesenhusen 1995, p. 175). In the 1950s,
however, smallholding in Indonesia and Thailand as well as land reform in South Korea and
Taiwan contributed to rapid economic growth and an even distribution of income. Land
reform might well have proved beneficial in the 1950s and 1960s in Latin America, and the
failure to sustain or undertake it, for reasons to be discussed subsequently, must be counted
among the policy failures that help to explain why the four Latin American cases on which
this chapter focuses exhibited from 1960 to 2010 slower economic growth and higher in-
come inequality than the four East Asian cases.
Primary and Secondary Education

Beginning in the 1950s, governments in South Korea and Taiwan took steps to give all cit-
izens a decent primary and secondary education (Liu 1992, pp. 368–374; Macdonald 1988,
pp. 85–88). None of the other six cases matched these achievements. Indonesia and Thailand
raised literacy and improved access to primary schooling, but their progress at expanding
secondary education was slow until the 1980s and 1990s, respectively. Each of the four Latin
American countries from 1960 to 2010 achieved gains in literacy (from already high levels,
except in Brazil), secondary enrollment, and mean years of schooling, but these gains too
fell short of those of South Korea or Taiwan (McGuire 2010, pp. 318–319). The expansion
of primary and secondary schooling in South Korea and Taiwan provided a human capital
base that enabled their governments during the 1960s and 1970s to steer their economies
upward through the product cycle into higher value-added manufactured exports. Along
with land reform, the public provision of reasonably high-quality basic education was also
among the principal factors that kept income inequality low in South Korea and Taiwan.
Cross-nationally, higher educational attainment has been associated with a more even dis-
tribution of income (De Gregorio and Lee 2002).
Despite gains in some educational indicators in Latin America, progress remained
sluggish. Among the major problems in many Latin American educational systems, in-
cluding in the four countries on which this chapter focuses, were heavy spending on school
administration and excessive allocation of resources to university education, which served
mainly wealthier segments of the population (McGuire 2010, p. 70, 100–101, 126, 154).
Few Latin American countries followed the Pinochet government’s example of creating a
voucher system for private schools, but several took steps around 1990 to decentralize au-
thority over educational institutions, to develop or expand preschool programs, to shift
resources to schools in poor areas, to introduce achievement tests, and to stimulate the
“demand side” by making cash transfers depend on school attendance. Still, few countries
made much progress on dropout rates or teacher education; in everywhere except Cuba,
which benefited from better teacher training and more orderly classroom environments,
test scores remained low by international standards (McGuire 2012). In the end, increasing
access to education in Latin America proved easier than improving its quality (Grindle
2004). These and other problems in Latin American educational systems slowed economic
growth and raised income inequality.
Industrial Policy: Import Substitution

and Export Promotion
The eight cases differed not only in land tenure policies and in the provision of basic
schooling, but also in the sequence and emphasis of industrial policy. Before 1960, each
of the eight societies except Costa Rica (where the domestic market was too small to
support much inward-looking industrialization) had moved from exporting commodities,
to manufacturing previously imported inexpensive consumer goods, to producing limited
quantities of intermediate goods like chemicals, refined oil, and steel. As industrialization
progressed, more and more foreign exchange, which came mainly from agricultural and
mineral exports, was needed to pay for imports of machines and raw materials. By the
late 1950s, however, foreign exchange was growing scarcer in both regions because of cur-
rency overvaluation, higher European tariffs on Latin American agricultural exports, and
the reluctance of the U.S. government to keep giving South Korea and Taiwan massive for-
eign aid. At this point, around 1960, industrialization strategies diverged. Governments in
Argentina, Brazil, Chile, and Thailand tried to reduce the long-term demand for foreign
exchange, whereas governments in South Korea and Taiwan tried to increase its short-term
supply (Costa Rica is excluded from the comparison because of its small domestic market;
Indonesia is excluded because it spent 1960–1966 in economic chaos, capped by mass po-
litical violence). To achieve these goals, governments in Latin America and in Thailand
encouraged heavy import-substitution industrialization (the production, for domestic
use, of previously imported consumer durables, intermediate goods like steel and refined
oil, and capital goods), whereas those in South Korea and Taiwan promoted light export-
oriented industrialization (the production, for export, of inexpensive consumer goods).
In the late 1980s governments in Indonesia and Thailand began to move closer to the
industrialization strategies pioneered by South Korea and Taiwan by devaluing their
currencies and encouraging manufactured exports. In the late 1990s a surge of foreign in-
vestment shifted Costa Rica’s major exports from coffee, bananas, beef, cotton, and sugar
to textiles and semiconductors. By 2010 the share of manufactures in merchandise exports
was higher in Costa Rica (61 percent) than in Brazil (37 percent), Indonesia (37 percent),
Argentina (33 percent), or Chile (13 percent), although still lower than in Thailand (75 per-
cent), South Korea (89 percent), or Taiwan (99 percent) (World Bank 2011; Taiwan CEPD
2012, p. 222). South Korea and Taiwan thus began as early as 1960 to benefit from the strategy
of promoting the export of manufactured goods. They were followed in the late 1980s by
Indonesia and Thailand, and in the late 1990s by Costa Rica. Argentina, Brazil, and Chile as
of 2010 remained primarily commodity exporters, although manufactures had represented
58 percent of Brazil’s exports as recently as 2000 (a commodity price boom contributed to
the subsequent plunge to 37 percent in 2010).
The contrast between the development models of Latin America and East Asia should not
be exaggerated. In the late 1960s governments in Argentina, Brazil, and Costa Rica began
to use subsidies, tax rebates, and free-trade zones to promote the export of manufactures
(Kaufman 1979, pp. 221, 236; Ocampo and Ros 2011, p. 7; Wilson 1998, pp. 97, 104). At
the same time, governments in South Korea and Taiwan encouraged the production of
steel and vehicles for the domestic market (Amsden 1989, pp. 155, 268; Wade 1990, pp. 87,
90). Import substitution and export promotion can be complementary. Import substitu-
tion creates factories and technical skills for export promotion, while export promotion
produces foreign exchange for import substitution (Gereffi 1990, p. 18; Wade 1990, p. 363).
The main differences in industrial strategy between Latin America and East Asia involved
sequence and emphasis. The shift around 1960 in Latin America from light to heavy import
substitution, without an intervening stage of light manufactured export promotion, wound
up contributing to slow economic growth and high income inequality. The initial adoption
of a mainly light export-oriented strategy by South Korea and Taiwan proved to be condu-
cive to rapid economic growth and low income inequality.
One beneficial feature of the East Asian strategy was that it maintained an inflow of
foreign exchange that contributed to macroeconomic stability and allowed for a more
sustainable build-up of heavy industry—which after gaining a foothold in the domestic
market was encouraged to export. In Argentina, Brazil, Chile, and Thailand, by contrast,
governments during the 1960s depended on agricultural or mining exports to meet the even
greater foreign exchange requirements of their more immediate and single-minded pursuit
of heavy import-substitution. Such exports were subject to climatic and price fluctuations,
and the foreign exchange they earned was less and less able to cover the costs of importing
the machines and equipment needed to deepen the industrial structure. Moreover, com-
modity (and manufactured) exports were discouraged by currency overvaluation, which
was permitted in part to allow the heavy import-substitution industries to buy foreign
inputs at low prices. Overvaluation was a key defect of the heavy import-substitution
strategy. Exporters hesitated to expand output, finding that foreign receipts were buying
less in overvalued domestic currency (which they needed to buy domestic inputs). Foreign
customers sometimes switched to alternative suppliers, finding that they had to pay more
for goods whose prices had risen in their own currencies. Overvaluation thus aggravated
the shortage of foreign exchange.
A second advantage of the labor- intensive manufactured export orientation was

that it encouraged efficiency and adaptability. In the 1960s and 1970s each of the eight
societies was labor-abundant and capital-scarce. Those societies whose governments
promoted labor-intensive industrialization thus had an efficiency advantage over those
whose governments did not. The export dimension was also important. Competing in
international markets, South Korean and Taiwanese export firms had to keep costs low,
and quality consistent, in order to survive. They also had to learn to anticipate and re-
spond to changes in technology and international markets. In the Latin American cases,
as well as in Indonesia and Thailand from the late 1960s to the mid-1980s, governments
used high tariffs, multiple exchange rates, and subsidized credit and inputs to maintain
an industrial strategy focused on the domestic market rather than on exports, creating
what Carlos Waisman (1987, p. 264) has called a “hothouse capitalism.” Industries that
matured under these fertile but fragile conditions failed to become internationally com-
petitive, and thereby to generate foreign exchange that might have been used to sustain
the import-substitution drive.
South Korea and Taiwan began to export labor-intensive manufactures in the early
1960s, and Indonesia and Thailand followed in the late 1980s. Growth rates surged in
each of the four economies after the strategy was adopted. Exports were more labor-
intensive in South Korea and Taiwan in the early 1960s than in Indonesia or Thailand in
the late 1980s, so the strategy did more to reduce income inequality in the former cases.
Each of the Latin American countries did well at expanding nontraditional agricultural
exports from the late 1960s onward, but only Brazil in the 1970s and Costa Rica in the
1990s pushed aggressively into manufactured exports. Even in these cases the export
of manufactures dominated economic development less than in the East Asian cases;
in both countries, manufactured exports tended to be more capital-intensive than the
1960s’ exports of South Korea or Taiwan. On the whole, South Korea and Taiwan reaped
enormous economic gains from the strategy of exporting labor-intensive manufactures.
Indonesia and Thailand, which came twenty-five years later to manufactured export-
oriented industrialization, reaped significant gains. Brazil and Costa Rica reaped modest
gains, while Argentina and Chile reaped few gains, although Chile did well after 1985
at raising exports of wine, juice, fruit, timber, paper pulp, and other agricultural and
seafood products, some of which require fairly labor-intensive production and packing
processes.
Macroeconomic Management
From 1960 to the 1990s Latin American countries suffered from what the South Korean
and Taiwanese governments managed to avoid: persistent budget deficits, negative real in-
terest rates, and overvalued currencies (Wade 1990, pp. 52–61). Thailand likewise pursued
cautious macroeconomic policies during this period (Bowie and Unger 1997, pp. 187–188).
After Sukarno’s fall in 1966, the Indonesian government implemented a stabilization plan
featuring sharp budget cuts, unification of the exchange rate regime, higher interest rates,
and a tighter money supply (Bresnan 1993, pp. 65–67; Prawiro 1998, pp. 21–57). On the
whole, “Indonesia displayed generally sound macroeconomic policies during the 1970s as
well as the 1980s” (MacIntyre 1994a, p. 17). Whereas the four East Asian states kept public
employment low and spent little on pensions, the four Latin American states spent mas-
sively in these areas, weakening their long-term fiscal stability.
State firms in 1980 actually contributed more to GDP and to fixed investment in Taiwan
than in either Argentina or Brazil (Jenkins 1991, p. 50), but those in Taiwan usually set their
prices sufficiently high, and performed efficiently enough, to make money rather than lose
it (Amsden 1989, p. 296; Wade 1990, pp. 52–61, 180). Argentine state firms, in particular,
did not (Lewis 1990, p. 490). The Park government in South Korea kept lending rates below
inflation in most years from 1974 to 1981, but deposit rates fell below inflation in only four
years from 1970 to 1984, compared to fourteen in Argentina (Woo 1991, p. 160; World Bank
1993, p. 112). The Park government, like those of the Latin American countries, subsidized
private corporations with cheap credit and other policies, but did so using performance
rather than patronage criteria (World Bank 1993, pp. 93–102).
Each of the four East Asian cases thus practiced cautious macroeconomic management
until the mid-1990s, when Indonesia, South Korea, and Thailand reduced restrictions on the
inflow of short-term foreign capital but kept their currencies linked to the U.S. dollar. These
policies led to overborrowing, overinvestment, and currency overvaluation, which triggered
the 1997 financial crisis (Nixson and Walters 1999). Governments in Chile and Costa Rica
maintained cautious macroeconomic policies after the mid-1980s, but their predecessors
in the 1960s and 1970s had run large budget and trade deficits, overvalued their currencies,
kept interest rates low, and borrowed heavily abroad. Brazil and Argentina through the 1990s
alternated wrenching stabilization plans with looser macroeconomic policies that resulted
in big budget deficits, overvalued currencies, and negative real interest rates. Consequently,
the East Asian economies experienced much faster GDP growth than the Latin American
economies, and also reaped some gains on the income distribution front, insofar as the in-
flationary episodes that result from loose macroeconomic policies devastate the poor, who
carry money around, more than the rich, who often have foreign bank accounts, or unionized
workers, whose wages are often indexed to inflation (Armijo 2005; Morley 1995, pp. 157–160).
Cautious macroeconomic policies are not the same thing as a free-market approach
to economic development. The South Korean and Taiwanese governments were more
successful, not less involved, than Latin American governments in promoting economic
growth. They consumed as much, spent almost as much, and relied on state corporations
about as heavily as Latin American governments (Jenkins 1991, pp. 48–50). They opened
their borders slightly more to goods, but less to labor and capital, than governments in
Latin America. Rather than “getting prices right,” as free-market partisans recommend,
policy-makers in South Korea and Taiwan often intervened to “get prices wrong” (Amsden
1989, p. 139), especially by targeting for export development industries and sectors that
needed raw materials that neither society produced. South Korea lacked iron and coal, but
became a big producer of ships and automobiles. Taiwan lacked petroleum, but became
a top petrochemical and plastics manufacturer. Moreover, as has already been noted, the
state in both South Korea and Taiwan played a crucial role during the 1950s and 1960s
in redistributing land (by land reform), skills and knowledge (by investing in basic edu-
cation), and jobs (by promoting labor-intensive export industries) (Drèze and Sen 1989,
p. 195). South Korea and Taiwan outpaced the Latin American countries at GDP per capita
growth, and achieved lower levels of income inequality, not because their governments
guided their economies less, but because their governments guided their economies better,
in more congenial circumstances.
With few exceptions, then, Latin American governments did less than East Asian
governments to create or preserve smallholder agriculture, to provide basic education,
to promote labor-intensive manufactured exports, or to maintain cautious macroeco-
nomic policies. These policy differences help explain why, in general, the Latin American
economies grew more slowly, with higher income inequality, than the East Asian ones.
Historical Legacies, Social Structure,

and Economic Policies
Bureaucratic initiative (political will) is responsible for a social or economic policy to the
extent that officials in an executive-branch agency, acting with a degree of autonomy from
pressures outside the executive, propose, design, approve, implement, or sustain such a
policy. Bureaucratic initiative so defined does indeed help to explain why Latin American
governments did less than their East Asian counterparts to redistribute land, skills, and
jobs, as well as to maintain cautious economic policies and to promote manufactured
exports. As a hypothesized causal factor, however, bureaucratic initiative resists generali-
zation. Moreover, political will is shaped and constrained by the environment in which it
is exercised. This section will focus on four contextual factors that shaped and constrained
social and economic policies: colonial rule, the post–World War II geopolitical situation,
natural resource endowment, and class structure. These historical legacies and social-
structural factors, it is argued, were less conducive to development-promoting social and
economic policies in Latin America than in East Asia.
Colonial Heritage
Argentina, Chile, and Costa Rica became colonies of Spain, and Brazil became a colony of
Portugal, in the early 1500s. Each remained under colonial rule until 1816–1822, when the
Spanish-American colonies fought wars of independence and Brazil negotiated independence
from Portugal. Japan colonized Taiwan from 1895 to 1945 and Korea from 1910 to 1945. The
Dutch occupied Indonesia from 1600 onward and colonized most of the archipelago during
the nineteenth century, ruling most of what is now Indonesia through 1949. Thailand was
never colonized, although it was occupied by Japan from 1941 to 1945. Until 1932 it had an
absolute monarchy and a traditional village society, after which the military dominated
until the early 1990s.
The impact of colonial rule on subsequent institutions, policies, and development
outcomes in Latin America and East Asia is a venerable topic of scholarly research
(Acemoglu, Johnson, and Robinson 2005; Booth 1999; Cumings 1987; Engerman and
Sokoloff 1997; Kohli 2004; Mahoney 2010). Here it is suggested that colonial rule exerted a
particularly important impact on land tenure, state bureaucracy, education, and industry
and infrastructure. In each of these areas, Japanese colonialism in Korea and Taiwan left
a more development-friendly legacy than Iberian colonialism in Latin America or than
Dutch colonialism in Indonesia (or, for that matter, than absolute monarchy in independent
Thailand). Colonial rule was harsh under the Japanese, especially in Korea; but it was also
harsh under the Iberians and Dutch. The Japanese colonial legacy proved more conducive
to subsequent economic development.
A first important difference between the colonial experiences involved their effects on the
subsequent strength of landed classes and on land tenure. Land grants by Iberian monarchs
created powerful landowning families in Brazil and Chile (Mahoney 2010, pp. 175, 245–246)
and to a lesser extent in Argentina and Costa Rica (Rock 1987, pp. 45–49; Meléndez Chaverri
1989). Many such families kept their lands after independence. The Dutch created planta-
tions in Indonesia, but smallholding continued to predominate (Geertz 1963, p. 86). Thailand
was also characterized by a traditional village society, without much tenancy through the
end of World War II. In Taiwan the Japanese actually carried out land reform, weakening
the previous landlord class. In Korea the Japanese conducted a land-use survey that led
to tax hikes and formalized property rights, pushing some marginal farmers off the land.
Ultimately, however, Japanese colonialism weakened landlords in Korea. Japanese landlords
were expropriated after World War II, and many Korean landlords who had managed to
hold on to their properties under Japanese rule were disparaged as collaborators. This
public disdain weakened them after colonial rule ended in 1945, facilitating land reform in
the late 1940s and early 1950s and increasing the state’s autonomy from the dominant social
classes (Cumings 1981, pp. 41–48).
A second difference between colonial experiences in Latin America and East Asia in-
volved the degree to which the colonizer created an effective state bureaucracy that
penetrated throughout the colonial territory. The Iberian powers were disadvantaged in
this respect because they colonized at a time (about 1500 to 1820) when transport was slow
and communication was poor. Moreover, long distances separated the Iberians from their
overseas possessions, and the territory they colonized in Central and South America was
vast. The Dutch in Indonesia shared these handicaps; they arrived in the 1660s but did not
fully control the far-flung archipelago until 1910 (Anderson 1990, p. 97). In both Korea and
Taiwan, by contrast, the Japanese implanted strong, centralized bureaucracies (Kohli 2004,
pp. 32–61; Peattie 1984, pp. 31–37), helped along by the historical time in which colonization
occurred (1895 or 1910 to 1945), by their geographical proximity to Korea and Taiwan, and
by the compactness of the colonized territories. The strong, centralized bureaucracies that
are sometimes credited with a central role in the economic “miracles” of South Korea and
Taiwan are in part legacies of the Japanese colonial state.
A third difference among the colonized societies involved investment by the colonizing
power in education. At a time when education was scarce on the Iberian Peninsula itself,
there was bound to be little in the Latin American colonies. No more than 10 percent of the
colonial population was literate in 1800. Schooling was sometimes provided to the sons of
Amerindian leaders, but blacks and females were denied formal education (Burkholder and
Johnson 1990, pp. 225–226; Gibson 1987, pp. 391–392). In Indonesia, the Dutch committed
themselves to improving education in the context of the “ethical policy” implemented after
1901, but the scale of such efforts was small (Booth 1999, p. 311; Ricklefs 1993, pp. 159–162).
Japanese colonialism in South Korea and Taiwan had a more salutary impact on schooling.
In an effort to train an educated labor force and to create loyal subjects by exposing the
locals to their language and culture, the Japanese greatly expanded schooling for children
up to age fourteen (Eckert et al. 1990, p. 263; Gold 1986, pp. 38–39; Ho 1984, p. 353; Tsurumi
1984). Japanese initiatives in education improved welfare and productivity in Korea and
Taiwan, facilitating postcolonial economic development.
A fourth important difference among the colonial powers involved infrastructure

and industry in the colonized territories. The Spanish and Portuguese in Latin America
established plantations, dug mines, improved transport, and built cities, but discour-
aged manufacturing. Indeed, Queen Maria of Portugal issued a decree in 1786 banning
manufacturing throughout Brazil (Frank 1967, pp. 189–190). In Indonesia the Dutch planted
new crops, cultivated new regions, built railroads and irrigation systems, drilled for oil,
and introduced light industry in the 1930s (Geertz 1963, pp. 63, 86), but relative to popula-
tion the scale of these initiatives was small. In Taiwan and Korea the Japanese did more to
create infrastructure and industry. They modernized agriculture; improved ports, roads,
and railways; constructed facilities to generate hydroelectric power; and built steel, alu-
minum, and chemical factories (Cumings 1987, pp. 55–56). Taiwan’s factories were bombed
heavily during World War II, and because Japan located most Korean heavy industry in
the north, it did not become part of the South Korean industrial base. Some industrial
expertise survived, however. On the whole, the Japanese did more than either the Iberian
powers or the Dutch to create industry and infrastructure in their colonies. These activities
encouraged subsequent development.
Japanese colonialism was thus more conducive than Iberian colonialism to
postindependence economic development. The Japanese weakened powerful landlord
classes; the Iberians created them. The Japanese founded strong, centralized bureaucracies;
the Iberians developed weak, decentralized administrations. The Japanese established in-
dustry in their colonies; the Iberians forbade it in theirs. The Japanese built schools and
controlled diseases; the Iberians neglected education and spread epidemics. As with
Japanese colonialism in East Asia, the impact of Dutch colonialism in Indonesia was not in-
imical to postcolonial smallholding; however, as with Iberian colonialism in Latin America,
the Dutch left a legacy of low education, a weak bureaucracy, and limited industry.
The Post–World War II Geopolitical Situation

The growth of communism and anticommunism in East Asia after 1945 led to titanic mil-
itary conflict and gave political elites in each of the four Asian cases an excuse to maintain
authoritarian rule. Paradoxically, however, the growth of communism and anticommunism
also contributed to economic growth. Elites fleeing the communist regimes brought cap-
ital and entrepreneurship. Communist triumphs in neighboring countries produced a
countersurge of nationalism that mobilized citizens for development. The perceived threat
of communism encouraged the U.S. government in the 1950s to provide massive foreign
aid to South Korea and Taiwan. In South Korea, the U.S. occupation in 1947, pressure from
the Truman administration on the South Korean legislature in 1949, and the North Korean
invasion in 1950 combined to encourage and facilitate land redistribution (Cumings 1990,
pp. 472, 677–680). In Taiwan, the Kuomintang implemented the 1949–1953 land reform
because, as outsiders, they needed domestic allies; and because they wanted to avoid re-
peating their experience in mainland China, where land reform in communist-occupied
areas had won peasant support for the Red Army. The war in Vietnam provided lucrative
opportunities for contractors and suppliers in South Korea and Taiwan (Eckert et al. 1990,
pp. 398–399; Gold 1986, pp. 86–87). Also, the rise of East Asian communism gave the au-
thoritarian governments in South Korea and Taiwan an excuse to repress unions, keeping
wages low. The low wages facilitated the shift around 1960 from light import substitution to
labor-intensive manufactured exports.
In 1965–1966 hundreds of thousands of Indonesians died in violence involving com-
munism and anticommunism (Friend 2003, pp. 113–115). This violence weakened the
Indonesian Communist Party; by the end of 1968, its remnants could not threaten the
Suharto government (Ricklefs 1993, p. 298). The establishment of revolutionary regimes
in Vietnam, Cambodia, and Laos presented ongoing security challenges, however, so
even though Indonesia after 1966 faced no powerful domestic insurgency, the perception
of threat to the existing order, augmented by secessionist movements, was not negligible.
Consequences of this perceived threat included generous U.S. foreign aid in the late 1960s
and the repression of the labor movement (Hadiz 1997, p. 61). In these respects Indonesia
in the late 1960s resembled South Korea and Taiwan in the 1950s. Foreign aid from the
United States facilitated cautious macroeconomic policies, and labor repression kept
wages low, which helped in the late 1980s when Indonesia began to export manufactures.
The perceived threat of communism was lower in Thailand than in Indonesia during the
1960s and 1970s, but communist forces took over neighboring Cambodia and Laos in
1975, and leftist insurgencies were active in northeast Thailand from the late 1960s to the
early 1980s.
The struggle between communism and anticommunism also shaped development in
Latin America, but not as much as in the Asian cases. As Ché Guevara’s failure in Bolivia
showed, Castro’s capacity to export the Cuban Revolution was not as great as Kim Il Sung’s
potential to threaten South Korea or Mao Tse-tung’s ability to threaten Taiwan—or even as
great as the capacity of revolutionary forces to threaten regimes in Indonesia or Thailand.
Outside of the White House basement, few were persuaded that (barely) socialist Nicaragua
posed a threat to capitalism in Costa Rica in the 1980s. Guerrilla groups were active in the
late 1960s in Argentina and Brazil, but neither country faced a credible revolutionary threat.
A Marxist candidate, Salvador Allende, became president of Chile in 1970, but did so with
a scant 36 percent of the vote—a handicap that, combined with his ambitious program to
build socialism, set the stage for serious social conflict and made him vulnerable to over-
throw by the military in 1973 (Valenzuela 1978, pp. 41–44). Among the four Latin American
cases, only Chile in the late 1960s and early 1970s carried out a large-scale land reform,
and it was mostly reversed under General Augusto Pinochet (1973–1990) a few years later.
Because communist forces were weaker in Latin America than in East Asia, landed elites
tolerated less land reform (Dorner 1992, p. 11).
The low level of threat posed by communism in Latin America in the decades after World
War II made some factions of the elite willing to forge alliances with labor unions, no-
tably under Juan Perón in Argentina (1946–1955) and Getúlio Vargas in Brazil (1950–1954).
Earlier, Aguirre Cerda in Chile (1938–1941) and Calderón Guardia in Costa Rica (1940–
1944) had also formed labor-based governments (Collier and Collier 1991; McGuire 1997;
Yashar 1997). In Korea, Taiwan, Indonesia, and Thailand, by contrast, unions had been se-
verely repressed under colonial or, in Thailand, monarchical and then military rule. This
history of repression, along with general poverty, made industrial wages around 1960 much
lower in East Asia than in Latin America. Low wages facilitated export-oriented industri-
alization in South Korea and Taiwan; higher wages posed a deterrent to this strategy in the
Latin American cases (Mahon 1992).
Natural Resource Endowment

Sachs and Warner (1995) and others have noted a cross-national statistical association be-
tween a rich natural resource endowment and slower economic growth. One mechanism
that is often invoked to account for this association is the “Dutch disease.” In 1959, a rise
in Dutch natural gas exports led to a foreign exchange windfall that drove up the value of
the guilder and priced Dutch manufactured exports out of other European markets. This
experience exemplifies the tendency of natural resource exports to generate an inflow of
foreign exchange, pushing up the value of the domestic currency. Overvaluation makes a
country’s exports less competitive in foreign markets. It also makes exporting less profitable
relative to selling on the domestic market, because export earnings arrive in (cheap) foreign
currency, whereas most expenses (e.g., for labor and services) are paid in (expensive) local
currency (Davis 1995, p. 1768; Economist 1995, p. 88). A related phenomenon is the “unbal-
anced productive structure,” by which natural resource exporters suffer from higher equi-
librium exchange rates than countries without many such exports (Diamand 1986; Mahon
1992). Natural resource exporters can overcome the Dutch disease, as the Indonesian case
shows (Prawiro 1998, pp. 114–124). The rule of law and protection of property rights seem to
help (Torvik 2009). Still, the Dutch disease represents a challenge that policy-makers have
to confront.
Mechanisms in addition to the Dutch disease could also mediate the association between
a rich natural resource endowment and slower economic growth. From 1862 to 1999, nat-
ural resource exports suffered from declining terms of trade relative to industrial products,
as well as from higher price volatility (Cashin and McDermott 2002). From 2002 to 2010,
however, commodity prices skyrocketed, erasing a century’s worth of decline (Dobbs,
Oppenheim, and Thompson 2011, pp. 1–2). If resource wealth slows economic growth,
factors other than the terms of trade are probably involved. One such factor may involve
wages. Wealth derived ultimately from natural resources may allow employers to raise
wages higher than is optimal for export competitiveness. In the 1600s, as John Maynard
Keynes noted, Spanish wages rose above competitive levels after gold and silver began to
arrive from the Americas (Gelb et al. 1988, p 33). Mahon (1992) argues that relatively high
wages may have made Latin America “too rich to prosper.” Natural resource exports can en-
courage protectionism if governments raise tariffs and other import restrictions to counter
the import surge produced by currency overvaluation (Sachs and Warner 1995). Perhaps
most importantly, countries can use foreign exchange generated by agricultural and mineral
exports to transit directly from light to heavy import substitution, without going through
a foreign exchange–generating stage of light manufactured exports (Auty 1994, p. 16). This
sequence of industrialization, which is facilitated by natural resource exports, has proven to
be suboptimal for economic growth.
Not all economists concur that a “resource curse” exists (Pineda and Rodríguez 2011).
Still, the hypothesis is largely consistent with the experiences of the eight cases compared
here. From 1960 to 2010 economic growth was much faster in South Korea and in Taiwan
than in any of the six resource-rich countries. Lacking natural resources, and with relatively
small domestic markets around 1960, neither South Korea or Taiwan was able to use for-
eign exchange from agricultural or mineral exports to pay for the imports needed to shift
directly from light to heavy import substitution. Argentina and Brazil, by contrast, had both
large markets and rich natural resource endowments, whose exports provided substantial
foreign exchange. These earnings allowed their governments to create infrastructure and
industry catering to the domestic market, without the need to expand labor-intensive man-
ufactured exports first. Chile and Costa Rica had small domestic markets but, relative to
population size, rich natural resource endowments, with Chile dependent on the export
of copper and Costa Rica on the export of agricultural products. Costa Rica remained at a
low level of industrial development until the 1990s, when clothing and later semiconductor
exports took off. In Chile, however, the government of Eduardo Frei Montalva (1964–1970)
used copper revenues to encourage the installation of a dozen automobile factories, many
in would-be “growth poles” in remote areas of the country, to turn out expensive clunkers
for a minuscule domestic market (Johnson 1967). A rich endowment of natural resources
thus made possible in Chile a sequence of industrialization that proved inimical to rapid
economic growth.
Thailand likewise used natural resource exports to finance the deepening of import sub-
stitution during the 1960s (Muscat 1994, pp. 107–108, 294). Indonesia was too poor and po-
litically turbulent from 1960 to 1966 to follow this course, and Costa Rica’s domestic market
was too small to support much in the way of heavy industry at any time. In South Korea
and Taiwan, however, a scarcity of natural resources prevented commodity exports from
financing heavy import substitution during the 1960s, leaving their governments with little
choice but to pursue an industrialization strategy based on the export of light manufactured
goods. This sequence proved to be more propitious for long-term economic growth than
the sequence followed in Argentina, Brazil, Chile, or Thailand, which involved transiting
directly from light to heavy import substitution.
State Hardness and Class Structure

Rapid GDP growth in South Korea and Taiwan is sometimes attributed to a “strong state,” a
concept that combines authoritarianism with the capacity of government officials to make
and implement economic policy with a degree of autonomy from interest group pressure
or clientelistic ties. Not every aspect of authoritarian rule is functional, however, let alone
necessary, for rapid economic growth, much less for lower income inequality. More useful is
the notion of a “hard state,” a concept that is limited to bureaucratic insulation—a degree of
which is compatible, as in postwar Japan, with free, fair, inclusive, and decisive elections and
with basic human and civil rights. Too much autonomy can deprive state officials of infor-
mation and of allies for policy implementation, but too little can leave the state vulnerable
to colonization by powerful interest groups or rent-seeking clients (Evans 1995). In middle-
income developing societies, the latter problem is usually more acute than the former.
The state was harder in Taiwan and in South Korea than in any of the Latin American
or Southeast Asian societies. South Korea and Taiwan inherited strong, centralized
bureaucracies from the Japanese. The Latin American countries inherited weak
bureaucracies from the Iberians; Indonesia received a weak bureaucracy from the Dutch
(MacIntyre 1994b, p. 261); and Thailand evolved a weak bureaucracy under the monarchy
(Unger 1998: 76). State “hardness” depends, however, not only on features of the state bu-
reaucracy, but also on the “softness” of major social classes. The weaker the cohesion and
organization of such classes, the higher the state’s steering capacity.
On the whole, big landowners, industrialists, and urban workers were stronger in Latin
America than in East Asia. Big landowners in the four Latin American societies had suf-
ficient cohesion and organization to block, reverse, or circumvent land reform. Those in
South Korea and Taiwan failed in this endeavor, while those in Thailand and Indonesia were
few in number and weakly organized. Industrialists in the Latin American countries, often
organized into business associations, pressed successfully for overvalued currencies; those
in the East Asian cases were less cohesive and often depended on government officials for
low-interest loans. Unionized workers in Argentina, Brazil, and pre-1973 Chile kept wages
high, fought devaluation, resisted free-market reforms, and derailed stabilization policies;
those in East Asia were too weak or too repressed to exert such influence. The strength of
state policy-makers vis-à-vis class actors helps to explain why economic policies were less
growth-friendly in Latin America than in East Asia.
Argentine landowners, particularly cattle ranchers, wielded enormous political influence
from 1880 until Perón came to office in 1943 (Smith 1967, p. 49). After Perón’s overthrow in
1955, landowners did not to regain their former political clout, but they continued to exer-
cise enough influence to derail a wide range of taxation, price control, import liberalization,
and local land-reform initiatives, exacerbating the erratic policy shifts of the era (Manzetti
1993, pp. 257–277; O’Donnell 1978). The main source of landowners’ ongoing political in-
fluence was their lock on the country’s supply of foreign exchange. In 2009 agricultural
products, mostly grains and oilseeds, still made up 52 percent of Argentina’s merchandise
exports (World Bank 2011).
Landowners were less cohesive in Brazil, partly because of regional divisions, but collec-
tively they remained strong (Carter 2010). From 1889, when republic replaced empire, to
the military coup of 1930, coffee growers from São Paulo, dairy farmers from Minas Gerais,
and cattle ranchers from Rio Grande do Sul dominated Brazilian politics. Presidents Vargas
and Juscelino Kubitschek (1956–1961), the main Brazilian political figures from 1930 to 1961,
pushed for industrial development, but neither attempted land reform and both subsidized
coffee growers (Skidmore 1967, pp. 85, 168–169; Skidmore 1979, pp. 150–151). A tepid land-
reform bill was enacted under president José Sarney (1985–1990), but military opposition
and landowner vigilantism blocked its implementation. The Cardoso government (1995–
2002), under pressure from the Landless Movement, settled more land claimants than any
previous government, but only a small fraction of potential beneficiaries received land
(Allen 2002; Ondetti 2008). Progress during the avowedly leftist presidencies of Lula da
Silva (2002–2010) was no better (NERA 2011, p. 22).
Most large landowners in Chile in the early twentieth century held land in the com-
pact Central Valley, lived in Santiago, and joined the same clubs (Bauer 1975, p. 207). This
cohesion gave them formidable political influence. In 1918, 46 percent of Chile’s national
legislators owned a large estate (Smith 1978, p. 14). From the nineteenth century onward
Chilean landowners exercised electoral influence out of proportion to their numbers thanks
to clientelistic relations with workers resident on their estates. Electoral reforms in 1958
weakened these ties (Baland and Robinson 2008; Scully 1995, pp. 116–117); from 1965 to 1972,
the Frei and Allende governments redistributed some 43 percent of the country’s agricultural
land (Jarvis 1985, p. 11). After the 1973 coup, however, the Pinochet dictatorship returned
nearly half of this land to its formers owners and withheld technical assistance, credit, and
infrastructure from the remaining recipients, forcing many beneficiaries to sell their plots
(Jarvis 1985). Accordingly, landowners remained politically powerful. In the early 1990s most
Chilean senators still held “significant agricultural interests” (Collins and Lear 1995, p. 198).
Many streamlined their operations in the 1980s and 1990s, selling off land to raise capital to
invest in producing fruit, juice, and wine for export (Thiesenhusen 1995, p. 165).
Costa Rica has a reputation as a society of small farmers, but big cattle ranches blanket
the northwest, large cacao and banana plantations operate in the east and southwest, and
small coffee growers in the Central Valley depend on credit from banks that are often owned
by big landowners and receive processing and marketing help from large planters (Yashar
1997, pp. 55–60). Costa Rican governments in the second half of the twentieth century never
pushed strenuously for land reform, and often helped landed elites with policies that raised
output and encouraged diversification into cotton and cattle. Pressure from landed elites for
subsidies contributed to a major fiscal crisis in the early 1980s (Wilson 1998, p. 90). Ensuing
market reforms encouraged new exports of flowers, houseplants, pineapple, and palm oil
alongside coffee, bananas, cotton, beef, and sugar. Big landholders, however, produced most
of these new products as well, for which they received generous export tax credits (Barham
et al. 1992, p. 70; Clark 2001, p. 131).
Landed elites in the four Latin American countries have thus been strong enough to re-
sist land reform, to extract generous subsidies, and to constrain policy initiatives. Landed
elites in South Korea and Taiwan were in a weaker position in the 1950s, when land reform
began. In Taiwan the Japanese colonial regime had expropriated many absentee landlords,
and the Kuomintang government bought off most who remained with equity in indus-
trial firms. In South Korea, big landowners who survived Japanese rule were often viewed
as collaborators, and U.S. pressure and the North Korean invasion combined to persuade
them to give up their land. Thailand and Indonesia were largely smallholding societies from
the outset. The weakness of landed classes in the East Asian cases facilitated land reform,
increased the state’s steering capacity, cushioned sectoral clashes between agricultural and
industrial interests, and reduced the demand for expensive state subsidies, contributing di-
rectly and indirectly to rapid economic growth as well as to lower income inequality.
The stronger the industrialists who emerged during the early stages of import substi-
tution, the weaker the will and capacity of state policy-makers either to enact the policies
needed to stimulate a shift toward export promotion or to make the flow of state benefits
depend on efficiency or export performance. Industrialists who are accustomed to cheap
inputs and steady sales are likely to oppose devaluations that raise the cost of production and
depress local demand. Those who have gotten used to receiving state subsidies on the basis
of patronage or political criteria are likely to become annoyed if those subsidies are made
contingent on performance criteria. If these industrialists have enough political clout to
translate such dissatisfaction into effective opposition, export promotion and performance-
based subsidies will be harder to propose, approve, and implement. Industrialists had such
clout in Argentina, Brazil, and Chile, but not in the East Asian cases (nor as much in Costa
Rica, where industry remained small in scale).
Argentina and then Brazil began to industrialize after 1880, and by the late 1920s each
produced textiles, food and beverages, and other nondurable consumer goods. Industrial
development got a boost when import capacity fell during the depression of the early 1930s;
subsequently, even after finances recovered, governments continued to encourage indus-
trialization with subsidies and protective tariffs. The light import-substitution phase thus
lasted longer in Argentina and Brazil (about 1930 to 1955) than in South Korea or Taiwan
(in the 1950s), in Thailand (in the 1960s), or in Indonesia (in the 1970s, when substantial
heavy import substitution also took place). The duration of this phase in Latin America
increased expectations of state support and strengthened vested interests. To try to control
industrialists who benefited from tariff protection and subsidies, government officials in
Argentina and Brazil forced or encouraged them to join officially sanctioned employers’
organizations. Once created, such organizations put reciprocal pressure on policy-makers
to preserve the model of inward-looking industrialization.
Before the 1973 military coup that installed Pinochet in the presidency, economic de-
velopment in Chile roughly paralleled economic development in Argentina and Brazil.
A shift in the direction of state ownership and central planning during the Allende gov-
ernment frightened business enough that even weaker sectors of industry acquiesced to
the radical dismantling by the Pinochet government of the subsidies and protection that
had permitted import substitution to proceed. During the initial years of Pinochet’s rule,
business conglomerates borrowed huge sums in foreign currency and used them to buy up
smaller companies. The rise in interest rates in the early 1980s made this strategy unsustain-
able, but the conglomerates continued to resist devaluation until what might have been a
soft landing became a titanic crash. In the mid-1980s the finance ministry replaced the rad-
ical neoliberalism of the 1970s with a more pragmatic variant, raising tariffs, undervaluing
the currency, subsidizing nontraditional exports of timber, seafood, fruit, and wine, and
imposing taxes and reserve requirements on short-term foreign capital (McGuire 2010,
pp. 97–98). These policies, some of which resembled those of South Korea and Taiwan in
the 1960s and 1970s, helped to raise Chile’s GDP per capita from $4,053 in 1983 (down
from $4,336 in 1974) to $5,404 in 1989 (Heston, Summers, and Aten 2012). The Chilean
“miracle” began not with the radical free-market reforms of 1974, but with the more state-
interventionist reforms of 1983.
Costa Rica’s domestic market has never been large enough to make inward-looking in-
dustrialization cost-effective. In the 1990s, however, foreign firms began to locate export-
oriented textile and garment factories in the country. The arrival of a single foreign-owned
semiconductor plant in 1998 elevated microchips to first place among the country’s mer-
chandise exports. By 2010, among the four Latin American cases, the share of manufactures
in exports was highest in Costa Rica, at 61 percent, and lowest in Chile, at 13 percent.
Throughout the twentieth century, however, business interests were weaker in Costa
Rica than in the other Latin American cases. The shift to export-led development in the
mid-1980s certainly did not require the collapse of a wide swath of import-substitution
industries, as in Chile.
Among the eight cases considered here, unions from 1960 to 2010 were strongest in
Argentina (McGuire 1997), strong in Chile before 1973 (Angell 1972), strong in Brazil es-
pecially after 1980 (Collier and Collier 1991), weaker in Costa Rica (Regidor Umaña 2003)
and South Korea (Kuruvilla and Erickson 2002), and very weak in Indonesia (Hadiz 1997),
Taiwan (Frenkel, Hong, and Lee 1993), and Thailand (Brown 1997). On the whole, eco-
nomic growth was slower, and income inequality was higher, in the cases with stronger
unions. Particularly in the early 1960s, when South Korea and Taiwan began to promote
light manufactured exports, unions in Argentina, Brazil, and Chile resisted policies that
might have accelerated growth and reduced inequality in the long run. Unions were es-
pecially opposed to currency devaluation, which had been critical to export promotion in
South Korea and Taiwan, partly because devaluations raise the price of imports and their
substitutes, reducing real wages. Where workers and unions were strong, as in Argentina,
Brazil, and Chile in the late 1950s and early 1960s, policy-makers were more reluctant to
propose devaluations; when they did, as in Argentina, they encountered fierce resistance
(Mahon 1992). Similarly, high public spending and negative real interest rates—policies that
were also favored by Argentine, Brazilian, and Chilean unions—contributed to macroec-
onomic imbalances that fueled inflation, which slowed economic growth and exacerbated
income inequality.
Labor union strength reduced the competitiveness of manufactured exports and
encouraged incautious macroeconomic policies involving big budget deficits, overvalued
currencies, and negative real interest rates. The stronger the organized working class, the
more resilient the development policies that have benefited unionized workers. A shift
from import substitution to light manufactured exports may eventually create jobs and
raise wages, but in the short run the devaluation and tariff reductions required for such a
shift will cause layoffs and plant closings in previously protected industries, encouraging
workers to protest. If such workers are organized into strong unions, government officials
are likely to hesitate before provoking them, making a change in development strategy less
likely. Strong labor unions also tend to push wages up, making labor-intensive production
less attractive and shifting resources from investment to consumption. Strong labor unions
thus discouraged a shift toward labor-intensive manufactured exports in Argentina, Brazil,
and Chile, whereas weak unions facilitated such a shift in the Asian cases, in South Korea
and Taiwan around 1960 and in Indonesia and Thailand after 1985. It is well worth noting,
however, that strong labor unions in Latin America often took action to encourage more
rewarding labor, more control and dignity for workers, and more collegial relations be-
tween employers and employees. A full evaluation of the impact of labor strength on the
expansion of human capabilities would have to consider a broad range of effects, positive
as well as negative.
Class structure, which was itself strongly conditioned by the colonial legacy and by
the impact of post–World War II geopolitics, thus shaped and constrained economic
policy decisions in each of the eight cases analyzed. From about 1960 onward landlords,
industrialists, and workers were relatively weak in the four East Asian cases, giving govern-
ment policy-makers considerable leeway in their attempts to steer their economies. These
social classes were stronger in the Latin American cases, placing heavier constraints on
policy design and implementation. Hence, government officials in the East Asian cases had
greater freedom to steer their economies well (or poorly) than in the Latin American cases.
That they generally steered them well can be attributed in part to good leadership and in
part to aspects of their colonial legacies, post–World War II geopolitical situations, natural
resource endowments, and class structures.
Conclusion: Do Government Policies

Matter for Economic Development?
Differences in government policies—especially those pertaining to land tenure, educa-

tion, manufactured export promotion, and macroeconomic management—help to explain
why, from 1960 to 2010, the four Latin American economies (Argentina, Brazil, Chile, and
Costa Rica) experienced slower economic growth and higher income inequality than the
four East Asian economies (Indonesia, South Korea, Taiwan, and Thailand). These policy
domains are likely to continue to influence these outcomes for years to come, not just in
these societies, but also in other middle-income countries. The era of land reform may
be fading, but policies designed to preserve smallholding and to grant legal title to small
farms (to women as well as to men) can still contribute in many societies to faster economic
growth and lower income inequality. Improving the quality of primary and secondary edu-
cation, rather than merely raising the share of age-appropriate children in school, remains
a steep challenge everywhere (Grindle 2004). Despite the surge in commodity prices from
2002 to 2010, exporting manufactures continues to have advantages over exporting agricul-
tural and mineral products, including opportunities for learning, forward and backward
linkages, and (usually) the production of higher value-added goods. Cautious macroeco-
nomic management is rarely a bad idea.
Secure smallholding, good basic education, the export of manufactures, and cautious
macroeconomic management are not always feasible, even when they may be desirable.
Whether policy-makers will propose, design, approve, implement, and sustain partic-
ular economic and social policies depends, among other things, on historical inheritances
and social structures. Among these legacies and circumstances the preceding analysis has
highlighted colonial heritage, the post–World War II geopolitical situation, natural resource
endowment, and class structure. Other important influences might well be adduced, but
these contextual factors are among the ones most likely to shape policies in these societies,
as well as in other middle-income developing countries, in the future.
Although government policies are often shaped by historical legacies and social
structures, choices among them matter crucially for development outcomes. Just because a
situation encouraged a policy in one place doesn’t mean that an identical situation is neces-
sary to implement a similar policy everywhere else. Policy choices matter—and will matter
all the more if political actors understand the opportunities and constraints that others have
faced. A grasp of these opportunities and constraints can help such actors identify, and thus
more easily overcome, historical legacies and social structures that might otherwise confine
them. To reflect on the ways in which historical legacies and social structures shape the
choices of policy-makers expands, rather than diminishes, the political space available for
public action to influence development.
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Chapter 28
Devel opme nt a nd
Underdevel op me nt i n
the Middle E ast a nd
North Afri c a
Melani Cammett
Home to vast oil reserves, the Middle East and North Africa (MENA) region is associated
with immense wealth concentrations.1 In reality, the region encompasses countries with
widely divergent economic structures and development trajectories, ranging from the oil
Gulf monarchies, which boast some of the highest levels of per capita GDP in the world and
the most generous social benefits for citizens, to poor countries such as Yemen, where pov-
erty levels are comparable to those of some sub-Saharan African countries (CIA 2013). As
the ongoing Arab uprisings have exposed, populations in many MENA countries face great
insecurity in meeting their daily needs while high unemployment, particularly among ed-
ucated youth, is an enormous challenge to development and well-being (ILO 2010; Salehi-
Isfahani 2010; UNDP 2009; World Bank 2003a).
While on average the region is not the poorest in the world nor does it exhibit the
lowest levels of human development, MENA countries have acquired a reputation as ec-
onomic laggards. It is widely asserted that the MENA region has failed to develop strong
manufacturing bases, while human development lags vis-à-vis regional levels of wealth,
and that its most populous countries have not achieved sufficient economic growth rates to
address high youth unemployment problems. Across the MENA, countries are characterized
by authoritarian rule (which persists in various forms in most countries, even after the Arab
uprisings), entrenched crony capitalism, extensive government ownership, and, in some
cases, inefficient public enterprises (UNDP 2002, 2009).
Based on a critical review of diverse explanations for underdevelopment in the MENA,
ranging from long-run historical approaches to accounts that concentrate on developments
since independence, I make two main arguments in this chapter. First, a single framework
cannot explain the diverse cross-national economic trajectories because the region includes
countries with widely variable natural resource and human capital endowments, while state
institutions and state–society relations have evolved differently in countries with distinct
Development and Underdevelopment in the Middle East 597
levels and experiences of colonial rule and postcolonial state-and nation-building. In fact,
the MENA region is composed of three distinct types of economies, which entail different
levels of population and natural resource endowments. Second, ongoing research on eco-
nomic outcomes in the MENA region should pay more attention to colonial legacies and
their interaction with postcolonial policies and institutions, and should seek to explain why
the particular manifestation of business–government relations in the region seems to be
associated with suboptimal economic performance.
The chapter begins by tracing the empirical record of development in the region, fo-
cusing on standard measures of GDP and industrialization as well as social-development
indicators. The region’s development trajectory is contextualized in a larger set of cross-
regional comparisons to elucidate the ways in which MENA has and has not excelled with
respect to economic and social outcomes. The subsequent section provides a basic typology
of national political economies in the region, incorporating both political regime type and
economic factors as the main criteria for classifying MENA countries. This section traces
the record of economic growth and development across the distinct political economies of
the region in different periods after World War II. In the remaining parts of the chapter,
I assess existing explanations for economic performance in the region, laying the founda-
tion for an alternative account of the diverse economic trajectories within the Middle East.
MENA Development in Regional

Comparative Perspective
The MENA has acquired a reputation as a relatively underdeveloped region (Kuran 2011;
Maddison 2003; Pamuk 2006). From a long-run historical perspective, the region as a whole
has declined economically, particularly since the seventeenth century. In the Middle Ages,
the region was a site of innovation and prosperity, particularly in comparison with Europe,
which was undergoing a protracted slump following the collapse of the Byzantine Empire.
By the eighteenth century, however, the MENA lagged behind Europe, which had become
a global economic and military powerhouse. Furthermore, European powers were exerting
increasing pressure on the Ottoman Empire, which ruled much of the Islamic world from
roughly the thirteenth century to the early twentieth century. While the Ottoman govern-
ment was mired in debt and economically stagnant, European powers were dividing up
much of what is now the global South through competing colonialist projects. By the early
nineteenth century, growth rates in the MENA were less than half those in the West (see
Figure 28.1).
A cross-regional comparative lens, however, casts doubt on an overly negative depiction
of MENA economic development trajectories. Economic decline vis-à-vis Europe is hardly
unique to the Middle East or North Africa; in comparison with other developing regions
that were also subject to European colonialism, the MENA region does not fare poorly. As
Figure 28.1 shows, the MENA exhibits consistently higher growth rates than sub-Saharan
Africa and, for 1950 to 1970, than Latin America. Arguably, these regions are more appro-
priate regional comparators than East Asia, which experienced exceptionally high and sus-
tained growth rates in the second half of the twentieth century.
598 Melani Cammett
4.5
3.5
3 1820–1870
Percentage (%) Change
2.5 1870–1913
2
1913–1950
1.5
1950–1973
1
1973–2000
0.5
–0.5
MENA US/Western Africa Latin East United
Europe America Asia States
Region
Figure 28.1 Cross-Regional Growth in Per Capital GDP (% Change), 1820–2000

Sources: Maddison (2003); Pamuk (2006).
Nonetheless, the MENA region as a whole—and especially particular subregions within

it—stands out vis-à-vis other developing regions with respect to several factors: First, the
region has exhibited more volatile growth trends than other developing regions, especially
among the more populous countries with large oil endowments such as Algeria, Iraq, and
Iran.2 Despite strong growth during the 1960s and 1970s across the region, MENA coun-
tries then experienced a protracted slowdown. In the past three decades, the region has
had lower growth rates than East and South Asia and, for some periods, displayed lower
and more erratic growth rates than Latin America and sub-Saharan Africa. Although most
MENA economies reduced their budget deficits and inflation in the 1990s, growth rates
stagnated and the region’s economies remained vulnerable to fluctuations in oil prices
(Nugent and Pasaran 2007, pp. 14–15; UNDP 2002). Such low and volatile growth rates are
disappointing given the rich natural resource endowments and high levels of foreign aid
and remittances in the region—although, as I discuss subsequently, access to external rents
may help to explain economic trends in some countries in the region.
Second, levels of industrialization, which are associated with high-growth political
economies and are therefore widely viewed as a key dimension of economic development,
also point to the relative underdevelopment of the MENA region. As Figure 28.2 shows,
the MENA stand out for poor levels of industrial development as measured by value added
from manufactures as a percentage of GDP.
In 1975, during the golden age of postindependence prosperity, manufactured exports as
a percentage of GDP amounted to about 10.4 percent in the MENA region, as compared
to 15.4 percent in South Asia, 25.4 percent in Latin America, and 32.8 percent in East Asia,
among the developing countries of each region. By 2007, manufactured exports remained
relatively low in the MENA region (11.3 percent) when compared to 16.4 percent in South
40
35
30
25
20 MENA
East Asia
15
Latin America
10 Middle income
South Asia
5 Africa
0
75
77
79
81
83
85
87
89
91
93
95
97
99
01
03
05
07
19
19
19
19
19
19
19
19
19
19
19
19
19
20
20
20
20
Figure 28.2 Manufacturing Value Added as a Percentage of GDP for Selected Regions
(Developing Countries Only), 1975–2007
Source: World Bank, World Development Indicators (Washington, DC: World Bank, various years).
Asia, 17.6 percent in Latin America, and 31.6 percent in East Asia (World Bank, World
Development Indicators [Washington, DC: World Bank, various years]). At the same time,
the region now faces global economic challenges facing virtually all developing regions.
With the collapse of the prices of manufactured goods and the rise of China and India as ex-
port powerhouses, industrialization is no longer a viable strategy for development for most
regions. Because nontradables are the key drivers for growth in the advanced industrialized
economies, the position of most developing countries is tenuous in the evolving global
economy. Of course, global economic constraints in the current period do not explain why
the region could not take advantage of export opportunities in prior decades, as other re-
gions were able to do.
Third, by some measures, the MENA region has also lagged in recent years with re-
spect to human development, a critical measure designed to capture the ways in which
populations actually experience socioeconomic change. Figure 28.3 depicts cross-regional
levels of human development over time.3 As the figure shows, on aggregate the MENA
outperforms South Asia and sub-Saharan Africa with respect to human development,
but consistently lags behind Latin America and, since the mid-2000s, East Asia. This is
striking given that the MENA region is home to some of the wealthiest countries in the
world, with Qatar ranking first globally in terms of per capita GDP (IMF 2013), confirming
the oft-stated claim that income does not guarantee human development (Sen 1999;
UNDP 1994).
Finally, as the Arab uprisings have underscored, the Middle East faces seemingly in-
tractable challenges to employment generation. Unemployment, particularly among edu-
cated youth, is higher in MENA than any other global region (ILO 2010). In the face of the
global recession and structural features of their economies, virtually none of the countries
in MENA seem able to generate sufficient growth rates to absorb unemployment in the
600 Melani Cammett
0.8
0.7
0.6
0.5
MENA
0.4 East Asia
0.3 South Asia
0.2 Latin America
0.1 Africa
0
1980 1990 2000 2005 2010 2012
Figure 28.3 Human Development Index (HDI) Values by Region, 1980–2012

Source: http://hdr.undp.org/en/data
short to medium term (World Bank 2003b; Salehi-Isfahani 2010). As a result, the MENA
region essentially forfeited the opportunity to take advantage of the “demographic gift” of a
young population (Karshenas and Moghadam 2006, pp. 12–13). To the contrary, the region
experienced a youth population bulge at precisely the moment when it underwent eco-
nomic adjustment and a reduction in growth rates.4 In addition, low female labor-force par-
ticipation rates have undercut the region’s productive potential. Indeed, women constitute
the smallest share of the workforce in the Middle East and North Africa when compared to
other regions.5
In sum, the MENA region has become associated with economic underperformance.
This reputation, however, is only partially deserved. Fist, in cross-regional comparative
perspective, the region as a whole has performed reasonably well. Second, as I discuss
more subsequently, the MENA region cannot be treated as an aggregate because distinct
subgroups of economies have dramatically varied resource endowments and have exhibited
markedly distinct development paths. As a result, blanket explanations for regional under-
development are problematic.
Notwithstanding these important objections to region-wide claims, the depiction
of economic underperformance in the Middle East and North Africa persists. Various
editions of the Arab Human Development Report (UNDP 2002, 2004, 2009), a publica-
tion researched and written by Arab researchers and published by the UNDP, emphasize
that the region suffers not only from low levels of per capita income relative to its wealth,
but also declining productivity, underdeveloped research capabilities, levels of illiteracy,
poor health and educational outcomes in comparison with countries of comparable in-
come levels, gender inequality, and persistent authoritarianism. Despite debates about
the political underpinnings of these claims (Abu-Lughod 2009; Bayat 2005) and the
appropriateness of cross-regional comparative benchmarks (Owen 2002), there is broad
consensus among scholars and policy-makers within and outside of the region that the
well-being and socioeconomic opportunities of citizens of MENA countries are defi-
cient. Beyond objective indicators, core demands for dignity and social justice in the
Arab uprisings indicate that many citizens perceive that their governments have failed
them economically.
Varieties of MENA Political Economies

and Postindependence Development
Trajectories
Any attempt to account for patterns of development and underdevelopment in the MENA
region must begin by acknowledging its distinct subtypes of political economies. Based
on resource endowments alone, the region can be divided into three distinct types of
economies, including countries with low populations and high wealth from oil and other
natural resources (i.e., Bahrain, Kuwait, Libya, Oman, Qatar, Saudi Arabia, and the UAE);
those with high populations and high oil wealth (i.e., Algeria, Iran, and Iraq); and those with
no or minimal oil wealth on a per capita basis (i.e., Egypt, Jordan, Morocco, Syria, Tunisia,
Turkey, Yemen). At a minimum, variation across subtypes of regional political economies
calls into question sweeping explanations of region-wide economic trends.
Oil wealth is the most obvious point of differentiation among MENA political economies
and is either positively or negatively associated with other key development indicators
such as per capita GDP, industrialization, and human development. All high-income
countries—Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, the UAE, and Libya6—have high
levels of oil dependence7 and relatively small indigenous populations. Countries with high
oil dependence and large populations, such as Algeria and Iran, however, fall in the lower
middle-income group despite their valuable natural resource endowments. The remaining
middle-income countries export a relatively low volume of hydrocarbons or none at all.
Oil can bring spectacular wealth; however, it is also central to some explanations for
MENA underdevelopment. High oil dependency is negatively associated with industrial-
ization and, as a result, may impede economic development in the longer term (Beblawi
1987; Ross 2012; Sachs and Warner 2001).8 None of the region’s top exporters of manufac-
tured goods, including Turkey, Tunisia, Jordan, Morocco, and Egypt, have significant oil
endowments, while the major oil exporters, such as the Gulf states, Libya, and Algeria, have
lower levels of industrialization (World Bank 2013).
Although it may deter industrialization, oil wealth—the primary historical path to
development—can buy relatively high quality of life, as captured by intraregional differences
in human development levels (see Figure 28.4). All MENA countries that achieve “high” or
“very high” ratings on the UNDP Human Development Index (HDI) are low-population
oil exporters (Malik 2013). A cross-regional perspective, however, highlights the fact that
wealth does not automatically translate into superior scores on all dimensions of human
development. For example, the UAE and Portugal have comparable HDI scores (.818 and
.816, respectively), yet the former’s GDP per capita is nearly twice that of the latter country.
Kuwait’s HDI value of .790 is slightly lower than that of Uruguay, yet its GDP per capita
($52,793) is nearly four times larger (Malik 2013). Within the Middle East, some countries,
such as the West Bank and Gaza, have higher literacy rates than their income levels would
predict, in part thanks to social practices that value education as a key source of upward
mobility. To some degree, oil has shaped the economies of all countries in the region, ir-
respective of natural resource endowments, by fueling regional flows of labor remittances,
aid, and, to a lesser degree, private investment (Pfeifer 2012).
602 Melani Cammett
0.900
0.800
0.700
0.600
0.500
HDI
0.400
0.300
0.200
0.100
0.000
ria
an
aq
t
Le n
M non
Pa cco
e
ria
Tu ia
Ye y
en
Ku in
it
O a
an
i A ar
a
AE
yp
tin
by
bi
e
a
wa
s
ud at
a
rk
Ir
m
Ir
rd
m
ni
ge
Sy
ra
hr
U
Eg
Li
les
Sa Q
ba
or
Jo
Tu
Al
Ba
High population/oil High population/low oil Low population/oil
Figure 28.4 HDI Values across the MENA Countries

Source: http://hdr.undp.org/en/data
Economic and social indicators alone, however, provide an incomplete perspective on

the variety of political economies in the region and overlook some of the key political
factors that are sometimes invoked to explain underdevelopment in the region, namely
regime type and patterns of governance. The formal and informal rules determining the al-
location of political power shape the formulation of economic and social policies as well as
the strategies that labor, business, and other key social groups adopt to adjust to economic
change. With the exceptions of Turkey and, to a lesser degree, Lebanon, Iran prior to 2005,
and now perhaps Tunisia and Libya after the Arab uprisings, virtually all MENA countries
are characterized by relatively unchecked executive power and limitations on political and
civil liberties (Posusney and Angrist 2005). Most countries are classified as monarchies or
single-party republics, although within these distinct regimes types, the structure of rep-
resentation and informal patterns of state–society relations vary. Furthermore, different
political economies are associated with distinct types of social contracts or with varying
commitments of rulers to provide for citizens in exchange for political support as institu-
tionalized in postindependence constitutions, laws, and political rhetoric (Youssef 2004,
p. 92).
A typology of MENA countries based on oil endowments and regime type captures
important sources of variation in the countries of the region (see Table 28.1). In general,
different political economies—oil monarchies, non-oil monarchies, oil republics, non-
oil republics, and democracies and quasi- democracies— are associated with different
strategies of economic development and redistribution. In part because of varied resource
endowments and, more importantly, because of different strategies of legitimation, rulers in
these diverse political economies adopted distinct development rhetoric and even policies.
More broadly, any typology of MENA political economies should move beyond eco-
nomic determinism and classifications based on formal regime type to highlight the im-
portance of “institutional quality.”9 The nature of governance as manifested in specific
Table 28.1 Political Economies of the Middle East

Oil Non-Oil
Monarchies Bahrain, Kuwait, Oman, Qatar, Jordan, Morocco

Saudi Arabia, UAE, Iran
(pre-1979)
Republics Algeria, Iraq (pre-2003), Iran Egypt (1952–2011), Syria, Tunisia
(2005–) (1956–2011)
Democracies/ Libya (2011–), Iran (1979–2005) Egypt (2011–2013), Lebanon, Turkey,
Quasi-Democracies Tunisia (2011–), Iraq (2003–)
Libya prior to 2011 defies easy categorization given Colonel Muammar Qadhafi’s construction of a
unique regime type, the Jamahiriya, which was theoretically a form of direct democracy without
political parties in which administration occurred through popular councils. In practice, the system
was authoritarian and reserved extensive discretionary power for Qadhafi and his allies.
institutions that structure property rights and define state regulatory capacity, among other
factors that contribute to well-functioning markets, is increasingly linked to economic
performance (Acemoglu, Johnson, and Robinson 2005; Chaudhry 1993; North 1990). As
discussed subsequently and developed more fully in the chapter by James Robinson in this
volume, the scholarly literature on development increasingly points to the long-run histor-
ical determinants of governing institutions, which in turn shape development outcomes that
persist for decades if not centuries in most cases (see, inter alia, Acemoglu, Johnson, and
Robinson 2002; Diamond and Ordunio 1997; Engermann and Sokoloff 2002; Kaufmann,
Kraay, and Mastruzzi 2009; Mahoney 2010; Sachs and Warner 1997).
How have overall economic development strategies evolved in the diverse subgroups
of political economies in the MENA region? Most of these countries did not become in-
dependent states until the mid-twentieth century, when the British and French colonial
powers withdrew. Among the first orders of business for postindependence elites was eco-
nomic development and the establishment or consolidation of national market institutions.
In the decades since independence and despite some shared colonial legacies, MENA
economies developed in distinct ways. Broad patterns of variation are visible across the
different subtypes of political economies outlined in Table 28.1.
In the postwar period, the more populous countries in the MENA region—like many
countries in other developing regions— adopted import- substitution industrialization
(ISI) policies, fostering the rise of a domestic industrial bourgeoisie and local industrial
working class that benefited from populist policies such as consumer-price subsidies on
staple goods. At the same time, the public sector grew dramatically, with the establish-
ment of state-owned enterprises in all MENA political economies as well as vast public
investment (Richards and Waterbury 2008, ch. 7). The single-party republics went farthest
in adopting ISI policies, constructing state-owned enterprises (SOEs) and marginalizing
the private sector (Richards and Waterbury 1996, p. 180). For varying durations, all of the
single-party republics adopted versions of populist, quasi-socialist strategies of legitimation
at independence, including Egypt (1957–1974), Algeria (1962–1989), Syria (1963–1990s), Iraq
(1963–1990s), and Tunisia (1962–1969).10 The new leaders of the republics also instituted
604 Melani Cammett
land-reform policies and developed or expanded public health and education systems. The
most extensive entitlements were reserved for formal sector workers, who constituted a
relatively small portion of the total work force. With postcolonial nationalizations and the
establishment of state-owned enterprises, civil service and parastatal workers gained job
security and a range of social protections, but, in exchange, were expected to be politi-
cally docile. The republics varied in the extent to which they made populism and “Arab
socialism” (Richards and Waterbury 1996, p. 181) the centerpiece of their rhetoric and ac-
tually instituted populist policies. Egypt under President Gamal Abdel Nasser (1956–1970)
exhibited a particularly strong commitment to populism, while Tunisia turned away from
its quasi-socialist experiment earlier than other republics. In the case of Algeria, oil wealth
greatly aided populist policies, particularly during spikes in world oil prices, postponing the
high debt burden that tends to arise with ISI strategies.
The republics, including Algeria, Syria, and (until 2011) Egypt and Tunisia, have all
been characterized by single-party rule, in which a dominant party controls political life
and permeates most elements of society and associational life. In both the oil and non-oil
single-party republics, the formal representation of economic interests, including labor and
business, was or remains highly centralized, facilitating state control (Bellin 2002; Cammett
2007; Cammett and Posusney 2010; Gobe 1999; Haddad 2004; Sfakianakis 2004). Until the
Arab uprisings, the republics generally permitted fewer political and civic freedoms than
the monarchies.
In the region’s kingdoms, both the structure and practice of politics vary significantly,
particularly across the oil and non-oil countries. During the colonial era, all of the Gulf
principalities apart from Saudi Arabia became British protectorates and were ruled only
nominally by their traditional tribal sheikhs. As these countries gained independence and
modernized in the 1960s and early 1970s, ruling families consolidated their power (Herb
1999). The Gulf monarchies generally exercise strict control over societal expression, and all
officially ban political parties11 and prohibit the formation of labor unions, although some
have recently modified this policy (Cammett and Posusney 2010). In the Gulf monarchies,
societal opposition to authoritarian rule is relatively limited, in large part due to generous
social transfers sustained by oil and gas revenues. Patronage and discretionary access to eco-
nomic opportunities has created a loyal client base (Herb 1999). While the Gulf monarchies
score poorly in measures of “voice and accountability,” a key feature of democratic rule,
their measures of the rule of law and control of corruption are higher than most other coun-
tries in the region (Kaufmann, Kraay, and Mastruzzi 2009), compelling investors to deem
them more reliable sites for investment and conducting business than other economies in
the region (World Bank 2011).12
With oil dominating their economies and with minimal or no manufacturing bases
beyond joint ventures with foreign companies in petrochemicals, there was little need to
adopt protectionist trade regimes in the Gulf economies. Furthermore, with the exception
of Saudi Arabia, the indigenous population was too small to warrant an ISI approach, which
requires a substantial domestic consumer base and labor force. The weight of the public
sector in the economy, however, surpassed that of the non-oil countries thanks to windfall
oil profits, especially after the oil shocks of the 1970s (Chaudhry 1997; Crystal 1995).
Political authority and economic policies were institutionalized differently in the oil-poor
kingdoms of Jordan and Morocco. In both countries, monarchs exercise tight social control,
but have permitted more pluralism than in the Gulf, even prior to the recent Arab uprisings.
Although the extent of political freedoms should not be exaggerated, the Jordanian and
Moroccan monarchies have permitted diverse parties and independent candidates to
contest elections and win seats in parliament (Leveau 1985; Ryan 2002; Zartman 1990).
Multiparty politics permits marginally greater scope for the transmission of societal
interests to decision makers and even for circumscribed opposition to state policies. From
their establishment as independent states, Jordan and Morocco adopted liberal economic
rhetoric, which privileged the private sector as the driver of development (Cammett 2007;
Henry and Springborg 2010; Moore 2004).13 Unlike the single-party republics, the non-oil
monarchies did not emphasize populist ideologies, although they instituted some redistrib-
utive policies, particularly for formal-sector employees. Accordingly, Jordan and, especially,
Morocco adopted less expansive social programs than the Gulf monarchies and left greater
room than the single-party republics for nonstate actors to address the social needs of the
population. As a result, by some measures, the economic climates in Jordan and Morocco
are deemed more favorable to investors than in the republics (World Bank 2011; Kaufmann,
Kraay, and Mastruzzi 2009).
Finally, in the democracies and quasi-democracies, no shared pattern has emerged with
respect to the organization of the economy and state–society relations due to variation in
state-building processes and the relative strength of different social groups. Lebanon’s pow-
erful merchant interests and fragmented sectarian power-sharing system have cemented
a “laissez-faire” economy with minimal state regulation (Gates 1998). Conversely, in
postrevolutionary Iran, direct and indirect state control over the economy was consolidated
with the nationalization of most banks and the establishment of bonyads, or foundations,
involved in both production and social provision and headed by religious leaders, although
important components of the leadership maintain strong support for private enterprise and
property rights (Henry and Spingborg 2010, p. 214: Owen 1992, pp. 157–158). In Turkey,
interest groups have enjoyed relative freedom to organize, except during periods when
the army suspended democracy (Owen 1992, pp. 155–156). Since the 1980s, the Turkish
state under distinct administrations has pursued economic liberalization policies, and ex-
port business interests have developed substantially alongside preexisting domestic elites.
Despite the relative openness of the political system, particularly in Lebanon and Turkey,
the democracies do not outshine the Gulf oil monarchies with respect to rule of law, con-
trol of corruption, or the ease of doing business (World Bank 2011; Kaufmann, et al (2009).
By the late 1970s and early 1980s, the golden age of growth had stalled in the MENA
region. Countries that had adopted ISI policies experienced balance-of-payments crises,
which in part explain their adoption of economic reforms supported by international fi-
nancial institutions.14 The signing of EU trade agreements further compelled some MENA
countries to open their economies. The actual record of economic reform has varied from
country to country. In general, the international financial institutions regard Morocco,
Jordan, and, especially, Tunisia as more “successful” cases of economic reform, while Egypt
is depicted in more qualified terms (Richards and Waterbury 2008, pp. 239–241; Rivlin
2001, pp. 101–114, 128–130).
Economic liberalization has had a mixed record at best in the MENA region. Throughout
the region, economic reforms have not produced sustained high growth rates, while ine-
quality has increased somewhat according to official data (World Bank, World Development
Indicators [Washington, DC: World Bank, various years]).15 Growth rates have been erratic,
particularly in Jordan, which is especially vulnerable to regional conflict, and Morocco,
606 Melani Cammett
which is highly sensitive to drought, among other factors. Economic restructuring has gener-
ally come with enormous social costs (Richards and Waterbury 2008; Rivlin 2001). Political
and economic elites, who enjoy close ties to rulers—whether presidents or monarchs—have
benefited disproportionately from the new opportunities generated by greater global eco-
nomic integration and increased emphasis on private sector–led development (Cammett
and Diwan 2013; Henry and Springborg 2010; Heydemann 2004).
Explaining Underdevelopment in
the Middle East and North Africa
Economists generally agree on the proximate causes of underdevelopment in the Middle

East and North Africa, including weak integration in the global economy, low levels of in-
vestment, lack of technology transfer, industrial noncompetitiveness, high levels of govern-
ment ownership and investment, the low quality of education, and the high costs of doing
business (Noland and Pack 2007, p. 11). But these factors are symptoms of deeper causes.
A growing scholarly literature offers varied and often competing explanations for persistent
underdevelopment in the MENA region. These accounts range from cultural characteris-
tics and entrenched historical legacies to the “curse” of natural resource endowments and
postwar patterns of state–society relations.
Islam and Economic Development

The countries of the Middle East and North Africa are predominantly Muslim, although
religious minorities are important both demographically and politically in some countries.
Accordingly, Islam has been blamed for a variety of ills that are said to impede capitalist
economic development, including unresponsive authoritarian governments, obstacles to
independent reasoning, and the absence of a rational secular mindset (Lewis 1982; Weber
2009; also see Noland and Pack 2007, p. 10).16 In general, such accounts are difficult to prove
or disprove; therefore, this genre of explanation has not relied on empirical tests. If features
of Islam as a religion explain economic underperformance, then cultural shifts should
correspond to periods of economic change, and Islamic and non-Islamic societies should
exhibit marked differences in economic trajectories and outcomes. The empirical record,
however, belies such broad culturalist accounts, which tend to neglect variation in political,
social, and economic practices, downplay the capacity of cultures to evolve, and cannot
account for the fact that economic growth is variable over time while culture and religion
evolve more slowly. If “culture” refers to informal institutions and social practices, how-
ever, such explanations may be more compelling, particularly if applied to specific localities
rather than to entire regions such as the Middle East or the Islamic world.
A more nuanced line of argumentation in the culturalist vein focuses on the effects
of Islamic institutions on the long-term development trajectories of Muslim societies. In
a recent book and related articles, Kuran (2003, 2004, 2011) argues that specific Islamic
institutions, notably inheritance laws, marriage regulations, trusts, and contract systems
came to inhibit capital accumulation in the Middle East. By dividing up inheritance among
multiple family members, channeling resources into social services rather than productive
investment, and deterring innovation and flexibility in corporate forms, Islamic societies
were disadvantaged vis-à-vis Europe in developing the kinds of commercial institutions
needed for longer-term growth.
Kuran explicitly rejects the claims that underdevelopment is due to flaws within Islam
as a religion and or to an alleged fatalism or submission to authoritarian rulers among its
adherents. Rather, he argues that Islamic societies were innovative and ahead of their times
in creating flexible institutions to facilitate exchange, but that these institutions failed to
adapt to new economic and social conditions.
The focus on Islamic institutions advances the study of underdevelopment in the MENA
region substantially and brings studies of development in the region in direct dialogue with
broader debates about the long-run institutional determinants of growth and development
(Acemoglu, Johnson, and Robinson 2002; Engermann and Sokoloff 2002; Sachs and Warner
1997). At least two major critiques, however, point to potential problems in Kuran’s linkage
between Islamic institutions and economic underdevelopment. First, empirical realities po-
tentially undercut the logic and validity of the argument. Although Kuran acknowledges
flexibility inherent in different Islamic schools of law regarding corporate partnerships and
charitable trusts (awqaf), the opportunity to adopt distinct corporate institutional forms is
not integrated in his argument. Yet the very real empirical possibility that Islamic rulers and
traders could have adopted distinct institutional arrangements implies that low demand for
institutional flexibility rather than a lack of supply explains institutional stagnation in the
Islamic world (Çizakça 2010; Ibrahim 2011, pp. 2–3).
This point suggests a second, more important, critique of Kuran’s account of economic
stagnation in the Middle East. Rather than institutional features of Islam, the practices and
policies of the Ottoman state may explain underdevelopment. As a highly centralized and
“strong” state, the Ottomans blocked the rise of an independent civil society and private
sector, while their economic policies emphasized social welfare over growth.17 As Çizakça
(2010) argues, “Kuran recognizes that the European corporation flourished when central
authority weakened following the demise of the Roman Empire [p. 103] but fails to contrast
this with the situation in the Middle East, where the opposite was taking place and the re-
gion was militarizing in response to the Crusades.”18
Furthermore, claims about the long-run effects or Islamic or Ottoman institutions may
be overly aggregated, setting up sweeping generalizations across vast stretches of territory.
Variation in economic outcomes both during and after Ottoman rule may correlate with
divergence in the degree of Ottoman state control across the empire (Haj 1997; Pamuk 1992,
2006). Notwithstanding these critiques, Kuran advances the study of development in the
Middle East in important ways by shifting the focus to the impact of institutions on long-
term economic trajectories, an area of research that deserves more attention and integrates
the entire MENA region more directly in debates about development.
Social Relations and Long-Run Institutional Development

An alternative perspective on the long-run sources of relative economic underperformance
in the MENA region finds the sources of the divergence between the region and Western
Europe not in religion or religious institutions, but rather in relations between rulers and
elites. Blaydes and Chaney (2013) locate the rise of growth-enhancing institutions such as
608 Melani Cammett
property rights, political stability, and accountability in the rise of feudalism in the West.
In contrast, the MENA region failed to develop similar patterns of social relations, which
accounts for the relative lack of institutions and practices conducive to longer-term eco-
nomic development, among other outcomes. In particular, the authors contend that the
use of military slaves from non-Muslim lands rather than local military conscripts freed
Ottoman rulers from the need to bargain with landed elites, which in turn generated
arrangements to secure property rights and check the power of rulers.
Like Kuran (2011), Blaydes and Chaney (2013) make an important contribution by bringing
research on the Middle East in direct dialogue with contemporary research on long-term
economic trajectories, using rigorous empirical methods to support their arguments. Social
dynamics across the Muslim world, however, call into question the empirical validity of
their claims. The core argument rests on the idea that rulers in Muslim empires did not need
to bargain with their subjects because they imported loyal slaves to serve in the military and
other government institutions. Yet it is well documented that rulers granted military slaves
generous tax farms, who in turn accumulated resources and used them to purchase land
that they passed on to their children. Through wealth accumulation, then, these imported
slaves settled and acquired the potential to challenge the sultan. Why, then, did they not
challenge rulers, as Blaydes and Chaney argue? In fact, the historical experiences of the
Mamluks in the twelfth century and, much later, the Janissaries in the Ottoman Empire
suggest that foreign military slaves were not always loyal but rather posed a serious threat
by rising up periodically against their rulers (Karpat 2010, pp. 32–33; Murphy 1999, pp. 30–
32). More generally, it is unlikely that social relations remained stable or operated uniformly
in an empire that spanned 600 years and vast stretches of territory. The Ottoman Empire
underwent multiple periods of change and reform initiatives over the course of its history,
including with respect to the ways in which the Ottomans staffed and managed their mili-
tary machines (Murphy 1999; Pamuk 2006).19
Approaches that seek the roots of economic underperformance in institutions that
emerged over a millennium ago (Blaydes and Chaney 2013; Greif 2006; Kuran 2011) pur-
posefully downplay the impact of changes during the colonial and postcolonial periods; at a
minimum, they neglect possible interaction effects of these institutions with developments
in these periods. To justify this position, Kuran (2011) notes that the roots of economic de-
cline precede these historical periods by centuries. As I will discuss, however, European co-
lonialism and the policies adopted by independent regimes constituted important junctures
in development trajectories, sometimes to the detriment of economic growth in the MENA
region. Furthermore, long-run historical explanations of contemporary economic outcomes
face challenges in elucidating the mechanisms by which institutions established centuries
ago were reproduced over long time periods and continue to shape development paths and
outcomes.
Furthermore, within the Islamic world, there is variation in growth rates. Middle Eastern
countries such as Egypt and Jordan have experienced volatile growth rates in a relatively
short time frame, while countries such as Indonesia and Malaysia, which are also predomi-
nantly Muslim, have enjoyed sustained periods of high growth. More broadly, econometric
research indicates that Muslim countries are not associated with poor growth—in some
instances, they even exhibit higher growth rates than non-Muslim countries (see Noland
and Peck 2007, pp. 143–144). Other research shows that the share of zakat, or obligatory
Islamic charitable giving, in total income and the share of Islamic financial institutions in
the financial sectors of the Middle East and North Africa as a whole are small and there-
fore unlikely to hurt economic performance in the aggregate (Pryor 2006).20 Nonetheless,
arguments meant to apply to vast stretches of territory cannot easily explain variation
within these domains. At best, Islamic institutions or patterns of state–society relations es-
tablished centuries ago interact with other factors at lower levels of analysis.
The fact that other, non-Islamic regions face similar if not worse economic challenges than
the Middle East and North Africa, however, suggests that something other than institutions
specific to the Islamic world is a key cause of underdevelopment in this and other regions
in the global South. For example, many sub-Saharan African countries that are not pre-
dominantly Muslim and did not have the same patterns of relations between local rulers
and subjects exhibit equal if not worse growth and human-development outcomes. With
distinct historical institutional legacies, these countries have also performed poorly. This
implies that other factors common to the MENA region and sub-Saharan Africa (as well as
South Asia) may have shaped poor development outcomes in these regions. These might
include the effects of colonialism on state development; the reactive, anticolonial policies
adopted by nationalist rulers in the postindependence period; and superpower rivalries,
which brought access to strategic rents.
Colonialism
Although a long-term perspective holds that European control over Ottoman lands was a
function of economic decline and therefore postdates economic stagnation (Kuran 2011),
the nature of colonial involvement in the region had lasting effects on economic develop-
ment and, particularly, patterns of industrialization in the region.
During the late Ottoman period, some regions and communities in the Ottoman Empire
were increasingly integrated in the global economy, in part through the capitulations, or
preferential relationships between minority communities and European governments.
Colonial rule integrated these territories more directly in global markets controlled by
European powers and laid the foundations for the creation of national economies with fixed
borders, national systems of taxation, and tariffs and other trade barriers. With the fall of
the Ottoman Empire and the establishment of the Republic of Turkey in 1923, European
colonial powers took direct control of much of the region, establishing British control over
Iraq, Palestine, and Transjordan, and French control over Syria and Lebanon. The territo-
ries of the Gulf were loosely ruled by prominent families and tribal leaders, and, with the
exception of Saudi Arabia, were largely under British control through a series of treaties
signed in the late nineteenth and early twentieth centuries. In North Africa, colonial rule
was much longer, with the occupation and subsequent incorporation of Algeria into France
in 1830 and the establishment of French protectorates in Morocco and Tunisia in 1913 and
1881, respectively.
The colonial period had important legacies for subsequent development trajectories and,
in some areas, laid the foundations for a nascent industrial sector. Whether British or French,
colonial authorities tended to dominate large-scale manufacturing, invested little in local
economies, and devoted few resources to welfare and public works, and local economies
remained heavily agrarian and low-income.21 Although the colonized proto-states were
610 Melani Cammett
expected to balance their own budgets, colonial domination granted little or no indige-
nous control over economic policy-making, permitting few protective trade barriers to spur
the rise of local industry and exposing local economies to global market fluctuations.22
Throughout the region, colonial authorities adopted strategies of indirect rule through
alliances with tribal elites and large landowners—a type of colonial administration that has
been associated with poorer development outcomes because it does not foster the emer-
gence of effective governing institutions (Boone 1994; Lange 2009; Mamdani 1996).
Despite these shared general patterns, the precise forms of colonial involvement varied
across the region. The French invested most heavily in North Africa, where they estab-
lished significant settler communities, especially in Algeria. Although the North African
economies remained dependent on France and granted preferential treatment to French
investors and workers, the colonial authorities also invested in local infrastructure and
public services. To the east, the British and French colonial authorities did not own land
nor did they establish resident communities to the same degree. In Egypt, which the British
effectively controlled after 1881, colonial economic interests centered mainly on cotton
exports. In Jordan, little industrial and agricultural development occurred, while the dis-
covery of oil in Iraq in the 1930s did little to stimulate industrialization. In Syria and Greater
Lebanon, the French established close ties with Maronites and other Christian groups, but
colonial investment did not benefit the bulk of the population. In Palestine, the influx of
Jewish settlers, some of whom came with high skills and education, as well as material
support from Britain enabled the Jews in Palestine to construct a relatively prosperous
and industrially developed subeconomy within the British mandate. In Arab areas, how-
ever, infrastructure was generally less developed, while agricultural techniques were not
as productive and industrial development lagged. The Gulf sheikhdoms had virtually no
manufacturing base nor agricultural production apart from date harvesting, while signifi-
cant royalties from oil production did not come until the 1940s.
Unlike most Arab countries, Turkey and Iran23 were never directly colonized by the
European powers, although capitulations and high foreign debt fostered dependence on
Europe. After the establishment of an independent state in 1923, the Turkish government
promoted domestic industry through subsidies and protective barriers, generating a rela-
tively developed industrial base by the eve of World War II. In Iran, the Pahlavi monarchy
embarked on a nation-building initiative, which entailed the growth of the state bureauc-
racy and military and the establishment of public enterprises in diverse industries (Owen
1992, pp. 117–118).
This brief overview suggests that variable patterns of colonial investment and governing
institutions generated distinct starting points for postindependence MENA countries.
Although substantial research points to differences in investment and industrialization
under colonial rule (Owen 1993; Owen and Pamuk 1999), few studies systematically ex-
plore how the economic legacies of colonialism shaped postindependence growth and
development in the region. For example, French control over Algeria was far more com-
prehensive than in the neighboring French protectorates of Morocco and Tunisia, which
may partially account for variation in postindependent economic outcomes in North
Africa such as Algeria’s particularly erratic patterns of economic growth. Furthermore, the
interaction of distinct precolonial, Ottoman institutions and colonial policies in shaping
postindependence development trajectories deserves far more attention.24
Oil and the “Resource Curse”
A prominent explanation for the relative underdevelopment of MENA countries focuses

on the “curse” of oil wealth.25 This argument emphasizes the correlation between resource
abundance and outcomes such as poor economic performance and unbalanced growth,
as well as weak state institutions and authoritarianism, among other ills (Ross 1999). In its
economic dimensions, the resource curse centers on the concept of the “Dutch disease,”
or the theory that an increase in revenues from natural resources will lead to a decline in
a country’s industrial sector by raising the exchange rate, which makes the manufacturing
sector less competitive. Similarly, states that rely on oil or other forms of windfall profits
for a large portion of their revenues are deemed “rentier states,” which derive their income
from nonproductive enterprise. These states concentrate their efforts on distributing wealth
to the population, often to buy social peace and preempt greater societal demands for ac-
countability, rather than fostering the conditions for the productive generation of wealth in
their societies (Beblawi 1990).
The resource curse provides a compelling explanation for underdevelopment in the
Middle East, particularly for the oil-exporting countries. The Gulf states have faced signifi-
cant challenges in attempting to diversify their economies and indigenize their workforces.
A growing body of research, however, qualifies the resource-curse argument, suggesting
that it is at best an insufficient and perhaps even not a necessary explanation for underde-
velopment. When viewed in larger historical and comparative perspective, resource inflows
per se do not necessarily hinder development. Other oil-rich countries such as Norway
have managed to escape the alleged inevitability of the resource curse. In the developing
world, resource-rich countries such as Indonesia, a major oil exporter (and Muslim-
majority country), and Botswana, which has vast mineral deposits, have also managed to
attain sustained records of economic growth. Furthermore, longer-run analyses of eco-
nomic trajectories in the resources-rich economies of the Middle East and North Africa
would likely show that these countries were not economically strong even prior to the dis-
covery of oil. Natural resources, then, may reinforce or exacerbated preexisting patterns of
development.
Recent studies hold that the timing of the discovery and exploitation of oil in rela-
tion to state-building processes shapes how resource wealth affects political and eco-
nomic development. When oil is exploited in conjunction with the construction of state
institutions, it may obviate the need to establish efficient tax bureaucracies because rulers
have so much income at their disposal (Smith 2007). Weak state institutions can limit the
prospects for economic development, which requires state agencies to direct resources to
productive sectors and facilitate investment (Chaudhry 1993; Evans 1995). Other research
suggests that ownership structure is a critical factor mediating the effects of oil resources
on economic development. Under certain types of private domestic ownership, rather
than state control, oil wealth is less likely to weaken state institutions (Jones-Luong and
Weinthal 2010).
Critiques based on the timing of oil discovery and ownership structure do not neces-
sarily undercut the validity of the resource-curse argument for the MENA region. In the oil-
rich countries, the construction of political institutions generally occurred in conjunction
612 Melani Cammett
with the exploitation of oil resources, often with substantial foreign influence (Chaudhry
1997; Vitalis 2006). Furthermore, in all MENA countries, the state controls the oil sector.
Other factors provide more compelling reasons to qualify the claim that oil wealth
explains economic underperformance among MENA countries. First, to the extent that it
is valid, the resource-curse argument only applies to a subset of these economies. Not all
countries in the region enjoy large natural resource endowments. Second, recent research
on the Gulf oil economies shows that some countries in the region have developed pockets
of economic efficiency despite vast natural resource wealth. Within the Gulf countries,
some state-owned enterprises are more competitive than others, and some states have expe-
rienced greater success in establishing high-performing firms than others within the subre-
gion. As Hertog (2010) argues, the degree of populism and societal penetration of the state,
which increase pressure on state officials to use public assets for redistributive purposes and
to create jobs, jointly explain why government-owned firms in countries such as Algeria
and Kuwait are less competitive than those in countries such as Saudi Arabia and Qatar.
Oil wealth undoubtedly deterred economic development in at least some MENA coun-
tries. Yet a variety of empirical and theoretical critiques of the resource-curse argument con-
vincingly demonstrate that oil wealth is not a sufficient explanation for economic outcomes
in the region. Rather, the resource curse may increase the propensity for economic under-
performance and exerts a negative impact on growth and development in conjunction with
other conditions, such as institutional characteristics and patterns of state–society relations.
Corruption and Crony Capitalism

Beyond oil, recent analyses emphasize the pervasiveness of corruption and “crony capi-
talism” in MENA political economies, pointing to poor governance as an explanation for
suboptimal economic performance.26 Corruption and wasta, or influence and personal
connections, are prevalent features of economic and social exchange in the region, par-
ticularly in comparison with OECD countries (Heydemann 2004). Inclusive, accountable
governance is assumed to produce positive developmental outcomes by increasing popular
influence on policy-making, thereby increasing the probability that policies serve the wel-
fare of the people. With growing emphasis on private sector–led development, good gov-
ernance has attained increased importance. Respect for the rule of law is critical for firms,
which require assurances that their assets will not be expropriated and have a chance of
reaping good returns before they will invest.
Numerous studies document the alleged “governance gap,” or the mismatch between gov-
ernance and income levels, in the Middle East and North Africa (World Bank 2003b, p. 56),
and research on business–government relations in diverse MENA countries documents the
prevalence of crony capitalism (Cammett 2007; Catusse 2008; Haddad 2012; Heydemann
2004; Hibou 2006; Leenders 2012; Schlumberger 2008).27 Figure 28.5 depicts regional
values of various dimensions of governance, including control of corruption, government
effectiveness, rule of law, and voice and accountability.28 Like other developing regions,
the MENA indeed exhibits poor values in comparison with high-income OECD coun-
tries. When benchmarked just against other developing regions, the Middle East performs
reasonably well on certain indicators, such as control of corruption, the overall quality of
public administration as measured by government effectiveness, and the rule of law.
100
90
80
70
60
50 Governmental effectiveness
40 Regulatory quality
30 Rule of law
Control of corruption
20
Voice and accountability
10
0
MENA East Latin South Africa OECD
Asia America Asia
Figure 28.5 Governance Indicators by Global Region, 2012, Average Percentile Rank

Source: World Bank, “Governance Matters,” 2013.
Research on the impact of corruption and development yields inconclusive results.

Some studies question the alleged negative relationship between corruption, on the one
hand, and economic growth and development, on the other hand (Kutan, Douglas, and
Judge 2009, p. 25). While some research indicates that corruption hinders development by
diverting resources to unproductive endeavors and distorting the economy (Shleifer and
Vishny 1993), other analyses maintain that corruption can be economically beneficial under
some circumstances by enabling investors to bypass inefficient bureaucratic regulations
(Acemoglu and Verdier 1998). Research on the roots of the East Asian “economic miracle”
shows that state–business relations were characterized by crony capitalism, yet this did not
inhibit countries such as South Korea from achieving spectacular growth rates (Kang 2002).
Furthermore, it is difficult to disentangle the interrelationships between corruption and de-
velopment: It is equally plausible that corruption emerges in the context of poor economic
performance.
Aggregate regional scores mask important variation across different types of polit-
ical economies in the MENA region. Within the region, countries differ in the extent of
perceived corruption and the degree to which governments uphold the rule of law. For
example, in 2012, the percentile rank of government effectiveness was 83 in the UAE, 56 in
Tunisia, 53 in Morocco, 34 in Algeria, and 25 in Egypt.29 Likewise, the wealthier countries
exhibit lower levels of perceived corruption (83 in the UAE, 53 in Tunisia, 42 in Morocco,
36 in Algeria, and 34 in Egypt) (World Governance Indicators 2012). As would be expected,
war-torn and low-income countries such as Iraq, Lebanon, Yemen, and the Palestinian
Territories have particularly poor measures, while the Gulf oil monarchies exhibit relatively
low levels of corruption and greater respect for the rule of law. Yet some of the region’s
non-oil economies such as Jordan, Tunisia, and Turkey feature relatively low levels of
corruption and greater enforcement of contracts than might be expected (Kaufman, Kraay,
and Matruzzi 2009; Sayan 2009, p. 5).
In short, the mere presence of corruption may not provide a convincing explanation
for underdevelopment in the Middle East and North Africa. The region as a whole fares
614 Melani Cammett
relatively well when compared with other regions in the global South, and some of the
non-oil countries, which do not exhibit the high income levels associated with better gov-
ernance, have reasonably good governance scores. More generally, existing social science
research finds mixed results for the alleged association between corruption and poor de-
velopment outcomes; some of the most spectacular economic success stories have emerged
in the context of widespread cronyism. An important question for future research, then,
should focus on the particular nature of corruption and crony capitalism in the MENA
countries. Are business–government relations, or other patterns of state–society relations,
especially conducive to suboptimal economic performance at the level of the firm or at
higher economic units?
Authoritarianism
A related but distinct argument links the absence of democracy with poor economic
outcomes in the Middle East and North Africa. The region is an outlier with respect to one
component of governance—“voice and accountability,” or the “extent to which country’s cit-
izens are able to participate in selecting their government, as well as freedom of expression,
freedom of association, and a free media” (Kaufmann, Kraay, and Mastruzzi 2009) (also
see Figure 28.2). This measure is closely linked to political regime type: Citizens who live in
democracies or at least countries with more political freedoms enjoy more basic political
and civil liberties.30
Authoritarianism is sometimes linked to poor economic performance in the region
(UNDP 2002, 2003, 2004; Henry and Springborg 2010; World Bank 2003b, pp. 70–7 1). The
relative dearth of political freedom and failure to uphold the rule of law inhibit the for-
mulation and implementation of policies that benefit the public good, rather than private
interests (UNDP 2002). For example, Henry and Springborg (2010) argue that authori-
tarianism and the related lack of transparency in the political economies of the region are
major obstacles to attracting foreign investment and spurring domestic capital holders to
make long-term investments. Insecure property rights, which can arise in authoritarian
systems in which rulers are relatively unchecked, may deter the levels of private and foreign
investment needed to sustain economic growth and ultimately inhibit further integration
of MENA countries in the global economy. Furthermore, political repression inhibits labor
and other social groups from organizing in defense of their interests and makes private-
capital holders hesitant to initiate new projects and undertake long-term investment.
Middle Eastern and North African governments maintain their hold on power through a
combination of carrots and sticks. In the oil-dependent economies, governments compen-
sate for limited accountability by providing public goods and social services to maintain
citizen satisfaction. In the poorer, non-oil economies, elites with close ties to rulers profit
from limited accountability in the system to maintain their privileged access to economic
opportunities. These strategies can lead to poor developmental outcomes in the long run.
Arguments linking authoritarianism and lack of transparency with relative underdevel-
opment in the MENA region are compelling but not entirely convincing. Research on the
relationship between regime type and economic development is inconclusive (Przeworski
2004), and empirical evidence from other regions, notably East Asia, suggests that author-
itarian rule can be compatible with development. The case of South Korea is illustrative. In
the 1970s and 1980s, South Korea experienced double-digit growth rates and rapid economic
development. This remarkable transition, which has served as a model for developing coun-
tries across the globe, occurred in the context of authoritarian rule, political repression,
and corruption (Deyo 1989; Kang 2002). Furthermore, even if aspects of authoritarianism
impede development, the origins of related factors in Middle Eastern political economies—
that is, corruption, the lack of transparency, and weak state institutions—deserve more sys-
tematic analysis. Effective extractive, regulatory, and administrative institutions are critical
to development (Evans 1995; Kohli 2004; Lange and Rueschemeyer 2005), yet little research
explores the origins of effective and ineffective state institutions in the MENA region. As
I argue in the next section, the precise impact of Ottoman and colonial institutions on the
evolution of state institutions and forms of economic management in postindependence
states deserves more scholarly attention.
Populism and State–Society Relations

The political elites who took power in newly independent countries made economic
and social policy choices that shaped development paths in more recent decades, even if
the institutions they inherited from colonial authorities constrained national economic
trajectories. In the context of anticolonial backlash and the emphasis on ISI development
strategies in the global South in the 1950s and 1960s, most MENA governments adopted
variants of populist policies and statist approaches, which may have harmed longer-term
growth prospects. Although natural resource abundance does not determine economic
policy choices, windfall profits from oil wealth also contributed to poor economic perfor-
mance in indirect ways via foreign aid and remittances from the Gulf states to lower-income
countries. Thus, a combination of postindependence nationalist fervor, the dominant eco-
nomic wisdom at the time, and regional capital flows facilitated the establishment of an
“interventionist-redistributive” development approach (Youssef 2004, p. 92). This model
is characterized by redistribution and equity in economic and social policy, precedence for
state planning over market-based allocation, protectionism, a dominant state role in the
provision of welfare and social services, and the suppression of contestation in the political
arena (World Bank 2003b, p. 2). Once established, social contracts were virtually impossible
to dismantle even when they became economically unsustainable, locking MENA countries
into inefficient patterns of resource allocation.
Why then did postcolonial leaders adopt populist policies across the Middle East and
North Africa? An answer to this question requires a political sociological approach. Based
on a comparison of state-building in the Middle East and East Asia, Waldner (1999)
contends that divisions within the political elite compelled policy-makers in Turkey and
Syria to make greater concessions or “side payments” to the popular classes than in South
Korea and Taiwan, where more narrow, cohesive social coalitions enabled rulers to adopt
less redistributive policies that promoted investment and growth.
The social contract hypothesis provides a powerful explanation for the decline of eco-
nomic growth in the MENA region in the 1980s onward, when recession and falling oil
prices drastically cut resource flows in the region and debt burdens soared. This approach
also points to many of the challenges that currently plagues efforts to bring about struc-
tural reforms across the region. Arguments in this vein are most convincing when they
616 Melani Cammett
acknowledge and aim to account for variation in the nature of social contracts. As discussed
above, in the first decades after independence, different countries in the MENA region es-
tablished distinct types of political economies with varied strategies of legitimation. Both
economic factors, notably oil endowments, and political factors, such as regime type
and the social origins and commitments of postindependence elites, shaped the diverse
bargains between rulers and ruled in MENA countries and, potentially, citizen expectations
of their states. More attention to the distinct types of social contracts in the region, and the
bargains between rulers and ruled that underpin them, would help to explain why some
states appear to remain more locked in than others to these arrangements. This kind of po-
litical sociological approach, which acknowledges cross-national variation, is a promising
foundation for ongoing research on economic trajectories and performance in the region.
Research Agenda
The diverse explanations reviewed in this chapter make valuable contributions to an un-
derstanding of the political economy of development in the Middle East and North Africa;
however, many of these approaches are best viewed in probabilistic terms or as factors
that interact with other conditions to shape economic-development trajectories. Some
approaches also suffer from internal inconsistencies or encounter empirical contradictions.
Analyses that highlight the long-term roots of underdevelopment in the Muslim world
usefully integrate MENA cases directly into debates about the historical determinants of
growth and development (Blaydes and Chaney 2013; Kuran 2011). A long-run historical
perspective is compelling because variation in rates of economic development can be due
to short-term factors such as natural disasters, business cycles, and public policies, whereas
long-term economic development trends have much deeper roots (Mahoney 2010, pp. 7–8).
At the same time, deeply historical accounts must be contextualized to highlight varia-
tion over time and space and to point to the political contests that shaped the formation
and reproduction of institutions both centuries ago and in the more recent past. Economic
historians of the MENA region have documented differences in Islamic economic and so-
cial institutions as well as flexibility in the functioning of charitable trusts (awqaf) and forms
of corporate ownership, pointing to the merits of research on specific places rather than the
Islamic world as a whole. Thus, ongoing research on the impact of Ottoman-era institutions
on development should take seriously variation in the ways in which the same institutions
were actually implemented in different parts of the Muslim world. Furthermore, while
Ottoman state practices or styles of governance might have had a greater causal impact on
development trajectories than Islamic institutions (Çizakça 2010; Goldstone 2012), future
scholarship should assess patterns of institutional reproduction and change in more recent
centuries and explore the interaction of institutions established over centuries ago with
more recent developments during the colonial and postcolonial eras.
Turning to the postindependence period, variation in development trajectories within
the MENA region is a crucial starting point for further research. The region is characterized
by markedly distinct types of political economies, which are shaped in part by different
levels of labor and natural resources endowments. To seek the origins of distinct economic
trajectories, comparisons between this region and relevant countries from other developing
regions are a promising strategy. Cross-regional research should compare the MENA region
with South Asia or sub-Saharan Africa, which have more comparable histories of coloni-
alism and postcolonial development policies and politics, rather than the exceptional cases
of East Asia (Owen 2002). Given shared histories of ISI followed by state retrenchment,
comparisons between the labor-abundant MENA countries with some Latin American
countries would also be fruitful. Few developing countries have achieved sustained high
growth rates and levels of industrialization in the twentieth century outside of the East
Asian countries, such as South Korea and Taiwan.
More intra-regional comparisons would also be valuable. While it is true that many
MENA countries share similar records of underdevelopment, there are important areas of
variation, including within the oil and non-oil subtypes of economies. An obvious compar-
ison is between Turkey, the seat of the former Ottoman Empire and an economic “success
story” in the past few decades, and non-oil Arab countries such as Egypt or Tunisia, which
also pursued industrialization as a path to development. What explains Turkey’s ability
to achieve high growth rates while other countries that also developed their industrial
sectors, including through export-led industrialization, have faltered? Why were Turkish
elites able to change course more successfully than other countries in the region and in
the global South? These kinds of questions require attention to the politics behind shifts
in economic strategies and the resultant changes in development trajectories. The ruling
Islamist Justice and Development Party (AKP) often receives credit for high growth rates in
Turkey since the 1990s, but its main constituents—pious, export-oriented businesspeople
in central Anatolia—were in fact beneficiaries of policies adopted in an earlier period by
a non-Islamist ruling party (Gumuscu 2012). A full account of how Turkey managed to
alter its development trajectory so dramatically in the past few decades requires a polit-
ical account of how Turkey policy-makers were able to implement policies that threatened
influential protectionist interests and dismantled populist policies while introducing new
kinds of poverty-alleviation strategies.
A key frontier in research on the political economy of development aims to locate the
origins of distinct development paths and their relationships with different patterns of ec-
onomic growth (Sen 2013). This kind of approach requires careful attention to the political
struggles and social bargains underlying institutional formation and change. A focus on
the dynamics of state-building in the postcolonial periods, as found in Waldner’s (1999)
work, is a good starting point. To understand the origins of distinct development paths
in the region, future research should dig even more deeply by tracing who gained power
in postindependence governments, the kinds of bargains established between the new
leadership and key societal actors, what kinds of institutions and policies arose from the
interactions of rulers and ruled, and how these arrangements changed over time. Systematic
and appropriate cross-national and cross-regional comparative analyses of the political
determinants of different economic paths are a promising starting point for ongoing re-
search on the political economy of development in the MENA region.
The need for rigorous research on development in the region is all the more important
in the contemporary period. As the Arab uprisings have exposed, high levels of youth un-
employment, particular among educated youth, is a major challenge for most MENA coun-
tries. How have and how will these countries craft their economic and social policies in the
years to come? How will their institutional histories, which embody decades if not centuries
of political struggles, shape varied approaches? Furthermore, political change in Tunisia,
618 Melani Cammett
Egypt, and, possibly, Libya and other Arab countries potentially constitutes a genuine “crit-
ical juncture” for economic and social policy formulation. The Arab uprisings, while still
unfolding in most countries, have enabled more and different voices to be heard in the po-
litical arena and, as a result, may lead to substantive policy shifts in the future.
Acknowledgments
I thank Bryan Daves, Ishac Diwan and Roger Owen for comments on drafts of this essay. All
errors are my own.
Notes
1. I focus primarily on the oil states of the Gulf (i.e., Bahrain, Kuwait, Oman, Qatar, Saudi
Arabia, the United Arab Emirates and Yemen, which recently attained the status of an oil
producer), the countries of the Levant (i.e., Jordan, Lebanon and Syria), the main North
African countries (i.e., Algeria, Morocco and Tunisia), Turkey and Iran. I exclude Israel
because its economic structure and unique history make its political economy more com-
parable to that of the OECD states; and the sub-Saharan Arab countries such as Djibouti,
Mauritania, and Sudan, which are sometimes included in the region because they are
members of the Arab League. The chapter does not address the cases of Palestine and Iraq
in detail, which have both experienced significant “de-development” (Roy 1995) due to
protracted conflict and foreign occupation.
2. For a detailed breakdown of distinct subregional patterns of economic growth, see
Cammett and Diwan (2014).
3. The UNDP’s HDI provides an aggregate measure of the living conditions of the popu-
lation across different countries and includes measures of health and access to health
care services, nutrition levels, life expectancy at birth, adult literacy and mean years of
schooling, access to basic infrastructure such as water and sanitation, real per capita in-
come adjusted for the differing purchasing power parity of each country’s currency, and
the percentage of the population living below the poverty line.
4. I am grateful to Ishac Diwan for emphasizing this point.
5. In 2009, female labor force participation rates were 24.8% in the Middle East, 27.6% in
North Africa, 39.6% in South Asia, 52% in Latin America, 57.6% in Southeast Asia, 61.3%
in sub-Saharan Africa, and 66.5% in East Asia (ILO 2011).
6. The World Bank classifies Libya as an upper middle income country.
7. I define oil dependency as a ratio of fuel exports to total export earnings of more than
66%, moderate dependency as a ratio between 34% and 65%, and low dependency as less
than 33%. The UAE recently shifted to “moderate” oil dependence, which largely reflects
the growing importance of financial services and related sectors in the federation’s
economies.
8. I discuss the Dutch disease argument below.
9. A dominant economic interpretation defines institutions as the basic rules of an
economy, including formal systems, such as constitutions, laws, taxation, insurance, and
market regulations, as well as informal norms of behavior, such as habits, customs, and
ideologies (North 1990). Note that institutional quality is distinct from regime type. For
example, some democracies do not guarantee property rights more than some authori-
tarian regimes.
10. When these policies were initiated, many republics were allied with the Soviet Union,
which helped to inspire the adoption of planning and the expansion of the public sector.
11. At various times, Kuwait and Bahrain have effectively permitted parties to operate by
allowing organized groups to field candidates in elections (Cammett and Posusney 2010).
12. In 2011, only Tunisia ranked higher than some of the Gulf oil monarchies (Kuwait and
Oman) in the ease of doing business (World Bank 2011).
13. The two non-oil monarchies diverge with respect to the adoption of ISI as a development
strategy. Jordan’s small size and limited resource base precluded the adoption of domes-
tically oriented trade policies, and the country’s strategic value has enabled it to become
heavily aid dependent. In Morocco, which has a larger population and agricultural base,
ISI was adopted wholeheartedly beginning in the 1960s and consolidated in the 1970s.
14. Economic crisis does not fully explain the turn to the assistance of international finan-
cial institutions (Owen 1992, pp. 139–141). Some countries such as Tunisia initiated par-
tial liberalizations of their economies well before experiencing a crisis. Furthermore, the
region as a whole had more revenues thanks to oil and regional labor remittances than
other developing regions such as Latin America and sub-Saharan Africa. These sources of
wealth could have enabled many MENA countries to stave off painful economic reforms
for a longer period. Although the Gulf oil monarchies had never adopted protectionist
trade regimes, the oil price slumps of the mid-1980s compelled some to institute austerity
programs and to seek to diversity their economies and “indigenize” their work forces
(Kapiszewski 2006).
15. Data on inequality are notoriously unreliable and may underreport the actual extent of
income inequality in the region.
16. For a critique of Weber’s arguments vis-à-vis Islam and capitalism, see Rodinson (1978).
17. Goldstone (2012) elaborates this argument in detail in his review of Kuran’s most recent
book (2010).
18. Kuran (2011, p. 15) himself acknowledges another potential critique of his argument,
notably that it contains elements of endogeneity. By adopting a particular historical
moment from which to begin the analysis of the economic decline of the Islamic world,
it is not clear whether institutional rigidity caused economic stagnation or vice versa
(Ibrahim 2011, pp. 2–3). Still, most claims in the social sciences are subject to some forms
of endogeneity, whether through omitted variable bias, reverse or reciprocal causation, or
some other factor, and yet make important contributions.
19. I am grateful to Beshara Doumani, Tarek Masoud, and Roger Owen for input on these
points.
20. To be fair, these arguments do not entirely undercut the claim that Islamic institutions
deter economic growth: The alleged negative effects of Islamic institutions may be
counterbalanced by the positive impact of other Islamic or non-Islamic institutions in
MENA countries or convergence in institutions and policies in recent decades may have
diminished the negative effects of Islamic institutions on development.
21. This section draws on Owen and Pamuk (1999).
22. During the Great Depression, however, increased protectionism enabled more local
investors to establish manufacturing enterprises.
23. Iran was occupied by British, American, and Soviet forces during World War II.
24. Similarly, Mahoney (2010) argues convincingly that precolonial institutions are an inte-
gral part of explanations for postindependence state effectiveness in Latin America.
620 Melani Cammett
25. A large body of research directly and indirectly links oil wealth to authoritarianism in
the region (see, inter alia, Beblawi and Luciani 1987; Bellin 2004; Chaudhry 1997; Crystal
1995; Ross 2001). I do not address this literature in this review, which focuses on the eco-
nomic rather than political ramifications of rentierism.
26. As the World Bank (2003a, p. xviii) holds that “public governance is good when this pro-
cess is inclusive of everyone and when the people can hold accountable those who make
and implement the rules.”
27. Through an analysis of firm valuations before and after the Egyptian revolution, Chekir
and Diwan (2013) show the market value of political connections in Egypt, indicating that
connected firms were not the most high performing firms but rather benefited dispro-
portionately from their ties to political elites.
28. According to the Governance Matters Dataset (Kaufman, Kraay, and Mastruzzi 2009),
“control of corruption” measures the extent to which public power is exercised for private
gain; “government effectiveness” measures the quality of public services, the quality of
the civil service and the degree of its independence from political pressures, the quality
of policy formulation and implementation, and the credibility of the government’s
commitment to such policies; and “rule of law” measures the extent to which agents have
confidence in and abide by the rules of society, such as contract enforcement, the police,
and the courts, as well as the likelihood of crime and violence.
29. In 2009, the year before the uprising, Tunisia had a score of 66, and Egypt had a score of
47 for government effectiveness.
30. Multiple other sources point to the disproportionate presence of authoritarian regimes in
the Middle East and North Africa (Diamond 2010; Geddes 1999).
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Chapter 29
Rethinki ng t h e
Institu ti ona l
F ou ndations of C h i na ’ s
Hy pergrow t h
Official Incentives, Institutional
Constraints, and Local Developmentalism
Fubing Su, Ran Tao, and Dali L. Yang
Introduction
Since the end of the Mao era, China has embarked on the road to reform and opening up in
pursuit of economic development, and so far it has enjoyed extraordinary growth. This re-
markable period of growth has helped elevate China’s nominal per-capita GDP, though still
moderate, to the ranks of lower-middle-income countries (as defined by the World Bank).
In aggregate terms, the Chinese economy is already the second largest in the world and also
the world’s largest trader by volume. Whereas China throughout the 1980s and much of the
1990s struggled to earn precious foreign exchange, it now controls the world’s largest for-
eign exchange reserves of more than three trillion US dollars. Few at the time of Mao’s death
could have imagined that China, still dominated by the Chinese Communist Party (CCP),
would become a major engine for global growth thirty years later.
The meteoric rise of the Chinese economy under the CCP has attracted enormous
attention from social science researchers and raised profound questions. Economists have
naturally focused their attention on economic factors, such as an abundance of cheap
labor, a high savings rate, managed foreign exchange, and institutional reforms in agri-
culture, state-owned enterprises, and trade and investment regimes (Brandt and Rawski
2008). Liberalization and privatization have helped correct many of the inefficiencies in
resource allocation that afflicted China’s planned economy and unlocked the produc-
tive potential of individuals and firms (Lin 1992; Naughton 1996; Qian 2000). While
Institutional Foundations of China’s Hypergrowth 627
numerous economic analyses have shed light on the sources and dynamics of China’s
economic growth and on economic transitions more broadly, they have generally tended
to undertheorize the role of politicians and the politics behind adoption of reforms for
capturing efficiency gains.
Yet politics does matter for the economy, even though China has left behind the Mao
era of “politics in command.” In democracies, politicians seeking reelection are known
to deliberately orchestrate periodic booms (Alesina, Roubini, and Cohen 1997; MacRae
1977) and alternatively to drive their most entrepreneurial residents out of their districts
and thus sabotage growth (Glaeser and Shleifer 2005). Though not facing open and com-
petitive elections, leaders of autocratic states also operate under a survival imperative;
they may choose from a variety of policy packages, from pro-growth policies (Shirk 1993;
Yang 2006) to the blocking of efficiency-enhancing technologies (Levi 1989; Perkins 1967).
Thus, a better understanding of a country’s economic performance requires insights
into politicians’ incentives and choices. In this context, it is especially worth noting the
increasing fascination with the role of local officials (and by extension local governments)
in China’s development; in a variety of ways, this fascination has set an important,
expanding research agenda.
At the risk of oversimplification, we divide studies that privilege the role of local
officials into two approaches. The first approach largely follows the standard assumption
of Homo economicus and views local officials as revenue maximizers (Jin et al. 2005; Lin
and Liu 2000; Montinola, Qian, and Weingast 1995; Oi 1992, 1999; Qian and Weingast
1997). On this account, which we call the “fiscal incentives approach,” China’s fiscal de-
centralization in earlier reform periods provided local authorities with a strong revenue
incentive to benefit from the growth they could foster, thereby generating pro-growth
policies and practices that have propelled China’s remarkable economic expansion. Some
scholars go further to claim that the Chinese economy came under the thrall of a fiscal
federalism known as “market-preserving federalism with Chinese characteristics.” The
other approach, which we call the “career incentives approach” (we recognize there is
overlap between the two approaches), assumes that local officials are Homo politicus and
seek to maximize their chances of political advancement (Blanchard and Shleifer 2001;
Chen, Li, and Zhou 2005; Li and Zhou 2005). Like a supersized bureaucracy, the Chinese
state, sometimes referred to as “China Inc.,” is organized like a gigantic, modern hier-
archical organization, with Communist Party leaders retaining control over an elabo-
rate nomenklatura system of appointments and promotions. Because higher authorities
have the power to promote or demote lower-ranked officials based on evaluations of the
latter’s performance, including especially economic performance, Chinese local officials
have oriented their careers accordingly. Unlike local politicians in democracies, they
do not have to contest in popular elections but compete in producing results that win
endorsements of their superiors.
We begin with a review of these two elegant and stimulating arguments. Each offers
useful insights into China’s political economy of development, but we note that both
of these arguments suffer from serious weaknesses that beg for an alternative formu-
lation. Underlying the fiscal incentive argument are two key assumptions: the central
government’s credible commitment to nonpredation; and the factor played by mobility
across regional boundaries. Neither fits well with China’s political and economic realities
628 Fubing Su, Ran Tao, and Dali L. Yang
of the 1980s. The central government frequently reneged on its pledges on fiscal contracts
and grabbed additional revenues from more affluent localities. Due to the dual-track
reforms and the incidence of local protectionism, factors did not gain high mobility
until the second half of the 1990s. Empirical support for the career incentives argument,
particularly the idea of a tournament among local officials (the tournament thesis), is
equally weak. As an official policy, systematic cadre evaluations did not come into being
until the early 1990s and were implemented unevenly across the country. It is especially
a stretch to claim top provincial officials with broad portfolios of responsibilities were
evaluated primarily on economic growth rates. Our analysis of the career trajectories
of provincial leaders leads us to results that contradict the findings claimed in earlier
papers.
We are not the first to critique the above arguments. Some scholars have gone so far as
to dismiss the active agency in local officials and suggest a need to focus on politics at the
center. On this account, local choices are negligible, or their growth-enhancing policies and
practices reflect central policies that are the product of political competition between pro-
market and conservative factions in Beijing (Cai and Treisman 2006).
Our alternative analytical approach does not deny the importance of incentives for
local officials in explaining China’s economic transition and growth. Abundant research
and our own fieldwork all point to the fact that the actions of China’s local officials matter,
and their actions have independently shaped the contours of Chinese development. We
start with an assumption of revenue-maximizing local government officials. However,
we also add more institutional details to better account for the patterns of local gov-
ernment behavior. Three institutions, that is, central-local fiscal arrangements, regional
competition, and industrial linkages, have constrained local officials’ choice sets and led
to a particular form of local developmentalism in China. A wide range of phenomena
in China’s economic development and transition, such as the rise of TVEs (township
and village enterprises), local protectionism, SOE (state-owned enterprise) privatiza-
tion, and massive industrialization and urbanization, can find logical and parsimonious
explanations in our framework.
Beginning with incentives for local officials enables us to build a microfoundation
for analyzing China’s political economy. From a policy perspective, while the two ex-
isting approaches assume that local governments make efficiency-enhancing policies,
our approach points to how the revenue imperative has often driven local officials
toward a more destructive path. Thus the economic boom extending over several
decades has gone hand in hand with certain negative consequences, the costs of which
have become more and more obvious. Our approach thus allows us to both explain
China’s rapid growth and offer a diagnosis of the current paralysis in reform and pos-
sible solutions.
The rest of this chapter is organized as follows. We first assess the fiscal incentives and
fiscal federalism argument, especially the validity of its two key assumptions in view of ac-
tual developments in the Chinese economy. Next we discuss the tournament thesis in view
of Chinese policy as well as empirical data. Using a large dataset on Chinese provincial
leaders, we retest the relationship between economic performance and official promotion.
In the third section, we present a three-pronged framework and explain why revenue-
maximizing local officials have pursued a particular form of developmentalism in China
since the early 1990s.
Local Officials as Agents for Economic

Growth: Two Existing Explanations
Homo Economicus: Officials as Revenue Maximizers and

the Fiscal Game
By linking federalism and economic development, the literature on fiscal federalism,
particularly market-preserving federalism, has generated much insight into the political
foundations for secure property rights and economic development (Oates 2005; Weingast
2009). Scholars taking the fiscal incentives approach adopt the standard assumption in
public economics that local officials seek to maximize their budgets. Chinese officials
channel their energy into the promotion of economic growth, they argue, because of the
existence of a sort of fiscal federalism regime, or “federalism, Chinese-style,” that provide
them with strong incentives to develop the economy in spite of the predominance of the
CCP in Chinese politics and economy (Montinola, Qian, and Weingast 1995; Oi 1992).
Secure private-property rights are generally recognized as a key to growth, but they are
hard to obtain with CCP dominance. By introducing two mechanisms, the fiscal incentives
approach offers a stimulating perspective on how growth might have taken hold in China
prior to the early 1990s.
First, the central government is believed to be committed to nonpredation of local gov-
ernment revenues. Under the fiscal contracting system that existed until 1993, provincial
governments (and certain major cities) signed separate contracts with the central govern-
ment and thus enjoyed a relatively stable and marginally increasing share of budgetary
revenues (Wong 1997). Initially made popular by the success of household contracting in
rural China (Yang 1996), contracting arrangements were also adopted between provin-
cial and subprovincial authorities as well as between governments and their SOEs. The
commitment that such contracting arrangements implied provided strong fiscal incentives
for local authorities to promote economic growth.
Even with fiscal contracts, it is still possible for some local officials to act arbitrarily
against businesses (Byrd and Lin 1990). The possibility of local government predation on
business is mitigated, however, by a second mechanism: factor mobility. In their drive for
fiscal revenues, local officials need to offer a hospitable environment for investors and re-
frain from harming their interests. When they threaten and infringe on the interests of
business, other locations in China as well as in other countries may offer more attractive
conditions and persuade capital to move. Jurisdictional competition thus serves to tie the
hands of predatory local officials. All in all, the Chinese state, at central and local govern-
ment levels, has incentives to protect property rights, thereby fostering a business environ-
ment that is conducive to investment, economic growth, and the generation of government
revenue. Thus Montinola, Qian, and Weingast (1995) boldly claimed that the logic of market-
preserving federalism (MPF) applied to China, albeit with certain Chinese characteristics.
It was sheer theoretical elegance to make the move from fiscal incentives to the sublime
realm of MPF with Chinese characteristics. Yet did the two mechanisms noted above de-
scribe Chinese realities of the 1980s and early 1990s accurately?
Is the central government ommitment credible?

It is true that the fiscal contracting system granted local governments higher marginal reten-
tion rates with regard to budgetary revenues, but in the absence of a constitutionalist frame-
work or third-party enforcer this central government commitment was honored more in the
breach. China is still a unitary state, and the central leadership has the power to change the
“rules of the game” unilaterally; in fact, it did readjust fiscal contracting arrangements in
the central government’s favor on multiple occasions. In 1978, the center adopted a system
of “linking expenditure to revenue and dividing extra revenue with fixed share” (yishou
dingzhi, ding’e fencheng). Shortly afterward, the central government found itself running
a deficit and decided to introduce a system of “dividing revenues and expenditures and
each level of government responsible for balancing its own budget” (Huafen shouzhi, zifu
pingheng). The 1980 central-provincial fiscal contracts were to last five years. However,
the center revised the terms of the contracts extensively in 1982. In 1985, the center fur-
ther reconfigured central-provincial fiscal relations as part of the tax-for-profit reforms
(ligaishui), and there was yet another overhaul in 1988. Each of the fiscal revisions and
reconfigurations was extensive and entailed considerable realignment of existing interests.
The 1985 reform of “changing profit remittance into taxes,” for example, required provinces
with surpluses in prior years to remit more revenues to Beijing, while those provinces in
deficit were allowed to retain more, thereby redistributing funds from the “haves” to the
“have nots” (Tsui and Wang 2004; Wong 1997). The central government also “borrowed”
large sums from provinces to alleviate its fiscal problems in 1981, 1982, and 1987 and never
repaid these loans (Tsui and Wang 2004).
All throughout the post-Mao era, the central government has vigilantly guarded its
sources of revenue and especially kept a tight grip on those provinces and municipalities—
Shanghai, Beijing, Tianjin, Liaoning, Jiangsu, and Zhejiang—that were the key revenue
contributors to the national coffers (Agarwala 1992). Indeed, Guangdong got the go-ahead
to move one step ahead in reform in the 1980s partly because it was not yet a significant
revenue generator for the central government, whereas Shanghai was kept on a tight leash
until 1990 (Vogel 1990). But the center’s focus was on budgetary revenue, whereas increas-
ingly funds were going into extrabudgetary and off-budget items that local authorities had
greater control over. Under such circumstances, official incentives for local authorities to
collect formal taxes from local SOEs and TVEs were understandably not very high since
these revenues would have to be shared by the center.
The challenge for the center was that the budgetary revenue was becoming a
smaller portion of the overall pie of gross domestic product (GDP). The more the cen-
tral authorities focused on tightly controlling the budgetary revenue, the more local
authorities sought to evade it. Instead of giving much energy to collecting revenues
that would be shared with the center, local officials concentrated their energy on raising
extrabudgetary or off-budget revenues and other forms of “small treasuries” that were
not part of China’s consolidated government budget (Wedeman 2000). Two institutional
variables facilitated this revenue diversion. First, as the owners of local SOEs and TVEs,
local government officials could control the cash flow of local enterprises to hide tax-
able income and profit from the central government and shifted some of the revenue
to local extrabudgetary or off-budget accounts. Second, before the establishment of a
separate central tax agency in 1994, local governments were the sole tax collection agents
in their jurisdictions. This gave local officials the discretion to manipulate the effective
tax rates and tax bases despite the fact that they did not have the authority to alter the
statutory rates and bases (Ma 1997; Ma and Norregaard 1998). Local governments also
frequently colluded with local SOEs and TVEs to understate profits to avoid possible
central-government predation.
Our review of China’s central-provincial fiscal relations in the 1980s thus lends little
support to the fiscal federalism thesis. The fiscal contracting system was never designed to
tie the hands of the central government nor to signal the central intention of nonpredation.
Just as one would imagine from an authoritarian state, the center resorted to various ad hoc
instruments (e.g., ad hoc revisions to fiscal contracts, raising the share of a certain tax cate-
gory that goes to the central government, moving off-budget revenue items into the budget,
shifting expenditure responsibilities to local governments) to boost its share of the gross
revenue. When these ad hoc measures were deemed to have been inadequate, the central
leadership pushed through a major overhaul of the tax and fiscal system in 1994 (discussed
later in this chapter).
We believe that fiscal incentives have played an important role in local developmentalism,
but it was not the central government’s credible commitment to nonpredation but rather
the inability of the central government to eliminate paralegal or illegal local government
accounts that really preserved local officials’ drive for economic growth. The struggle be-
tween the center and localities was not only about formal budget revenues but also over
extrabudgetary funds.
How mobile was capital prior to the early 1990s?

We now consider whether (private) capital mobility was a major factor in constraining local
government predation in China in the 1980s.1 The evidence suggests that local governments
did protect local enterprises, but not for the reason of factor mobility.
One noticeable phenomenon of the 1980s was local governments’ strong preference for
investing in their own SOEs and TVEs. The reason was simple: easy profit. Because of the
pent-up demand for consumer products after the reform, China for most of the 1980s was
a seller’s market, and owning and managing SOEs and TVEs turned out to be very lucra-
tive. In this situation, local authorities had strong incentives to develop and protect their
own enterprises rather than vigorously promote and protect private businesses (Yang 2004,
chap. 2). As the Chinese banking system was highly decentralized at the time, local officials
could generally exert influence on the branches of state-owned banks to extend credit to
their own enterprises (Lardy 1998). As the owners of public firms, local governments were
entitled to enterprise profits in addition to the right to make key appointments. In fact,
during the transition away from the old planning system, remittances from enterprise
profits still constituted the bulk of local operational budgets, and local governments were
not considered first and foremost as tax collectors. Hence the aforementioned 1985 reform
was enacted to convert enterprise profit remittances into taxes.
Throughout the 1980s, the idea of the market remained suspicious, and private owner-
ship of major firms was still taboo; it was not until 1992 that the CCP leadership formally
adopted the term “socialist market economy” (Yang 2004: 7). Because local authorities
directly owned or controlled enterprises that constituted their revenue base, it was natural
that local officials would seek to protect local SOEs and TVEs under their administration
against competition from private and nonlocal enterprises (Bai et al 2004; Tsui and Wang
2004). In order to exist, some private businesses masquerade as collective enterprises by
wearing “red hats” (Huang 2008).
When competition began to emerge and intensify, ample evidence suggests that
many regional governments during that time period resorted to “local protectionism,”
sometimes restricting entry into local markets of products from other areas and at
other times preventing lower-priced local raw materials from being sold to the out-
side, leading to the eruption of “commodity wars” (Watson, Findlay, and Du 1989; Yang
1991). Studies of China’s regionalism in the 1980s and early 1990s show a duplication of
industrial structure and a growing dispersion of commodity prices, telltale signs of se-
rious interregional trade barriers (Naughton 2003; Poncet 2003; Wedeman 2003; Yang
1997; Young 2000).
One could conceivably suggest foreign capital was more mobile and thus could have
played one local government against another in extracting preferential treatment for
making investments. In practice, the fierce competition for mobile manufacturing capital,
especially foreign direct investment (FDI), did not become a major theme until the 1990s
(Yang 1997). For the 1980s, the idea of having foreign capital was politically controversial,
and the amount of FDI going into China was very modest and largely confined to a lim-
ited number of special economic zones and pilot-reform provinces (Crane 1990; Howell
1993; Litwack and Qian 1998; Yang 1990). Over the period 1983–1992, more than 70 per-
cent of the FDI into China went to the provinces of Guangdong and Fujian plus three
large cities directly under the central government’s control: Beijing, Shanghai, and Tianjin.
Even more importantly, foreign investors in China then were generally not permitted to sell
in domestic Chinese markets and could only use China as a manufacturing base to make
products for international markets.
In conclusion, and in contradistinction to the claims of the Chinese-style federalism ar-
gument, Chinese local officials had little urge to preserve a competitive market system in
the first phase of transition. Even with the introduction of the dual price reforms, China was
far from being a functioning market, and regulatory barriers were also in place to keep for-
eign investors confined and at bay. When competition did emerge, the first instinct for local
authorities as SOE owners was to erect market barriers to protect local enterprises. There
was thus very limited mobility of capital, labor, and products at that time. The presence of
nonstate firms and foreign investors was also quite limited, and altogether firms did not
have the clout to credibly fend off abusive local governments. It would take the emergence
of a buyer’s market and massive losses for the state sector for local authorities to reorient
their behavior (Yang 2004).
Homo Politicus: Officials as Promotion Maximizers

and the Tournament Game
There has been growing interest in examining how career incentives for promotions of
local officials have fostered economic growth in China. The career incentives argument,
particularly as exhibited in the tournament competition (for political promotions) model,

has gained popularity in recent years and inspired researchers to ask new questions and
conduct empirical tests with increasingly rich datasets. Simply put, advocates of the model
posit that China’s central leaders base their decisions on promotions on an evaluation of
the economic performance of top provincial officials (Chen, Li, and Zhou 2005; Li and
Zhou 2005).
Drawing on insights from the literature on western corporate performance, the tourna-
ment competition model has found broad appeal in China. It sports a simple but powerful
logic that most Chinese found intuitively sensible. In fact, the model’s logic can be readily
found in discussions appearing in the Chinese official news media, especially when officials
are criticized for displaying so-called GDP worship, namely promoting local economic
growth at the expense of the environment and other values.
Despite the growing appeal of the tournament competition model as applied to China,
we and others find the model suffers from a number of logical and empirical weaknesses
that undercut its explanatory power for China’s development. We first discuss some of these
weaknesses, but we will nonetheless give the hypothesis the benefit of the doubt and rerun
the statistical analyses using a more carefully constructed dataset.
Firstly, in light of the extreme diversity in regional endowments and the fact that some
places are naturally better positioned for growth than other places, one might suggest that
central leaders would need to take such diversity into consideration in assessing local per-
formance. We recognize, however, that researchers can to some extent deal with such heter-
ogeneity in their statistical analyses by introducing various control variables. Related to the
issue of heterogeneity is the problem of assessing causality between political mobility and
economic performance. The posting of an appointee to a provincial area ripe for economic
takeoff or sustained growth may not be based on meritocratic grounds, but it is politicized.
Students of Chinese politics have long noted the importance of patron-client relations in
the study of state-building in China (Huang 2000; Nathan 1973; Shih 2008). Patrons might
send their favored clients to regions with high growth potential so that the clients would
gain credentials for higher positions. Therefore, “meritocracy” is no more than a façade for
an essentially clientelistic state. Under this scenario, even if GDP growth and promotion are
correlated, that correlation would still be spurious as far as the tournament model is con-
cerned. Thus statistical tests of the tournament model will need to take into consideration
factional ties.
Second, advocates of the tournament model have assumed the existence of a universal
promotion policy across the country from the very start of the reform era. The reality, how-
ever, is more complicated. The Communist Party’s Organization Department did issue a
document in 1979 titled “Opinions on Implementing a Cadre Evaluation System,” but it
emphasized assessments of four qualities (virtue, capability, diligence, and performance),
and performance was placed last among the four. It was not until 1988 that performance be-
came a key criterion (Zhuang 2007: 44). Even then our fieldwork reveals tremendous varia-
tions in local implementation. We have not come across any evidence indicating the criteria
for evaluating the economic performance of provincial leaders. While it was fairly common
to find cadre evaluations tied to economic and financial performance between townships
and villages, until a few years ago it was still far from universal practice for top county
leaders to be assessed on their ability to meet certain targets (综合目标责任制) and even
rarer for top provincial leaders to be thus assessed (Tao et al. 2010b: 14–16). These temporal,
regional, and rank variations need to be incorporated into any analysis of performance-
linked promotions.
More important, when these evaluations are examined closely, it is never explic-
itly stated that economic performance is the sole criterion for official promotion. In
various central directives on cadre evaluations issued since 1988, the CCP has always
emphasized the need to evaluate cadres on multiple dimensions, including virtue (de),
capability (neng), diligence (qin), performance (ji), and integrity (lian). In the 2000s,
local authorities have made more serious and systematic efforts to design and imple-
ment cadre performance evaluation systems (Zhuang 2007). These systems are exceed-
ingly elaborate, and cadres are typically assessed on a long list of qualities rather than
simply economic performance. In recent years, social stability, population planning, ar-
able land preservation, and environmental protection have all entered the list of key
performance targets.
It may be argued that what really matters is not party/government documents but what
rules (both explicit and implicit) are being followed in practice. In fact, there is a saying in
China, “数字出官，官出数字,” which means that good (GDP) numbers make the officials
and officials in turn make (up) the numbers.2 The most influential studies supporting the
thesis that better economic performance increases the likelihood of promotions are Li
and Zhou (2005) and Chen, Li, and Zhou (2005). Contrary to an earlier study (Bo 2002),
the two articles reported that provincial leaders whose jurisdictions experienced faster
GDP growth rates had a higher chance of promotion (Li and Zhou 2005). They further
argued that China’s central leadership compared provincial leaders’ relative performance
with their immediate predecessors, not with peers in other provinces (Chen, Li, and
Zhou 2005).
Given the theoretical and empirical concerns noted above, we are somewhat skep-
tical about the findings in these articles and decided to replicate them. Most variables
used in these two articles are uncontroversial. The basic socioeconomic information
about top provincial officials, such as age, education, and working experience, can be
easily found in online biographies and certain handbooks. Economic performance data
including GDP growth rate and GDP per capita for each province are readily available
from the National Bureau of Statistics. Having collected the relevant data independently,
we discovered a number of serious measurement and coding errors that might have bi-
ased the findings. For the key independent variable “relative economic performance,”
the researchers simply subtract the immediate predecessor’s moving average from the
provincial leader’s moving average without adjusting for the overall national economic
performance. For example, a 5 percent growth rate would be a good number in 1989–
1990 when the Chinese economy slowed down, but really quite bad in the early 2000s
when the Chinese economy grew by more than 10 percent. Making direct comparisons
between these two time periods is clearly misleading. There are also issues with the
promotion variable, including missing information for 2002, a year of a National Party
Congress that typically sees many personnel changes, and inconsistent application of
coding rules (the same official move was coded as a promotion for some individuals but
a demotion in others).
Table 29.1 Ordered Probit Regressions: Economic Growth and Political Turnover

of Provincial Leaders, 1979–1995
Turnover (1 = promotion; 0 = same level; −1 = termination)
(1) (2) (3) (4)
Annual GDP growth 0.004 0.005

rate (0.33) (0.33)
Average GDP growth 0.026 0.016
rate (1.90)* (1.06)
Age −0.041 −0.040
(3.08)*** (3.02)***
Age 65 −0.862 −0.857
(4.47)*** (4.44)***
Education 0.121 0.131
(0.92) (1.00)
Central connection 0.290 0.289
(2.12)** (2.11)**
Tenure −0.036 −0.038
(1.30) (1.35)
Lagged per-capita 0.605 0.431
GDP (million yuan) (0.36) (0.26)
Cutoff point 1 (α1) −1.455 −4.599 −1.108 −3.679
(4.79)*** (4.47)*** (3.46)*** (3.23)***
Cutoff point (α2) 1.460 −1.367 1.817 −0.442
(4.88)*** (1.34) (5.69)*** (0.39)
Observations 883 883 883 883
Log-likelihood ratio −482 −429 −481 −429
* 10%, ** 5%, and *** 1%.

Note: T-ratios based on robust standard errors are in parentheses. Provincial and year dummies are
included but not reported here.
Using the corrected dataset, we rerun the same regression models as in the two orig-
inal articles. As shown in Table 29.1 (1980–1995), contrary to the original findings (Li and
Zhou 2005), the annual GDP growth rate (columns 1 and 2) has no statistically significant
impact on promotion. The moving average of the GDP growth rate is statistically sig-
nificant in simple correlations (column 3), but this impact disappears when the control
variables are introduced (column 4). As expected, age and central working experience
are all highly significant. In the larger dataset (1979–2002) (Table 29.2), neither average
GDP growth rate, nor the relative performance compared to the immediate predecessor,
has a statistically significant effect on provincial officials’ turnover. In Tao et al. (2010b),
an effort was made to bring greater clarity and consistency to the promotion variable but
the results remained insignificant. Our failure to replicate the results of the two influential
studies have thus confirmed our initial skepticism about the proposition that China’s cen-
tral leaders promoted provincial officials on the basis of economic performance as meas-
ured in GDP growth rate.
Table 29.2 Ordered Probit Regressions: Relative Performance Evaluation
in Provincial Leader Turnovers in China, 1979–2002
Turnover (1 = promotion; 0 = same level; −1 = termination)
(1) (2) (3) (4) (5)
Provincial GDP 0.019 0.010 0.018

growth rate (1.34) (0.70) (1.30)
(A)
Provincial GDP −0.023 −0.023
growth (1.53) (1.54)
of the
immediate
predecessor
(B)
GDP growth of 0.014 0.007
neighboring (0.61) (0.29)
provinces (C)
A-Bnew 0.017
(1.41)
A-C 0.004
(0.33)
Age −0.048 −0.049 −0.049 −0.049 −0.049
(4.33)*** (4.63)*** (4.33)*** (4.39)*** (4.61)***
Age 65 −0.934 −0.844 −0.935 −0.930 −0.846
(5.32)*** (5.08)*** (5.32)*** (5.33)*** (5.10)***
Education 0.024 0.065 0.023 0.009 0.064
(0.20) (0.58) (0.19) (0.07) (0.56)
Central 0.271 0.242 0.271 0.275 0.240
connection (2.56)** (2.34)** (2.56)** (2.62)*** (2.33)**
Tenure −0.035 −0.038 −0.034 −0.036 −0.038
(1.43) (1.66)* (1.41) (1.46) (1.66)*
Cutoff point 1 −5.149 −5.331 −5.095 −5.700 −4.402
(6.40)*** (7.20)*** (6.21)*** (7.27)*** (5.99)***
Cutoff point 2 −1.962 −2.171 −1.908 −2.518 −1.246
(2.47)** (2.97)*** (2.36)** (3.26)** (1.70)*
Observations 1241 1303 1241 1241 1303
Log-likelihood −613 −652 −613 −614 −652
ratio
* 10%, ** 5%, and *** 1%.

Note: T-ratios based on robust standard errors are in parentheses. Provincial and year dummies are
included but not reported here.
Explaining Local Developmentalism

and Its Consequences
As we shift our attention away from the 1980s and early 1990s, the flaws of the approaches
described above become more obvious. In 1994, the central government introduced a
tax-sharing system and recentralized government budgets to allow the central govern-
ment significantly greater control over the revenue stream. Following the fiscal feder-
alism thesis, fiscal recentralization should reduce local governments’ drive for growth.
The incentive structure for officials has also been revamped. With the installation of Hu
Jintao (party general secretary and People’s Republic of China president) and Wen Jiabao
(premier) in 2002–2003 came new guidelines for cadre evaluations under the rubric of
Hu’s “scientific outlook on development.” Local officials have been required to fulfill a
growing list of additional targets on school enrollment, poverty reduction, environmental
protection, “civilization,” social stability, and so on. If promotion of provincial officials
was indeed linked to the rate of economic growth, the introduction of some of these new
targets presumably should have weakened local officials’ motivation for higher economic
growth rates.
Contrary to these predictions, China has sustained its extraordinary economic
growth through the 1990s and 2000s even as it faced major turbulence, including
the Asian financial crisis of 1998–1999 and the global recession of 2008–2009 (Yang
2012). Local developmentalism has in fact gained greater momentum since the mid-
1990s, and local governments’ energetic promotion of industrialization and urbaniza-
tion have buoyed national economic growth. Local officials have eagerly courted foreign
as well as domestic investors to invest in the thousands of industrial parks that have
mushroomed across the country. To finance investments in infrastructure and support
investments in industry, local governments became diligent agents in the land market,
taking land cheaply from farmers and leasing it to industrial land users at low or rock-
bottom prices while charging high prices for residential land developers. This mode of
local developmentalism has helped produce an extremely pro-business environment,
resulting in overinvestment in manufacturing capacities and lax environmental and
labor regulations.
How do we account for this vigorous local developmentalism that the two existing
approaches have difficulty foreseeing? Is it possible to integrate local development policies
into one coherent analytical framework? In the rest of this chapter, we sketch out an alter-
native framework that combines the local governments’ pursuit of revenue (the revenue
imperative) with certain institutional details. This new framework thus takes as its starting
point the assumption, shared by the fiscal incentives approach, that local officials are chiefly
economic agents. In their pursuit of revenue, however, local officials must operate within
constraints imposed by three institutional dimensions: the central-local fiscal arrangement,
regional competition, and industrial linkage. We submit that this framework offers a uni-
fied account for the dynamic patterns of local developmentalism that have driven China’s
remarkable growth as well as some of ithe adverse consequences.
Fiscal Reforms and the Revenue Imperative

Taxes are the lifeblood of a state. In the early 1990s, the Chinese central government found
itself in a gradual and dangerous process of losing control over the revenue stream. As
Figure 29.1 indicates, government budgetary revenue as a share of GDP declined from
31 percent in 1978 to about 12 percent in 1992. The challenge was compounded for the cen-
tral government because its share of government budgetary revenue declined from more
than 40 percent in 1984 to only 22 percent in 1993.
The weakening of the central government’s fiscal capability was actually an unintended
consequence of the central government’s own reform policies introduced in the 1980s
(World Bank 2002). The fiscal contracting system adopted in the 1980s permitted local
governments to keep the surpluses after fixed submissions to the central government and
was designed to incentivize local officials to promote economic development (Montinola,
Qian, and Weingast 1995; Oi 1992). Since local governments were entitled to a larger share
of the extra revenues beyond the quotas, the central government’s share of total government
revenue would decline as the economy expanded quickly. In reality, even this sharing for-
mula was not enough for revenue-maximizing local governments. They found clever ways
to collude with state-owned enterprises and divert profits and revenues to extrabudgetary
and off-budget accounts. Over time government budgetary revenue as a share of GDP
steadily declined.
Concerned about the declining central state capacity, the central government revamped
the tax and fiscal system in 1994 by replacing the particularistic fiscal-contracting system
with a system of tax sharing between the center and provinces. The most important tax cat-
egory, the value-added tax (VAT), was between the central government (75 percent) and the
provinces. The business tax and income tax were assigned as local revenues. This tax reform
essentially recentralized budgetary revenues and allowed the central government to gain
control over the revenue stream. The impact was immediate, with the central government’s
share of the budgetary revenue jumping to 56 percent in 1994, and it has stayed above
50 percent since then. Moreover, the central government set up a dedicated national tax
administration rather than relying on local authorities to collect taxes on its behalf (Wong
and Bird 2008).
The 1994 tax and fiscal reforms initially appeared to be a major step in the direction of
de facto federalism. While bolstering the central government’s control over the revenue
stream, these reforms helped delineate central-provincial fiscal relations and resulted in the
formal separation of national and local tax-collection administrations. Yet since the 1994
reforms, the central government has again and again revised the terms in its favor and at
the expense of the provinces. It has clawed back the bulk of the securities stamp tax and per-
sonal and enterprise income taxes, and it has required localities to share in the cost of VAT
rebates on exports (Tsai 2004; Tsui and Wang 2004; Yang 2004, 2006). Not surprisingly, the
central government has over time also sought, with some success, to put key extrabudgetary
and off-budget revenue items into the budget (Tao and Yang 2008; Wedeman 2000). What
the center termed “tax and fiscal reforms” have turned into squeezes for local authorities.
Even while they control a smaller share of total government revenue, local authorities
are under pressure to meet with the growing burdens arising from the decentralization of
spending or, in Washington’s terms, the central government’s policy mandates. As a unitary
state, the Chinese central government faces little constitutional limits on its power over
60.0
50.0
40.0
30.0
20.0
10.0
0.0
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
central share in government revenue total government budget/GDP
Figure 29.1 The Two Ratios: Government Budget Revenue as a Share of GDP and Central
Share of Total Government Budget, 1978–2011 (unit: percent)
Source: Authors’ calculation based on fiscal revenue and GDP data from the National Bureau of Statistics (http://www.
stats.gov.cn/tjsj/ndsj/).
regional authorities and has routinely imposed new mandates, such as on school enroll-
ment, immunization, rural road construction, clean water, and so on, generally expecting
local governments to foot the bill. If the central government offers funding for some of
these measures, that funding tends to be channeled to underdeveloped areas in the interior
(Tao et al. 2010a; Tsui and Wang 2004). Moreover, as will be discussed next, the bankruptcy
of numerous small and medium-sized state-owned enterprises in the 1990s caused much
stress on the banking system as well as on local governments, which had to help support
retirees and laid-off workers (Lee 2007). Simply put, China’s local officials have been under
massive financial pressure.
To come up with funds to meet their growing needs, it is natural for local authorities
to encourage investment in the local economy. They can collect business taxes and enter-
prise income taxes (those assigned to them). Even though they only share 25 percent of
VAT generated by manufacturing firms, efforts to develop manufacturing still paid off be-
cause local authorities not only got their share of VAT but also profited from the spillovers
generated by manufacturing investment. Last but certainly not least, local governments are
eager to tap into new sources of extrabudgetary incomes, such as land lease fees and various
administrative fees, especially because some older extrabudgetary revenue items got folded
into the regular budget.
Factor Mobility and Regional Competition

While the central government’s (vertical) competition for revenue sharpened local officials’
focus on revenue production, regional (horizontal) competition intensified the revenue
pressure even further. Montinola, Qian, and Weingast (1995) argued that factor mobility
induced local governments to protect property rights and applied this reasoning to ex-
plain economic growth in the 1980s. Factor mobility evolved out of a highly rigid planning
system and did not become significant until the mid-1990s (Tao et al. 2010b). In the after-
math of the Tiananmen crackdown in 1989, conservatism dominated the political scene
and market reforms were put on hold; and, in several cases, some reforms were even rolled
back (Yang 1997). Deng’s southern tour in 1992 finally reversed the trend and unleashed
the Chinese people from the shackles of government planning, which helped precipitate
numerous individuals to “jump into the sea” of the market. China burgeoned with for-
eign investors and private entrepreneurship. With the growth of a more integrated national
market, capital, labor, raw materials, and products could move relatively freely across the
country (Holz 2009).
While Deng’s top-down push for liberalization played a crucial role in reigniting the
train of reform, local governments had compelling financial reasons to privatize and liber-
alize. In the seller’s market of the 1980s, enterprises were almost guaranteed to make profits
(Naughton 1996). Under the fiscal arrangements of the 1980s, local governments developed
a strong preference for locally owned state enterprises that, under the fiscal contracting
system, constituted the base for local governments’ incomes. The SOEs paid taxes, remitted
some of the profits, and, because their ties to local governments, also made it easier for
local governments and local SOEs to collude in hiding some of the money from the formal
budgetary system and placed it into local extrabudgetary funds (Che and Qian, 1998). In
addition to being cash cows, local enterprises were also convenient vehicles for local officials
to make patronage appointments and to generally increase employment. Not surprisingly,
local governments rushed to build their own SOEs and, for townships and villages, TVEs.
The massive entry into industry, particularly manufacturing ranging from bicycles and
household appliances to consumer products such as beer, eventually did create competi-
tion and a glut of products in most sectors. By the mid-1990s, only a small percentage of
prices continued to be subject to government control, and most consumer product prices
were set by supply and demand (Cao, Fan, and Woo 1997, 21). Producers in most indus-
trial sectors, ranging from textiles to household appliances, were confronted with a buyer’s
market, the first most Chinese had ever experienced in their lifetime. Growing competition
steadily turned ownership of state firms into a liability, particularly for local governments
that owned the smaller and less competitive firms. The 1995 industrial census shows that the
83,167 state firms owned by various local governments earned a paper profit of only 3 billion
yuan, and these firms were more than twice as heavily indebted as the central government
firms (Yang 2004: 31–32). Faced with growing competition, some local governments reacted
with protectionism and restricted the import of products from other jurisdictions, but it
was at best a stopgap measure (Bai et al. 2004; Naughton 2003; Poncet 2003; Wedeman
2003; Yang 1997; Young 2000). Two additional institutional changes in the early 1990s fur-
ther cooled down local governments’ interest in directly owning firms. First, the 1994 tax
and fiscal reforms, with the introduction of the VAT and the establishment of a separate
national tax administration, made it more difficult for local governments to collude with
local firms (World Bank 2002). Second, state-owned banks were undergoing their own
reforms and were becoming more reluctant to lend to indebted SOEs, curbing the flow of
credit that local authorities had leaned on to support local SOEs. The convergence of these
factors prompted local authorities to restructure and privatize the local SOEs. Even before
the central government endorsed privatization in 1998, more than 70 percent of small SOEs
had already been privatized or closed down in some provinces (Cao et al. 1999; Yang 1997).
By the turn of the millennium, the majority of local SOEs and TVEs in the country had fin-
ished the transformation (Qian 2000).
The privatization-cum-divestiture turned local governments from asset owners to tax
collectors. This redefinition of the local state’s role has had a powerful impact on local gov-
ernment behavior. As asset owners, local officials had strong incentives to support their own
“children,” sometimes at the expense of nonlocal and nonstate firms. Being tax collectors,
however, they could be more even-handed and cater to all potential tax contributors, in-
cluding private and foreign-invested businesses, which started to enter China en masse
in the second half of the 1990s. Unlike SOEs and TVEs, the foreign-invested firms are
not tied to the local governments and thus they are more mobile and responsive to local
policy incentives in choosing their locations. They could relocate to another jurisdiction if
it offered more favorable tax treatment and better infrastructure. Local governments must
compete to attract such businesses and grow their tax base.
Industrial Linkages and Spillovers

Investments in manufacturing generate two kinds of tax revenue: VAT and enterprise in-
come tax. Local governments receive 25 percent of VAT, all of the local enterprise income
tax, and personal income tax paid by employees.3 While these tax categories constitute a
sizable portion of local government revenue, it is nonetheless costly to attract footloose
businesses. In addition to the cost of having the basic infrastructure ready (land, road,
water, gas, power, electricity, and telecommunications), local authorities have often had to
offer preferential tax treatment. When, following the 1994 tax and fiscal reforms, the cen-
tral government forbade local governments from offering foreign investors tax exemptions,
local authorities tended to collect the enterprise tax first and then rebate enterprise income
taxes up to the first three-and-a-half years over the next two years (Yang 1997).
In spite of the high costs of attracting manufacturing firms, Chinese local governments
have competed aggressively for manufacturing firms and, by the early 2000s, they collec-
tively turned China into the world’s workshop. What motivated Chinese local officials to do
so? How can local governments secure financing to subsidize manufacturing in the short
or even medium term? We believe the answer to both questions lies in industrial linkage,
particularly after the central government lowered the percentage of enterprise and personal
income taxes that local governments could retain in 2002–2003. In fact, local governments
in China have developed a clever strategy to exploit this linkage and thus maintain the mo-
mentum for China’s development.
To simplify the analysis a bit, all localities essentially deal with two kinds of
businesses: manufacturing and services. As discussed above, manufacturing enterprises
generate relative stable VAT and income taxes. What appeals to local governments even
more is the fact that the agglomeration of manufacturers will spill over and foster service
industries. Once factories start to operate, workers and managers living in cities and towns
will spend their earnings, enabling businesses such as shopping malls, restaurants, enter-
tainment, financial banks, and real estate companies to meet growing consumer demand.
In recent years, we have conducted a series of interviews on local development practices,
and we learnt that local officials, almost without exception, emphasized the importance in
their decision-making process of taking into account the spillover from manufacturing to
services. Therefore, from a revenue perspective, manufacturing not only generates VAT
and income taxes but also contribute to a growing stream of business taxes (营业税), a tax
assigned solely to local governments.4
While the spillover from manufacturing to services is common worldwide, the linkage
between the two does not flow in one direction only and actually goes from services to
manufacturing as well in China. Both manufacturing and services create jobs and gen-
erate revenues, but they differ in one crucial attribute: location specificity (Tao et al.
2010b). Manufacturing enterprises mostly produce tradable goods for national or inter-
national markets and thus can have a tenuous attachment to specific locations, except
for considerations of supply chain management. The attenuated location specificity has
enhanced the mobility of manufacturing businesses and their sensitivity to production
costs in different locations. They are well known for relocating their production facilities
in response to shifts in production costs and policy environments. Service businesses, in
contrast, must establish contacts with local residents to deliver their services. Compared
to manufacturing firms, they are more firmly anchored to specific locations. This location
rigidity gives local governments significant leverage in bargaining with them and creates a
potential for backward linkage.
China’s unique regulatory regime makes land a perfect vehicle for this linkage. Under
Chinese law, land belongs to the state in urban areas and belongs to collectives in rural
areas. Only local governments have the authority to requisition land from farmers and lease
it to land users in industry and commerce (Lin and Ho 2005; Wang et al. 2010; World Bank
2005). This de facto monopoly of land supply has given local officials much leeway in spa-
tial planning and allows them to leverage land for development as well as to discriminate
180
160
140
120
provincial
100 averages
minimums
80
maximums
60
40
20
0
1998 2000 2002 2004 2006 2008 2010 2012
Figure 29.2 Land Lease Fees Measured as a Ratio of Local Budgetary Revenues, 1999–
2011 (unit: percent)
Source: Provincial budget data are from China Statistical Yearbook (www.stats.gov.cn/tjsj/ndsj/) and provincial land lease
data are found in China Land and Resources Statistical Yearbook, 1999–2011.
against certain land users. Beginning in the late 1990s, cities such as Hangzhou introduced
competitive bidding for land earmarked for commercial development and have been found
to strategically limit the amount of land for commercial and real estate businesses in their
jurisdictions so prices would continue to rise (Lin and Yi 2011; Tao et al. 2010a; Wu 2010;
Yang 2004). Service businesses had no choice but to pay local governments land lease fees
that have risen exponentially following the introduction of competitive bidding. Real estate
developers and service providers have in turn passed rising land costs onto their buyers and
customers, that is, local residents. Meanwhile, local governments have reaped a bonanza
from rising land prices for commercial development. As Figure 29.2 shows, land lease fees
(土地出让金), as a part of local extrabudgetary income, amounted to as much as 50 per-
cent of the formal budget at the provincial level for much of the 2000s. In some areas, the
ratio was as high as 170 percent! Behind these ratios are efforts by local governments to
build more, larger, and better for manufacturers and commerce and to provide incentive
packages, including cheap land and tax benefits, to lure footloose manufacturing capital
into industrial parks. By 2006, there were 6,015 industrial parks in China or about two for
each county (Yang 1997; Yang and Wang 2008; Zhai and Xiang 2007).
In sum, fiscal recentralization, factor mobility, and industrial linkage worked together
to generate a powerful push for local developmentalism in China. With developed markets
eager for cheap imported products, and China itself on the fast track for massive urbani-
zation and the huge demand such urbanization generates (raw materials such as steel and
cement as well as consumer products such as furniture), Chinese local developmentalism
became the foundation of China’s hypergrowth since the 1990s and provided the founda-
tion for China’s manufacturing competitiveness (Duhigg and Bradsher 2012). This growth
has enriched the lives of more than one billion people, lifted hundreds of millions of people
out of poverty, and gained China greater clout internationally.
A Race to the Bottom: Economic, Social,

and Political Consequences
Yet the furious drive for growth has also pushed the Chinese developmental model to
the limit and caused serious imbalances. Capital formation as a ratio of GDP rose from
24.9 percent in 1990 to 47.5 percent in 2009, fueling a massive buildup in manufacturing
capacity (National Bureau of Statistics 2011: 19). Just to give a sense of the rise in industrial
output: the per-capita output of cement and of steel in 2010 in China was 7.5 times and
8 times, respectively, of 1990 figures (National Bureau of Statistics 2011: 18). Because the
Chinese system of political economy favored investment and exports rather than domestic
consumption, China’s growing manufacturing capacity, aided by a controlled exchange rate
regime, has been turned into an export machine (including process trade). As a result of its
trade prowess, China has accumulated vast foreign exchange reserves of more than three
trillion U.S. dollars as of early 2012. Because these reserves are recycled back into devel-
oped economies, they have helped boost global liquidity and, by extension (through more
investments into China), credit growth in China, thereby helping to fuel China’s booming
property market and other investments. In recognition of the economic imbalances and
the need to address them, the twelfth Five-Year (2011–2015) Plan for national economic
and social development, approved by the Chinese National People’s Congress in 2011, gave
emphasis to “higher-quality growth” but set a lower target for GDP growth per annum of
7 percent.
Economic imbalances aside, this developmentalism has also left a heavy toll on nature
and society. Leveraging land for development has caused serious social dislocations in both
rural and urban communities and the loss of cultural heritage. The requisitioning of land
at unreasonably low prices has resulted in millions of disgruntled farmers in the country-
side; and, as highlighted by the Wukan rebellion in December 2011, it is the leading cause
of protests in rural areas and has undermined political trust in local authorities (Cui et al.
2012). To attract investors, some local governments have raced to the bottom in offering pro-
business conditions. While most multinational companies appear to generally behave well
environmentally, local governments have been quite tolerant toward some heavily polluting
firms in mining, coking, smelting, dyeing, and other sectors. In some cases, local enforce-
ment agencies openly colluded with factories to evade central inspections (Economy 2011;
Tilt 2007; cf. Wheeler 2001). Then there is the negative scale effect, major industrial parks
now boast of hundreds and even thousands of firms close to each other, and this situation
is repeated many times across the country; even when every one of these firms produces
relatively little pollution, the total environmental impact of China’s massive industrializa-
tion has still been large (Chai 2002). At the same time, the environmental impact of the gi-
gantic push toward urbanization, with a proliferation of high-rise buildings and the world’s
largest automotive market, has become painfully obvious on days when smog smothers
entire cities across the country. Increasing pollution not only ruins the air, the water, and
the natural habitat for wildlife but also causes harm to human health in terms of increased
cancer rates and higher healthcare expenses (Ebenstein 2012).
China’s vast labor force has been another key element of Chinese developmentalism.
Until recently, however, investors and local officials tended to treat workers as easily replace-
able and expendable human machines. Migrant workers who move from the interior to the
coastal cities do not enjoy residency rights and have had to work long hours for meager
wages, sometimes under dangerous conditions. When accidents and work-related injuries
occurred, which happened quite frequently, their rights were not adequately protected by
local governments and courts (Chan 2001; Gallagher 2007; Ngai 2005). In recent years,
following the revision of the Labor Contract Law, which went into effect on January 1, 2008,
and, at least equally important, the emergence of labor shortages for manual labor that have
helped labor gain greater bargaining power, work conditions and salaries have begun to
improve for workers (Yang 2005).
Conclusion
Politicians’ incentives matter in economic development. In the past thirty years, local
officials have played an indispensable role in the rapid rise of TVEs, the gradual decline of
SOEs, the dramatic improvement in infrastructure, the rise of massive new cities, and the
emergence of China as the world’s leading manufacturing center.
What separates Chinese officials from land- grabbing governments in most devel-
oping and transitional countries? Supporters of the fiscal federalism thesis argue that
fiscal contracting and factor mobility forced the central and local governments to respect
property rights and promote business development. Some other researchers endorse
the tournament competition thesis and believe that Chinese local officials are mainly
motivated by the career prospect of promotion to develop their economies. Even though
both approaches are faulted for a variety reasons, and especially on empirical grounds, they
have nonetheless charted a stimulating path for research by explicitly linking politicians’
microincentives with macroeconomic outcomes.
Building on some of the insights from the existing approaches, we have sketched out an
alternative analytical framework that can better account for the Chinese local governments’
continual drive for growth as well as the key growth policies adopted. Moreover, we show
that the introduction of three institutional factors, that is, central-local fiscal arrangements,
regional competition, and industrial linkage, allows us to explain the evolution of revenue-
seeking local government officials over time: their drive to launch SOEs and TVEs in the
1980s, their efforts at protectionist developmentalism as competition began to heat up, and,
since the 1990s, their divestiture of local SOEs and focus on land taking, urbanization, and
industrial buildup.
Whereas the existing approaches tend to depict the Chinese transition and development
experience in a rosy light (e.g., “China miracle,” “successful transition,” “amazing growth”)
our alternative framework allows us to both explain the dynamic aspects of China’s growth
and transition and recognize the costs and limitations of China’s developmentalism. In fun-
damental ways, China’s remarkable growth over the last thirty years has relied on a certain
disregard for, if not outright violation of, the rights of labor, land, intellectual property, and
the environment plus growing access to developed country markets. Indeed, on numerous
occasions the taking of land was a violent process, with local authorities being a key player
in land-grabbing. Even today, in spite of revisions to the regulations on land requisitions,
demolitions or land takings can still turn bloody when local officials rush to obtain the land
and ride roughshod over residents who refuse to give it up.
Yet it is also clear that the essential ingredients of China’s developmental dynamism can
also be its limitations. The most striking corollary of local developmentalism in China is
a sustained rise in land prices for commercial development and property prices, which,
together with loose credit, fueled much speculation and a major property bubble. By 2011
property prices had risen so much that “the dream of owning an apartment is now out of
reach for almost anyone who does not already have one” (Anderlini 2011). Concerned about
the bubble getting even more out of control, the Chinese central government has sought to
cool the property sector and, following repeated efforts, measures for adjusting the property
sector appeared to have brought property prices closer in line with household incomes by
2012 (Orlik and Fung 2013). But there are concerns that a bursting of the property bubble
could put substantial pressure on China’s fragile financial system (Walter and Howie 2011).
So far the effect of property crashes has been confined to a small number of cities such as
Erdos (Inner Mongolia) and Wenzhou that are relatively far from metropolitan areas. In
general it appears domestic construction, from railways to power plants, is also moving to-
ward a slower mode of expansion than in the past.
While exports have grown in tandem with the massive buildup of manufacturing capacity
in China, it is simply unacceptable for China to continue having massive surpluses in trade;
it is also a growing burden to manage its multitrillion-dollar foreign exchange reserves. In
any case, the great recession of 2008–2009 has curbed demand from developed economies
and thus Chinese export growth. Meanwhile, with rising land and labor costs in China,
China has begun to see some low-end manufacturers move away from China (Bussey 2011;
Marsh 2011). In 2012, FDI fell 3.7 percent, paced by a 6.2 percent decline in manufacturing.
In contrast, FDI in parts of Southeast Asia (e.g., Indonesia and Thailand) surged.
The Chinese central government has been at pains to encourage domestic consump-
tion and to promote investment in education, health care, and innovation, with some
success (Breznitz and Murphree 2011). Besides gaining competitiveness in manufacturing,
China has steadily improved its ranking in the number of scientific papers published and,
led by companies such as Huawei, Lenovo, and ZTE, in the number of patents filed, as
well as in areas such as distribution and logistics (Wright 2012). With rapid aging of the
Chinese population already in progress, whether China can avoid the so-called middle-
income trap will depend fundamentally on its ability to reform (including deregulation of
the land system and antimonopoly policies), which would not only contribute to growth
but also help foster an environment for sustained productivity gains through innovation.
One need only recall the many rosy projections about Japan’s economic prowess at the
height of Japanese growth to know that the stakes are extraordinarily high for China, es-
pecially because current Chinese per-capita GDP is still much lower than Japan’s in 1990
(Subramanian 2011).
Because local developmentalism has been a major dynamic in China’s hypergrowth, the
transformation of China’s development pattern into one based on innovation and domestic
consumption also calls for transforming the dynamics of Chinese local developmentalism.
Yet this will not be easy, as a constellation of interests has coalesced around this
developmentalism and profited from it. Local governments across the country are addicted
to land-based industrialization and urbanization. Using practices such as land requisitions
and leasing, local governments have built up ties to businesses and developers and secured
loans from banks and other financial interests. Through these webs of interests and the
investment projects that connect them, local officials and other elites have profited hand-
somely. An indication of the power of this coalition of interests can be seen in the desul-
tory attempt to revise Land Management Law (LML) and raise the costs of requisitioning
land from farmers. While the National People’s Congress (NPC) put amending the LML
on its legislative agenda in both 2009 and 2010, it was not until November 2012, toward
the very end of Wen Jiabao’s term as premier, that the State Council executive meeting fi-
nally approved a bare-bones amendment to the LML calling for fair compensation to be
given for land requisitioned from rural communities for industrial and commercial use.
Even then the NPC has dragged its feet in approving the amendment (Wang Xiaoqiao and
Chenzhong Xiaolu 2013). In contrast, when during the global financial crisis the Chinese
central government decided to stimulate the economy, both central and local authorities
eagerly embraced the move and borrowed heavily to invest as they had been doing all along,
namely in railroads, highways, subways, and industrial parks.
Incoming leaders Xi Jinping and Li Keqiang have pledged to steer the Chinese economy
toward a new model, foster domestic consumption, and build a “beautiful China.” Yet in
their pursuit of the China Dream they face the daunting task of altering the incentives that
have propelled local authorities to engage in local developmentalism. Oftentimes in the past
it was a real or perceived crisis that served to catalyze China’s major reforms (Yang 2004).
Perhaps the transition to the next phase will be no different.
Acknowledgments
Dali L. Yang wishes to thank the Social Sciences Division and the Confucius Institute at the
University of Chicago for financial support. The views expressed in this chapter are those of
the authors.
Notes
1. Investments by the state and collectives were theoretically movable, but in the 1980s they
were generally bound to the authorities that provided the investments. Hence we give spe-
cial attention to the mobility of private capital.
2. Since the mid-1990s, there has been growing concern that provincial competition for better-
looking numbers has led to a significant divergence between provincial economic growth
rates and national economic growth rates, with the former averaging several percentage
points higher than the latter in any particular year. To reduce provincial distortions of eco-
nomic statistics, the National Bureau of Statistics has made strenuous efforts to reconfigure
its data collection services so that they can be more independent of local influences.
3. The local retention rates for enterprise and personal income taxes were adjusted in 2002–
2003. Since 2003, local governments have been allowed to retain the 2001 base amount
plus 40 percent above the base amount, while the central government receives 60 percent
percent of income taxes above the 2001 base amount.
4. On January 1, 2012, the Ministry of Finance and the State Administration of Taxation
launched a new tax reform proposal to convert the business tax to VAT. It was tested out
in some cities first, then expanded to several industries nationwide. Local governments are
entitled to receive the business tax revenue, and with the conversion they would continue
to keep this revenue. This reform would in general lower tax burden for service industries
so local governments are forced to shoulder the costs of this reform. This is yet another
case of the central government’s discretion as documented in this chapter.
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Chapter 30
The P olitical E c onomy

of Grow t h a nd
Devel opm en t i n I ndia
Two Puzzles
Stuart Corbridge, John Harriss,

and Craig Jeffrey
Introduction
Gross domestic product (GDP) in India has grown every year since 1979–1980. During
this time the economy has most likely registered two growth accelerations—defined
here, following Hausmann, Pritchett, and Rodrik (2005, p. 305), as an increase in per-
capita growth of two percentage points or more, where the increase in growth has to
be sustained for at least eight years and the post-acceleration growth rate has to be at
least 3.5 percent per year. This is remarkable and highly unusual. Haussman, Pritchett,
and Rodrik maintain there were just eighty-three growth accelerations in the global
economy from 1950 to 1992, including an initial spurt in India from 1981 to 1982. (At the
time of writing, it seems plausible that a second acceleration in India began in 2003–
2004 and most likely has been linked to the country’s growing integration into global
circuits of production and exchange.) How has India achieved this success? And more
especially, how and why did the political economy of development in India break with
an earlier model of import-substitution industrialization that commanded wide support
among the country’s dominant proprietary groups? As Grindle (2000) notes, audacious
reforms are rarely easy to achieve. Here is this chapter’s first and most substantial puzzle.
Notwithstanding the successes of the Indian growth story, the country has performed
less well than expected at pulling poor people out of extreme poverty, and much less
well than China and some other countries in East and Southeast Asia. The same goes
for broader measures of human development or capabilities. Why is this? Here is our
second puzzle.
The Political Economy of Growth 653
High Modernism and

Its Contradictions: India, 1950–1980
When India achieved Independence in 1947, its economy was overwhelmingly agrarian
and had supported few improvements in rural living standards over a period of fifty years
(Heston 1982). The manufacturing industry was concentrated in railway engineering,
chemicals, iron and steel, and of course textiles, mainly during the old Bombay presidency
(later Gujarat and Maharashtra). Then, as now, more than 85 percent of working Indians
found employment in the informal or unorganized economy (Harriss-White 2003, p. 3).
However, occupational portfolios that stretched across the town-country divide were less
well-developed in 1950 than they are today, save perhaps for in what would become (in
1956) the southwestern state of Kerala. Following the First Five-Year Plan period (1951–
1956), which failed to plump decisively for either public or private sectors, industry, or
agriculture, the Second and Third Five-Year plans—which occurred during the so-called
Nehru-Mahalanobis era, 1956–1966—shifted Indian economic development in the direc-
tion of heavy engineering and manufacturing, top-down planning, and a much stronger
role for public-sector enterprises (PSE) as command points for the economy as a whole
(Corbridge and Harriss 2000).
All this was in line with standard economic thinking at the time—with what is now called,
sometimes disparagingly, “early development economics.” The Second and Third Five-Year
Plans broadly shared the view of W. Arthur Lewis (1955) that the agricultural sector in a
developing economy is characterized by massive disguised unemployment. Shifting unpro-
ductive labor from a backward rural economy to the modern capitalist urban-industrial
economy was thus very much to be welcomed—the negative externalities of rural to urban
migration were hardly recognized at this point—and could be advanced without a signifi-
cant threat to food production in the countryside. The Nehru-Mahalanobis years assumed,
in any case, that agriculture in India was a “bargain basement” (Harriss 1992). Agrarian re-
form would lead to increased food production by the simple expedient of removing a class
of exploitative landlords (the zamindars of the erstwhile Bengal presidency and some other
eras) and/or by providing new incentives for direct tillers of the soil.
Early development economics further assumed that the manufacturing industry was a
sine qua non of economic growth and more general patterns of modernization. Work by
Hans Singer (1950) and Raúl Prebisch (1950) had recently suggested that the income terms
of trade of nonmanufactured goods and services were bound to decrease in a secular fashion
against manufactured goods, not least because well-off households had limited demand for
staple foodstuffs and other primary commodities. Countries like India and Pakistan were
thus encouraged to grow their own infant industries behind tariff barriers and other forms
of trade protectionism. Ideally, too, they were encouraged to decentralize their new indus-
trial plants, both to diffuse economic development across the space-economy and to foster
a growing sense of national identity in the wake of the divide-and-rule policies that had led
up to the Partition of India in 1947.
In the short run, an emphasis upon physical capital accumulation—as per the simple
Harrod-Domar growth model—served India reasonably well. Food production kept pace
with population growth until the early 1960s, due as much to favorable monsoons and an
654 Stuart Corbridge, John Harriss, and Craig Jeffrey
expansion of the land frontier as to agrarian reform, the major elements of which were
generally overseen by politicians in India’s states who came overwhelmingly from the legal
profession or local farming elites. As is well known, too, the building of large dams was a
particular source of pride for Prime Minister Jawaharlal Nehru (Klingensmith 2003). The
building of the Heavy Engineering Corporation at Hatia, just outside Ranchi (then in Bihar,
now in Jharkhand), elicited a similar sense of pride among the Planning Commission that
Nehru led, which was charged with the task of making India modern.
By the mid-1960s, however, the contradictions of the Nehru-Mahalanobis model became
starkly apparent. The consequences of an apparent bias against farming were cruelly exposed
by two consecutive monsoon failures in 1965 and 1966, which resulted in near-famine
conditions in Bihar in 1967. More generally, these conditions resulted in India’s growing de-
pendence on PL 480 food aid transfers from the United States under the Agricultural Trade
Development and Assistance Act—transfers that President Lyndon Johnson did his best to
exploit when he pushed the new prime minister of India, Indira Gandhi, both to support
America’s war in Vietnam and to ease the progression of US corporations into India’s food
economy.
By the end of the 1960s, as Dandekar and Rath famously reported in 1971, 55 percent of
Indians remained mired in official poverty, a figure that had come down in the years up to
1964 only to rise sharply again to mid-1950s levels after the rains failed. In addition, there
was growing evidence that many of the manufacturing plants built up during the Second
and Third Five-Year Plan periods were running far below capacity. Employment genera-
tion remained low in consequence, even as costs remained high for capital goods delivered
downstream. A concern for productivity growth or microeconomic efficiency was poorly
developed in India in the 1950s and 1960s and was not encouraged by a License Raj that
all too often induced corruption as well as torpid levels of technological innovation. In
India and Pakistan, unlike in East Asia, where government support for protectionism was
widely understood to be time-limited, key industrial agents in both the public and private
sectors felt confident that India’s politicians would roll over tariff and nontariff policies re-
gardless of plant-level performance. The quid pro quo was support at election time. By the
1980s, respected academic commentators (Bardhan 1984; Rudolph and Rudolph 1987) were
maintaining that politics in India had moved from a situation in the 1950s, where the state
was broadly in command of its own agendas and civil society, to one in which, after the
suspension of planning during the crisis years 1966–1969, government was mainly in the
hands of the country’s dominant proprietary groups: its richer farmers (who blocked land
reform), its monopoly industrial bourgeoisie (who blocked industrial competition), and its
most powerful bureaucrats (who grew fat on rents extracted from the whole sorry edifice).
The so-called Hindu rate of growth—barely more than 1.3 percent growth in per-capita
GDP through the early and mid-1970s—was one consequence of this capture of the state.
Prometheus Unbound?
The period 1979–1980 was the last in which the Indian economy contracted, and then by
more than 5 percent. Since that time India’s GDP has grown on average by more than 4 per-
cent each year through the 1980s and 1990s and by more than 6 percent annually in the
2000s (until the financial crisis at the end of the decade). Only China among large de-
veloping economies has outperformed India, with the performance gap between the two
economic giants closing for a while in the middle of the 2000s (Winters and Yusuf 2007).
Notwithstanding this sharp turnaround in India’s economic fortunes, it is worth noting
that a simple story of “failure and success” pre-and post-1980 is more than a little mis-
leading (Corbridge, Harriss, and Jeffrey 2013, chap. 2). We would generally expect lower
rates of growth in mainly agrarian economies than in economies that have engineered
successful structural transformations (De Long 2003; Wallack 2003). In addition, the world
economy suffered a downturn in the 1970s, notably in the wake of the oil price rises of 1973–
1974. At least some of the preconditions of India’s present high-growth regime—its Indian
Institutes of Technology (IITs), the Green Revolution, the territorial integrity of the country
itself—were put in place during the Nehru-Mahalanobis years. Distasteful as it might be
to note, too, the economy in India grew rapidly in the Emergency years (1975–1976) and
through most of the Fifth Five-Year Plan period (1974–1979).
Still, a turnaround has most definitely occurred, and from this fact two main questions
arise. What caused the first of India’s growth accelerations (in proximate economic terms),
and how was it supported politically? Standard growth theory would incline us to think
of geography, institutional quality, and trade integration as the most likely determinants
of growth—the deeper mainsprings of physical and human capital augmentation and
improvements in total factor productivity. India’s geography has barely changed since
1980—certainly not in the sense understood by Jeffrey Sachs (location and tropicality: Sachs,
Mellinger, and Gallup 2001) and not even in terms of basic infrastructure (although this
is now beginning to change with better airports and the Golden Quadrilateral highway
system). Trade and capital market integration is evident mainly post-2000, which pre-
sumably leaves us with improvements in institutional quality as the most likely driver of
accelerating economic growth.
Even here, though, we need to tread carefully. There are few reasons to believe that the
stability of property rights or the strength of the rule of law have improved much in India
since 1980. (These are the two usual proxies for institutional quality beloved by develop-
ment economists: Acemoglu, Johnson, and Robinson 2001; Rodrik 2003.) The quality of
politicians in India has not notably improved (large numbers have been convicted of se-
rious offenses), nor has the incidence of corruption been significantly curtailed. A more
credible version of the institutionalist take on economic development maintains, with
Arvind Subramanian (2007), that the underlying good quality of India’s institutions, many
of them a legacy of British colonialism, have been activated by improved and consistent ec-
onomic policies in such a way that the rebound effects from a low and dysfunctional prior
equilibrium have been higher than otherwise would have been the case. It is a complicated
argument, with an unproven counterfactual, but it is not implausible. Its great merit, per-
haps, is the recognition that policies can matter even when institutional quality is osten-
sibly controlled for—something disputed by some economists (see, notably, Easterly and
Levine 2003)—and that policies in India that have successively been pro-business (from
ca. 1980) and pro-market (from ca. 1991) have significantly upped the growth rate in GDP
(see also Kohli 2006a, 2006b). Put another way, India’s leading capitalists have been liber-
ated over the past thirty years from laws and regulations—many of which were never truly
honored or enforced, it has to be said—that affected what, where, and when they could pro-
duce and on what terms they could enter into labor contracts in the formal sector.
Audacious Reforms?
The full story of India’s experiments with pro-business and pro-market reforms has been
told many times (see McCartney 2009; Panagariya 2008).1 It is now widely accepted that
both Indira and Rajiv Gandhi forged an effective relationship between government and
big business in India before the period of “economic reforms” that generally are dated to
1991 and to Prime Minister Narasimha Rao and his finance minister (now the prime min-
ister), Manmohan Singh. These so-called reforms, in turn, are usually thought to have
begun with Singh’s first Union Budget speech to the Lok Sabha in the summer of 1991.
Following a prior devaluation of the rupee by about 18 to 20 percent against leading world
currencies, the Singh budget sought to stabilize the Indian economy mainly by bringing
down the consolidated fiscal deficit from 8.9 percent of GDP in 1990–1991 to 6.5 percent
in the 1991–1992 tax year. Partly this was done by tax hikes, but even more it involved cuts
to defense spending and subsidies for exports, sugar, and fertilizers. Thereafter, the reform
process made significant headway in 1991–1993 in dismantling some of the system of indus-
trial licensing that had grown since the 1950s. The government also moved quickly to allow
foreign equity investment of up to 51 percent in high-priority industries, and it began to
allow private domestic firms to set up in some markets hitherto reserved for state-owned
enterprises. Trade policy reforms were put in place at the same time that had the effect,
alongside the prior devaluation of the rupee, of making India’s exports more competitive
on the world market. Efforts were also made to dismantle at least some of the tariff barriers
that had made the Indian economy one of the most protected in the world.
These early reforms, and others besides in the banking sector, were continued in the mid-
to late 1990s and into the early 2000s by the United Front and Bharatiya Janata Party (BJP)–
led coalitions that succeeded the Congress-led coalition government of Rao and Singh. The
pace of economic reform ebbed and flowed during the years 1996 to 2004, at which time
Singh returned to government as the Congress prime minister of the United Progressive
Alliance government, which remains in power at the time of writing (spring 2013). But,
somewhat remarkably (not least given BJP rhetoric about swadeshi nationalism while in
opposition), the direction of travel has remained consistent now for over twenty years.
While the Indian economy has avoided the sort of shock therapy commended to post–
Soviet Russia by Jeffrey Sachs and others, and while the sometimes slow pace of reform
continues to madden true believers (neoliberals) within government (notably Palaniappan
Chidambaram) and without (for example, the Economist newspaper), the truth is that pro-
market reforms have been executed in India in a manner that few thought possible when
the reforms began.
How do we explain this? After all, the circumstances surrounding the 1991 reforms
were not auspicious. Within the space of just thirty months, from mid-1990 to late 1992,
India was threatened not only by a looming bankruptcy but also by an explosion in con-
frontational caste-based politics following a proposed extension of job reservations to the
country’s Other Backward Castes (the so-called Mandalization of politics). There was also
a violent upsurge in extreme Hindu nationalist politics, which led in December 1992 to the
dismantling of the Babri Masjid (mosque) in Ayodhya by kar sevaks (volunteers) of the
Vishwa Hindu Parishad (VHP), a sister organization of both the BJP and the driving force
of militant Hinduism, the Rashtriya Swayamsevak Sangh (RSS). There were real fears at
this time that India might not hold together. These fears were prefigured in 1989 when the
Government of India was constituted for the second time in succession as a coalition (which
it has remained ever since), and in the economic sphere they were deepened further by the
suggestion—the widely held intuition—that economic reform would be blocked from the
beginning by a combination of India’s powerful trade unions and the dominant proprietary
groups that had grown fat under a regime of generalized rent-seeking and dirigisme.
What allowed India’s audacious reforms? And how were they sponsored? An obvious
first answer to this puzzle is that external events made reform a necessity. Economic growth
in India in the 1980s was undoubtedly powered by real gains in workplace productivity.
Perhaps equally as much, growth in the 1980s was fueled by huge increases in deficit
spending, not least in the form of massive subsidies both into and out of India’s food pro-
duction system (i.e., cheap electricity and fertilizers and cheap food for the country’s Fair
Price Shops). By the end of the decade, India had a growing internal debt mountain and a
mounting external debt problem. In early 1991 it was reported that India had sufficient for-
eign reserves to be able to import no more than two months’ worth of essential foods and
other goods and services.
The key question is whether this external crisis was bound to lead to significant reform
of the Indian economy. India was required to take a loan of $1.8 billion from the Contingent
Compensatory Finance Facility of the International Monetary Fund (IMF) in January 1991,
and this caused political problems for the Chandra Shekhar government. As Tendulkar and
Bhavani point out, however, the government fell before it could pass a budget that would
satisfy the qualification criteria of the IMF loan. It was left to the incoming Congress-led
minority government of Narasimha Rao to propose a budget that would begin the task of
bringing India’s external finances back into order. All told there was a “very sharp fiscal
contraction equivalent to a reduction of 2.3 percentage points of GDP in [the] gross fiscal
deficit between the crisis year of 1990–91 and 1991–2” (Tendulkar and Bhavani 2007, p. 87).
This in turn led to India’s first—and so far only—reduction in per-capita incomes since
1979–1980.
Rajiv Gandhi had found it next to impossible to tackle India’s foodgrain, kerosene, and
fertilizer subsidies in the mid-1980s, notwithstanding that Congress Members of Parliament
(MPs) occupied three of four Lok Sabha seats during his premiership. Changes were now
required, however—they were not optional, for all the talk at the time about resisting the
IMF. Even industrial houses that had grown fat under a regime of import-substitution in-
dustrialization (ISI) had to withhold their opposition for a while to more open economic
policies. They needed IMF money to finance their own imports. More positively, Rajiv
Gandhi’s efforts in the late 1980s to woo “segments of . . . modern . . . manufacturing India”
(Mukherji 2010, p. 490) now started to pay off. Many large-scale business groups were
keen to respond positively to the opportunities that were opened up by the crisis of 1991.
Here was a chance to fight back against the power of rural (and subaltern) India, which
had been flexing its muscles throughout the 1980s, and possibly also to muscle in on the
territory of small-scale industry. Rahul Mukherji reminds us, too, that “the Federation of
Indian Chambers of Commerce and Industry (FICCI), representing domestic capital, the
Associated Chambers of Commerce and Industry (ASSOCHAM), with ties to foreign cap-
ital, and the Confederation of Indian Industry (CII [from 1986 to 1992 the Confederation of
Engineering Industry]), all supported the trade and investment liberalization from 1991 to
1993” (Mukherji 2010, p. 490). Import-substitution industrialization might have been com-
fortable terrain for some of their members, but greener pastures now seemed to beckon—
just so long as India’s business elites could help steer the process of economic reform itself.
The crisis of 1990–1991 was also catalytic of reform in other, more subtle ways. It gathered
force just as the Soviet Union was collapsing. There was mounting evidence, too, that
China’s embrace of pro-market reforms was paying substantial dividends, a fact not lost on
New Delhi (Baru 2007). New economic instruments had also been pioneered in the West
in the 1980s, not least in the United Kingdom—deregulation and privatization preeminent
among them. Intellectually, the ideas of Milton Friedman and Friedrich Hayek were in the
ascendance in countries where Keynesianism had until recently been quite dominant. In
addition, Indians who visited the West were increasingly impressed by the wealth and work
habits of their erstwhile countrymen and -women. It was less obvious to some well-traveled
middle-class Indians by 1990—as compared, say, to their views in 1970 or even 1980—that
bureaucrats should be running dreary hotels in Delhi or other big cities, or that India’s
consumers were best served by state-run car plants. As Rajan has acidly observed, the
Ambassador car—a local version of the 1954 Morris Oxford—came in “only five different
models [over nearly four decades] . . . and the sole differences between them seemed to be
the headlights and the shape of the grill” (2010, p. 60).
The economic crisis of 1990–1991 undoubtedly was a key factor in India’s embrace of a
more concerted agenda of pro-market reforms in the 1990s. On its own, however, it is a
weak explanandum, even if we factor in the role of committed reform champions and a
significant shift in public and intellectual affairs, including the end of the Cold War and
a diminution of foreign aid to India from the socialist bloc. Import-substitution industri-
alization, after all, had been a viable option for post-1950 India in a way that it wasn’t for
smaller countries. Why did leading business leaders move so rapidly after 1991 to ditch ISI
and embrace a broad agenda for economic reform? Was it simply circumstance, or did they
spot new opportunities for economic and political advancement? Did they ever really press
the pedal on liberalization? More generally, why wasn’t India’s handful of heroes overcome
by a much larger gang of villains?
An interesting answer to this last question, which has been proposed by Ashutosh
Varshney, is that economic reform in India during the 1990s largely played out in the arena
of elite politics. It did not spill over much into the life-worlds of ordinary people or the
landscapes of mass politics. Varshney points out, “In the largest ever survey of mass polit-
ical attitudes in India conducted between April–July 1996, only 19 per cent of the electorate
reported any knowledge of economic reforms, even though reforms had been in existence
since July 1991. Of the rural electorate, only about 14 per cent had heard of reforms, whereas
the comparable proportion in the cities was 32 per cent. Further, nearly 66 per cent of the
graduates were aware of the dramatic changes in economic policy, compared to only 7 per
cent of the poor, who are mostly illiterate” (Varshney 1998, p. 303, citing Yadav and Singh
1996). In contrast, “close to three fourths of the electorate—both literates and illiterates,
poor and rich, urban and rural—were aware of the 1992 mosque demolition in Ayodhya”
(ibid.), while just as many people expressed strong opinions on caste-based affirmative
action and the merits of secularism.
Varshney concludes that economic reform meant little to ordinary Indians. It was not a
big issue in the sphere of mass politics. This in turn reflected the fact that India’s leading ec-
onomic reformers were wise enough in the mid-1990s to confine their reforms to trade and
industrial policy, and they largely steered clear of direct and visible threats to existing labor
laws, agriculture, or public ownership. Even fiscal policy remained lax in the 1990s and well
into the 2000s. Indeed, the gross fiscal deficit of India’s central and state governments was
slightly higher in 2001–2002 than in 1990–1991: 10.3 percent of GDP against 9.4 percent. Tax
collection improved somewhat in the 1990s, which allowed the government to make some
improvements in public spending while remaining revenue-neutral. But the persistence of
high government deficits up to the middle part of the 2000s mainly demonstrates the re-
luctance of government to cut spending programs that were important to the countryside
or other organized interests.
The reform of India’s economy has been a limited, stop-and-go process, certainly as
compared to what was proposed in many post-Soviet states and what was achieved in China
post-1978. China’s GDP grew at an annual average rate of 9.6 percent over a twenty-five-year
period from 1980, and China’s share of world trade in 2005 stood at 5.2 percent, compared
to just 1.8 percent in India (which still suffered from high levels of protectionism fifteen
years after the economy opened up). Perhaps most tellingly, while the share of formal-
sector employment in India failed to nudge much above 10 percent of the economically
active population in the post-reform years, in China formal-sector employment increased
rapidly from 9.7 percent (95 million people) to 19.2 percent (148.5 million) in the first ten
years of post-Maoist economic reforms (see Sharma 2009, Table 1.3; Bardhan 2010). The
blunt truth is that the Chinese economy has been structurally transformed—with hundreds
of millions of people moving from the countryside to Chinese cities—in a way that has not
yet begun to be seen in India.
But reform in India has also been continuous, in the sense that occasional decelerations
have not been accompanied by outright backtracking on policy—and various pauses for
thought, whether fully intended or not, have allowed successive reform champions to en-
sure that the benefits of reform have exceeded its costs for many key players. Even organ-
ized labor has continued to receive some legislative and political protection, although these
provisions should be seen in perspective. Only between 2 and 5 percent of workers in India
are members of trade unions (Bhowmick 1998), and even in the formal sector employers
have not found it difficult to deal with the lack of an official exit policy. Meanwhile, big
business houses have been encouraged to colonize sectors of the Indian economy that had
been reserved for PSEs, which in many cases—telecommunications and automobiles are
both good examples—were characterized by the existence of artificially induced shortages.
Once the lid was lifted on these industries, there was more than enough effective demand, it
turned out, for private and foreign capital to enter the market alongside PSEs that could be
cosseted in other ways. The privatization of India’s economy was thus procured mainly by
stealth, much like its labor markets. A Disinvestment Commission was established in 1996,
and in 1999 it proposed management and other changes for 58 PSEs (Nayak 2010, p. 370),
including plans for reduced government stakes. For the most part, though, state-owned
companies have not been put up for public sale—airlines like Air India, for example, or even
some banks—and India’s preferred means of privatization has been to create spaces for new
or old private enterprises to flourish alongside PSEs. The restructuring or eventual sale of
PSEs has often been postponed until another day, thus perhaps avoiding unnecessary polit-
ical conflict (Bhattacharyya 2007).
Of course, this doesn’t mean that everyone gained from reform, or that a long process
of reform was designed and sequenced from Year Zero (1991), or indeed that reform was
always designed with a view to minimizing political opposition to it. It is not an oxymoron
to say that radical policies sometimes evolve slowly and even by accident—and this has
been the case too in India. Nevertheless, while a first round of economic reform in India did
produce some losers—such as inefficient private capitalization, some fractions of organized
labor, many lower-middle-class youths, importing houses that had taken for granted an
overvalued rupee, and even industrial groups that wanted to run faster—the unwillingness
of the state to deal strenuously with India’s fiscal deficits both at the center and in the states
cushioned the blow of economic restructuring, as indeed did improved economic growth
itself, which attenuated nascent distributional conflicts. Ostensibly the main losers from
industrial and trade policy reform were India’s legions of license-wallahs in the bureauc-
racy. No permits, no rents. But even here the damage was limited. Licenses for small-scale
industries remained, and new opportunities opened up for some bureaucrats to extract
payments from private-sector firms that were anxious to gain privileged access to better-
serviced public infrastructure. Meanwhile, rent-seeking in domains like higher education
has probably expanded, both in the public and private sectors (Kapur and Mehta 2008).
It is also significant that many of the key policy changes that were introduced into India
in the 1990s were affected by changes to existing laws (for example, the Foreign Exchange
Regulation Act [1974] or the Monopolies and Restrictive Trade Practices Act[1968]) and/
or by an agency outside what is usually thought to be central government. For example,
devaluations and financial-sector reforms were pushed through by the Reserve Bank of
India, the country’s central bank. The need for a coalition government to pass legislative
amendments was correspondingly minimized, as Tendulkar and Bhavani point out (2007,
p. 105). And when parliamentary approval was required—as it was in the case of Manmohan
Singh’s first two budgets, both of which galvanized opposition forces—the threat of the gov-
ernment falling was one that could be used to discipline coalition members and parties
such as the Communist Party of India-Marxist (CPM) and the Janata Dal, who preferred
to support the government from without. Varshney (1998, sec. 3) astutely observes that the
Left was persuaded not to defeat the Congress’s reform strategy because it feared the effects
of a no-confidence vote in the Lok Sabha. Bluntly, the BJP could be brought to power. This
is where mass and elite politics intersected to the advantage of India’s reform champions in
a way that it had not done in the mid-1980s. India’s federal democracy, meanwhile, allowed
the CPM to speak loudly against “neoliberalism” from the Writers’ Building in Calcutta,
where ideological purity appeared to be maintained, even as it backed off from confronta-
tion with the Congress-led government in New Delhi.
In the longer run, even the CPM in West Bengal has come to embrace economic re-
form, not least in respect to a more liberal industrial investment regime. Indeed, one of
the more shocking political stories in India in the second half of the 2000s centered on
the small settlements of Singur and Nandigram, in the Hooghly and Medinipur districts
of West Bengal, respectively. In Singur, the Government of West Bengal used provisions
from the 1894 Land Acquisition Act to purchase land from small farmers for a Tata Nano
car factory. Opposition to the project led to the Tatas pulling out in 2008 and moving to
Guajarat. Nandigram, meanwhile, became infamous in 2007 as a village where at least
fourteen people were shot dead by state forces determined to crush opposition to govern-
ment plans for the acquisition of land for a Special Economic Zone (SEZ). The SEZ was
meant to host a chemical plant that would be owned and developed by the Salim Group
from Indonesia.
How did the CPM allow this state of affairs to happen? Part of the answer is to be found
within the CPM itself and with various power struggles that have taken place in the broader
Left Front parties in West Bengal under the general stewardship of both Jyoti Basu (chief
minister 1977–2000) and Buddhadeb Bhattacharya (chief minister 2000–2011). The story of
how an avowedly left-of-center political party/regime came to embrace economic reform
while maintaining its socialist rhetoric is one that has yet to be written (though see Das
2012), notwithstanding some obvious parallels with China and Vietnam (Hayton 2010).
More broadly, the answer lies in the fact that reform in India has acquired a good deal of its
momentum since the mid-1990s, and it has had many of its most visible effects in the states
and not simply in New Delhi.
Prior to the 1990s the commanding heights of the Indian economy were mainly in the
public sector and thus largely under the control of the center, which “dominated anything re-
lated to industrialisation” (Sinha 2004, p. 28). The center also commanded by far the largest
share of India’s most robust and elastic sources of revenue. It is hardly surprising there-
fore that most states were forced to take out grants-in-aid from New Delhi under Article
275 of the Constitution, and they were inclined to define their political battles in terms of
the fairness of center-state relationships, including battles with other states for a greater
share of the pie that New Delhi was able to distribute. Non-Congress state governments
maintained they were especially vulnerable during periods of Congress rule in New Delhi.
However, an emerging body of work on the political geography of grants-in-aid is agnostic
in its conclusions. There is some evidence to suggest that Congress governments in New
Delhi funneled money most generously to those states where they felt the local Congress
Party was facing strong local opposition (see Rodden and Wilkinson 2004; see also Rao and
Singh 2005). But whatever was the case before around 1990, matters have changed a great
deal since that time. For one thing, the geography of center-state transfers has been com-
plicated since 1989 by the failure of one party to achieve power in New Delhi, as well as by
the very considerable growth of caste-based and regional parties in both national and pro-
vincial elections. More importantly, however, the green light that was given to India’s states
in the mid-1990s to court foreign capital directly, and to compete with other states in India
to make their provinces more business-friendly, has gone a long way to reshape the nature
of India’s federal polity. Saez (2002) contends that economic reforms have led in India to
“federalism without a centre.”
Others might not go quite this far, but there can be little doubt that some of India’s richest
states now see themselves as “competition states,” fronted very often by a chief minister
(CM) who sees himself or herself as a chief executive officer (CEO). Chandrababu Naidu,
the chief minister of Andhra Pradesh from 1995 to 2004, was the very model of a CM as CEO.
Naidu committed considerable funds and energy to the task of building up Hyderabad as a
technopole that could rival Bangalore (in Karnataka), and he was taken to task by his critics
both for neglecting rural Andhra Pradesh and for allegedly cutting deals that were favorable
to major industrial houses, including Reliance Industries. Naidu was by no means the only
CM who played this role, however. Narendra Modi has been the chief minister of Gujarat
since 2001, and he has played an especially active role in bringing investment to Gujarat
from its extensive diaspora, just as he courted the Tatas when they ran into difficulties in
Singur. Further south, the states of Tamil Nadu and Maharashtra were in competition with
one another in the mid-1990s to host a factory for the Ford Motor Company, a battle that
was won on that occasion by Tamil Nadu in 1996. In all of these cases, the need for land
clearances or some helping hand from the government—the expedited approval/building

of upgraded sites and services, for example—created new sources of rent for government
bureaucrats and politicians, whether or not they availed themselves of these opportunities.
In rather broader terms, the formation of competition states in India was necessarily
bound up with increased regional inequalities. Aseema Sinha (2004) suggests that a brief
window of opportunity existed from 1950 to 1990 for India’s eastern states to catch up
with their richer neighbors to the south and west. The Nehru-Mahalanobis model of ec-
onomic development placed great faith in heavy industries, as we have seen, and India’s
regional policy in this period was intended to add to an ostensible comparative advan-
tage in manufacturing among India’s resource-rich states: the coal-, copper-, and iron-ore-
producing states of Bihar (or at least South Bihar: now Jharkhand), Orissa, West Bengal, and
Madhya Pradesh (particularly the districts that today are in Chhattisgarh). Unfortunately,
these fine intentions were undone almost entirely by Freight Equalisation Acts that delivered
a single price across India for key raw materials. Value-added activities were very often
located outside India’s resource triangle, which suffered a version of a resource curse in con-
sequence. It might also have been the case that India’s eastern states lacked the trading and
manufacturing expertise that earlier had provided the basis for private-sector economic
growth in the Bombay presidency. There are certainly good reasons to think that Aseema
Sinha is right when she contends that “leading states in the reform process (Gujarat and
Maharashtra, for example) have utilized their previous linkages and institutional skills de-
veloped under the old [pre-Independence] regime to leverage crucial advantages in the
new policy regime” (Sinha 2004, p. 27). In her view, India has returned to a form of strong
federalism that was last apparent in the country before 1935: that is, a form of federalism
where the powers of the center are sharply circumscribed by those of the provinces/states.
Rob Jenkins adds significantly to this argument by considering the pressures that build
up in less-reformed states because of the increasingly visible success of states that have
made themselves attractive to private capital. Jenkins is a firm proponent of the view that
economic reform in India has proceeded largely by stealth and in the provinces. New Delhi
played its part by creating a better policy environment for business development. But the
harder work of building a more vibrant economy has been performed mainly by a new
generation of business leaders—Reliance Industries for sure, but also Infosys, the Bajaj and
Bharti Groups, the Oberoi hotel chain, and many others, including the Tatas—with support
from their backers in the CII and FICCI, as well as from an allied group of entrepreneurial
politicians and political brokers. Pressures then build in less-reformed states to keep pace
with the early reformers. States are now subjected to new technologies of comparative gov-
ernance, including an “Economic Freedom Index” that takes as its starting point some of the
work on business environments pioneered by Transparency International and the Heritage
Foundation (Debroy, Gangopadhyay, and Bhandari 2004). Interestingly, Modi’s Gujarat was
ranked Number 1 in 2004, just two years after the anti-Muslim pogrom in that state.
A process of provincial Darwinism is thus set in motion, which seemingly forces weaker
(or poorer) states to adopt the same or even more robust pro-business policies to catch up
with their stronger (or richer) rivals. This jurisdictional competition, moreover, is played
out not only at the interstate level but also at smaller spatial scales through the promotion of
SEZs. By early 2010, close to 600 SEZs had been approved under the terms of India’s Special
Economic Zone Act, 2005. As Jenkins points out, “The ostensible purpose [of them is] to
attract large volumes of investment by providing world-class infrastructural facilities, a
favourable taxation regime, and incentives for sectoral clustering. The benefits for the wider
economy are, in theory, more exports, particularly in high-value-added sectors, increased
employment, and ultimately faster economic growth” (Jenkins 2011, p. 126).
More broadly still, India’s SEZs represent for Jenkins “a third generation of economic
reforms” (Jenkins 2011, p. 126), following efforts to liberalize the macropolicy environment
and to create institutions to regulate a market economy. They also signal that economic re-
form in India is a work in progress. The crisis of 1990–1991 might have triggered pro-market
economic reforms in India, but their continuation has to be explained with reference to
a broad raft of factors. Committed leadership, stealth, modest pacing, high net benefits
for many among India’s elites, and provincial Darwinism are simply the most significant
among them, alongside the growing self-confidence of India’s leading business houses.
Growth and Poverty Reduction
Lastly, let us note that India’s growth accelerations have not reduced extreme poverty in the
country by as much as could reasonably have been expected (relative to past performance)
or compared to China and other countries in East and Southeast Asia. It is certainly true
that low rates of per-capita income growth offer few favors for income-poor families. The
fact that more than 55 percent of Indians suffered from extreme poverty—and even more
from forms of protein-calorie malnutrition—at the end of the 1960s lends support to the
view that low rates of economic growth are generally harmful for the poor (Dollar and
Kraay 2002; though see also Donaldson 2008). It is significant, however, that growth in the
years 1983–1993/1994 was far more pro-poor in its distributional consequences than was
growth in the decade following India’s pro-market reforms (Datt and Ravallion 2010).
Petia Topolova addresses this issue when she asks: “How much more or less poverty re-
duction might have been achieved had growth occurred without changes in the income
distribution?” (Topolova 2008, p. 7). Interestingly, what she calls her “counterfactual simu-
lation”—what would have happened if X not Y—“suggests that in the 1980s changes in the
distribution of income enhanced the effects of growth on poverty reduction. In rural India,
poverty reduction from ‘growth alone’ would have been 27 percent lower had the distribu-
tion of income not changed in favour of the poor. In urban India ‘growth alone’ accounts
for the entire poverty decline” (ibid., p. 8). When it comes to the period 1993/1994–2004/
2005, however, there is a clear shift in the distribution of income against the officially poor.
Topolova concludes that in this period, “Distribution neutral growth would have generated
a poverty decline in rural India that was 22 percent higher; in urban areas, the decline in
poverty would have been 76 percent higher” (ibid.). Conceivably, the tilt toward the urban
well-to-do that we see here is consistent with the view that the BJP, once in power nation-
ally at the head of the National Democratic Alliance government (1998–2004), set out to
secure Shining India by privileging the urban middle class. When a Congress-led govern-
ment returned to power in 2004, it consequentially made great play of supporting poor
rural households by means of the National Rural Employment Guarantee Act of 2005. This
argument breaks down, however, once we recognize that official poverty rates increased
alarmingly in the 1960s under strong Congress rule and again under Congress-led coali-
tion governments post-1989. Congress politicians have consistently sought votes by playing
the “end of poverty” card—garibi hatao, as Mrs. Gandhi put in the early 1970s—but there
is little credible evidence that trends in official poverty rates are directly linked to the char-
acter of politicians sitting in New Delhi.
A commonly heard complaint about economic growth in the 1970s holds that it was too
anemic, while a similar complaint about growth in the 1980s suggests it was unsustainable.
There is more than a grain of truth in both these charges, but what each of them misses is
that Indian agriculture was significantly transformed through these decades by the Green
Revolution and the broader consolidation of agrarian capitalism (Harriss 1982). Increased
private and public investments in the rural economy (e.g., irrigation, electrification, farm
price support policies, grain subsidies) helped tighten labor markets and reduced the real
cost of food. There was also significant expansion in the rural nonfarm sector through this
period (Lanjouw and Stern 1998), and considerable political pressures were brought to bear
on governments by “new farmers movements” (Varshney 1995). All of these developments
helped to secure sharp declines in the incidence of poverty in the countryside. Study after
study has told us that most poor people in rural India are landless laborers or marginal
farmers. The overwhelming majority of these people are net purchasers of food. Their living
standards are thus extremely sensitive to the real price of grain and other staples. They
generally hope to escape poverty by working more days in a year (whether in local labor
markets or further afield: Breman 2010) and/or by seeing their wages rise faster than the
price of food and other basic items.
Topolova confirms this intuition when she reports, “Between 1983 and 1993/94, real wage
growth at the bottom generally outpaced the growth of wages at the top” (ibid., p, 13). In
the second period, however, we see far greater returns to the top 15 percent of households,
and particularly to graduates working in the manufacturing and service sectors (see also
Banerjee and Piketty 2005). Topolova also finds that Scheduled Caste (SC) and Scheduled
Tribe (ST) households failed to keep pace with the growth rates in average per-capita con-
sumption recorded by members of non-SC/ST households after 1993–1994. Indeed, after
matching non-SC/ST households through the first time period, SC and ST households
saw their consumption levels rise after 1993–1994 by about half as much as non-SC/ST
households (ibid., p. 14).
The bottom line here is that significant sections of Indian society—most of all its
Scheduled Communities, but also many Muslims and women—have not benefited greatly
yet from the years of economic reform. Unlike their counterparts in China and East Asia,
they continue to be locked out of growth areas in the Indian economy both on account of
their low levels of human capital formation (poor health care and education provision)
and because of their continuing exclusion from asset pools (land and capital [physical
and social]) and the access to credit to which they generally give rise. (In the east of the
country, too, the rise of a more organized Maoist [Naxalite] movement has steadily eroded
the conditions of existence of capital accumulation in some of the poorest states in India.)
For all of these reasons, and none too surprisingly, Tim Besley and his colleagues (Besley
et al. 2007) have suggested that growth in East Asia and the Pacific—dominated by China,
of course—has been over 50 percent more effective in reducing extreme poverty than it has
been recently in South Asia. They estimate the elasticity of poverty with respect to income
per capita for India to be around −0.65, while the corresponding figure for China at the end
of the last millennium was greater than −1.0.
Conclusion
It should not be difficult for India to sustain average GDP growth rates of 6 or 7 percent
over the next twenty years (Rodrik and Subramanian 2004). Even after thirty years of eco-
nomic reform, the country continues to suffer from low levels of total factor productivity.
In addition, health and education levels can only improve, along with the country’s infra-
structure, and India might yet be able to exploit a coming demographic dividend. If growth
rates stall significantly, blame will be placed on bad macroeconomic management (not in-
conceivable but unlikely on a sustained basis) and/or on the continuing rise of Naxalism in
the country’s poorest districts (unlikely given the repressive powers of the Indian state). It
is more likely, however, that slower growth will reflect the political difficulties that are al-
ready beginning to dog the next stage of economic reform—regardless of which party is in
power in New Delhi. The liberalization of the Indian economy post-1991 may have occurred
more slowly than its boosters would have liked, but it was achieved in part (and in part
for this very reason) without generating significant political opposition or uncompensated
losers. The signs are good that growth rates in India can remain high over the next twenty
years—comparatively speaking, the country has good underlying institutions. But it should
be clearly borne in mind that the next stages of the reform process—reforms in agriculture,
in land markets, and in the power sector—will invade the realm of mass politics and will
call forth significant political opposition from those implicitly coded by India’s ruling elites
as “les classes dangereuses” (Li 2009).
Ironically, perhaps, the best guarantor of the reform process in India is the cultivation of
forms of economic growth that are considerably more inclusive than those that dominated
in the 1990s (Banerjee and Duflo 2011). Agrarian reform, for so long off the table, would
do much to improve the fortunes of India’s Scheduled Castes (dalits, or ex-untouchables),
while the country’s Scheduled Tribes and Muslims would benefit just as significantly from
governmental reforms that could deliver them effective legal protections and more efficient
government services. As things stand, this agenda is a long way off. (A third key puzzle
in India’s contemporary political economy concerns the unresponsiveness of government
to active electorates.) In the longer run, however, economic reform in India will depend
heavily on a prior or at least coincident reform of India’s government.
Note
1. Section 4 of the chapter reproduces material with permission from Corbridge, Harriss, and
Jeffrey (2013), India Today: Economy, Politics and Society (Cambridge: Polity Press).
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Chapter 31
T he P olitics of G row t h
in Sou th Kore a
Miracle, Crisis, and the New
Market Economy
Stephan Haggard and Myung-k oo Kang
The rapid growth of East Asia has been one of the defining characteristics of the world’s
economic development in the second half of the twentieth century. The share of the eight
so-called high performing East Asian countries—China, Japan, South Korea, Hong Kong,
Indonesia, Malaysia, Singapore, and Thailand—was only 12 percent of world GDP in 1970,
but had increased to 22 percent by 2010, a fundamental shift in world economic geography.1
Taken together, these countries are now comparable in scale to the United States (23.1 per-
cent of world output in 2010) and the European Union (25.7 percent). Per capita GDP of
these eight countries was below the world average in 1970, but was twice the world average
by 2010.
Korea is paradigmatic of this great transition. Income per capita in 1961 was about $1,200
in constant 2000 U.S. dollars, lower than most Latin American countries of the time and
well behind the Philippines and a number of other Asian countries as well.2 By 2010, Korea
was the fourteenth largest economy in the world and the ninth largest exporter, with per
capita GDP of more than US$20,000.
Korea’s remarkable development is relevant to the issues raised by this volume because
of the broader controversy over East Asian growth: whether the rapid economic devel-
opment of Korea—and the region more generally—could be attributed largely to market-
conforming policies or to the role of the state and other institutions (Deyo 1987; Wade 1992;
World Bank 1993; Krugman 1994; Aoki et al. 1997; Stiglitz and Yusuf 2001). For those who
took the latter position—including ourselves (Haggard 1990; Kang 2006)—debate centered
on how politics and institutions mattered. To use the language from the varieties of capi-
talism literature, there could be little doubt that economies such as Korea’s were “coordi-
nated.” But how exactly?
Korea’s rapid growth took place under the aegis of an authoritarian regime that built
a strong partnership with domestic capital. But at the same time, the ruling coalition in-
itially enjoyed independence from local capital and “disciplined” the private sector, to
670 Stephan Haggard and Myung-koo Kang
use Alice Amsden’s (1989) propitious formulation. Rents were allocated in exchange for
demonstrated performance. The government maintained control over state-owned banks—
maintaining the separation of financial and industrial capital—and used credit allocation to
target export-oriented firms. The authoritarian component of the system was most in evi-
dence with respect to the left—which had been crushed early in the postwar period—and
employment relations. Social insurance was minimal, and authorities used repression to
limit wage demands and enhance managerial flexibility. But the government also forged an
implicit social contract by investing in education.
Although we discuss the political origins of Korean economic growth in the 1960s and
1970s, we give equal weight to events since 1980, including the influence of democratization,
the causes and consequences of the financial crisis of 1997–1998, and the postcrisis reforms.
A central theme is the enduring effects of the developmental state era. State support fueled
the explosive growth of large, highly concentrated chaebol (private groups). The ongoing
debate about market-oriented reform has occurred in the context of this economic legacy
and the continuing political weight of the chaebol. The power of domestic groups continues
to limit some liberalizing reforms, particularly with respect to corporate governance. At the
same time, democratization has had undeniable effects, creating a new welfare state. Yet we
show that the coverage of the welfare state has also been affected by the legacy of the de-
velopmental state era, and in the emergence of highly dualistic labor markets in particular.
The Developmental State Revisited
The implicit starting point for theories of the developmental state is the manifest market
failures that operate in low-income countries where capital and technology are not only
scarce but underutilized (Yusuf et al. 2009). Under such circumstances, the state can play a
role not only in complementing the private sector—for example, through the provision of
infrastructure, education, and other public goods—but in solving coordination problems
that may hamper the transition from an agricultural economy to private investment in in-
dustry. The role of the state in overcoming the disadvantages of “backwardness” is a classic
theme in political economy, and has been invoked to explain the characteristics of late in-
dustrialization in Europe (Gerschenkron 1962) and the origins of nonliberal capitalism in
both Germany and Japan (Streeck et al. 2002).
Japan’s example clearly played a critical role in the region, and a number of scholars have
attempted to trace the Japanese origins of the strategies subsequently pursued by other East
Asian countries (Akamatsu 1961; Cumings 1984; Suehiro 2008). Yet an interesting difference
in the postwar period is that while the postwar Japanese growth miracle occurred under
nominally democratic—if dominant-party—rule, the newly industrializing countries that
followed in its wake were decidedly authoritarian.
During its high economic growth period from 1961 to 1979, Korea existed in the paradig-
matic developmental state (Amsden 1989; Haggard 1990; Woo-Cumings 1999). Following
the military’s seizure of power in 1961, the new government of Park Chung Hee undertook
a variety of reforms that moved the Korean economy onto an investment-and ultimately
export-led growth path: unification of the exchange rate, selective trade liberalization, and
tax and interest rate reforms. But the Korean growth model was hardly a liberal one, and
The Politics of Growth in South Korea 671
stimulating investment was as important for growth as were exports (Rodrik 2007). The
military nationalized the banking sector in 1961 and used it to cement an economic-cum-
political alliance with large chaebol (private sector groups) through an aggressive use of
various industrial policy instruments (Chang 1994; Cho and Kim 1997; Rodrik 2007).
One ongoing puzzle in the developmental state literature is why state intervention did
not devolve into rent-seeking that was a drag on growth, as occurred elsewhere in the de-
veloping world. Several answers have been proposed, starting with resource endowment
(Ranis and Fei 1961). In the absence of natural resource rents, continuing foreign aid, or
access to capital markets, the leadership had little choice but to pursue an export-oriented
course that exploited an abundant supply of labor. Once firms entered world markets, in-
ternational competition played a disciplining role. Others have emphasized the competitive
constraints posed by geostrategic competition (Castells 1992; Kang 1995).
Those emphasizing the domestic political foundations of the developmental state focus
on the nature of state–business relations (Haggard 1990; Kohli 2004). Rent-seeking is more
likely where political elites are beholden to private sector actors than in circumstances
where they gain political power independent of them, as occurred in all four of the East
Asian newly industrializing countries: Korea, Taiwan, Singapore, and colonial Hong Kong.
Two weeks after Park Chung Hee’s 1961 coup, the junta propagated the Special Law for
Dealing with Illicit Wealth Accumulation, and eleven major businessmen were arrested as
illicit wealth accumulators; the investigation then was broadened to include an additional
one hundred and twenty businessmen. The released “illicit wealth accumulators” were in-
duced to make large contributions to the government, released, and subsequently co-opted
into networks of state–business relations under the guide of the Economic Planning Board.
These business groups formed a new business organization, the Association of Korean
Businessmen, which assisted the new government in identifying fourteen key industrial
plants included in the first Five-Year Economic Development Plan.
The central disciplinary tool for controlling the private sector was the government’s own-
ership of the financial sector. After the nationalization of all commercial banks in 1962, the
Korean government gradually raised interest rates to depositors but simultaneously pro-
vided subsidized credit for favored activities, including the export-oriented manufacturing
sector. By the 1970s, those policy-oriented loans accounted for about half of the total credit
provided by domestic financial institutions (Bahl et al. 1986). Credit allocation, including
access to foreign credit, also favored the chaebol, large national champions that became a
distinctive feature of the Korean model.
It was an open secret that firms paid “commissions” to top bureaucrats and politicians, in-
cluding those in the Blue House; these rents were used to sustain the ruling party in power.
But despite this collusion, the government also set stringent performance standards in ex-
change for providing special privilege to chaebol, including investment and export targets.
According to Amsden, “the sternest discipline imposed by the Korean government on vir-
tually all large-sized firms—no matter how politically well-connected—related to export
targets” (Amsden 1989, p. 16). The leadership showed its commitment to these objectives at
the very highest level. For example, the president himself presided over the Monthly Export
Promotion Conference, which was initiated in early 1966 and usually attended by all cabinet
members, heads of major financial institutions, business association leaders, and represent-
atives of major export firms. The conference coordinated business–government relations,
but also compelled government agencies to cooperate around common objectives as well.
While neoclassical accounts of South Korea’s growth emphasize exports, standard growth
accounting models suggest the central role played by sheer capital accumulation (Rodrik
2007). Despite reforms of the financial sector, gross domestic savings was never adequate to
cover gross domestic capital formation, with the gap filled by foreign borrowing. Access to
foreign capital was completely controlled by the government as well. Korean firms wishing
to borrow abroad first had to obtain the approval of the Economic Planning Board, which
used such approvals as an additional source of leverage over patterns of investment. By 1985,
foreign debt reached 55 percent of GNP, and Korea was the third largest debtor country in
the world, trailing only Brazil and Mexico.
This investment-led development strategy reached its zenith during the 1970s when the
Park government initiated a heavy industry drive. By the early-1970s, the economy faced
a number of internal and external constraints, including rising labor costs—and increased
labor militancy— and loss of competitiveness from new entrants into the export- led
growth game. The initiation of the Heavy and Chemical Industrialization Plan in 1973—
the first major economic initiative following the imposition of the highly authoritarian
Yushin Constitution (1972)3—sought to move Korea into an emerging niche for relatively
standardized intermediate and capital goods.4 The government also sought to deepen the
defense industrial base.
The instruments used for achieving this objective were not new, and can be seen in the ex-
plosion of credit during the 1970s from the Big state-owned commercial banks. Preferential
loans rose from 40 percent of bank credit in 1971 to almost 70 percent in 1978. The alloca-
tion of credit turned away from light industries to the heavy and chemical sectors, despite
the fact that the former remained the backbone of the country’s exports. Consequently, the
prime beneficiaries of the heavy industry drive were the chaebol.
Despite the attention given to the role of investment and exports in Korea’s growth, a
critical component of the developmental state system consisted of the interlocking policies
with respect to industrial relations and social policy, including education and training. As
in a number of other East Asian newly industrializing countries, Korea had a “productivist”
(Holliday 2000) welfare regime, with limited social insurance and assistance and a pater-
nalistic system of industrial relations that rested on direct government control of unions.
Social insurance began with pension plans for civil servants and the military, but the ex-
tension of such protections to private sector workers was limited. The Yushin era ushered
in several other welfare initiatives that conform broadly to a “Bismarckian,” authoritarian
model, including a modest medical insurance launched in 1977. But prior to democratiza-
tion in 1987, the public social insurance system was limited to workers in large firms who
also enjoyed additional corporate welfare benefits (Yang 2011).
As in a number of other Asian countries, the government effectively expanded access
to education, providing basic skills that facilitated the early growth of labor-intensive
manufacturing. The initial expansion of the educational system came under the American
occupation, driven by the tremendous pent-up demand that followed decades of repressive
cultural policy under Japanese rule (Seth 2002). By 1960, the primary school enrollment rate
had exceeded 95 percent, even higher than the average at the time for member countries
in the Organisation for Economic Co-operation and Development (OECD). Beginning in
the 1960s, policy sought to align the educational system with the government’s broader
development efforts. The central thrust of these initiatives was threefold: to broaden the
base of the educational pyramid by universalizing primary education, expanding secondary
education at a more rapid pace than high schools, while reducing university enrollments;
shifting the emphasis from academic to technical and vocational education; and bringing
the curriculum into closer alignment with private sector demands. Further initiatives
followed during the period of the heavy and chemical industrialization drive of the 1970s,
including the creation of vocational training institutes and the Special Measures Law for
Vocational Training that provided incentives (in the form of penalties) for larger firms to
train workers in-house. In 1980, the proportion of vocational high school students among
total high school students peaked at about 45 percent (Kim 2000).
In sum, Korea made a successful transition to a high-growth path under authoritarian
leadership that focused on private investment—in particular, export-oriented investment.
The state provided selective and highly targeted incentives to large firms, particularly after
the heavy-industry push of the 1970s, and industrial concentration increased accordingly.
However, the developmental state also had a distinctive social component: Repressive
policies toward labor organization and rights and a minimal welfare state were coupled
with expansive investment in education.
Economic Liberalization and the

Coming of the Financial Crisis
Beginning in the 1980s, Korea came under both external and internal pressures to liber-
alize its markets. One critical task was to liberalize the state-controlled financial sector;
another was to address the structural imbalances that had originated during the heavy in-
dustry drive of the 1970s. Trading partners, particularly the United States, condemned the
free-riding of the newly industrializing countries and sought changes in their trade and
exchange-rate regimes. The authoritarian Chun Doo Hwan government (1980–1987) un-
dertook a tough stabilization program, restructured duplicative investments, and initiated
gradual economic liberalization measures that continued through the democratic transi-
tion to the Roh Tae-woo government (1988–1993) up to the eve of the 1997–1998 financial
crisis.
The dominant interpretation of the financial crisis of 1997–1998 is that it reflected con-
tagion from the region and the inherent risk of instability in international financial flows.
We take the dissenting view that the crisis was rooted in domestic political factors. At one
level, the reforms of the 1980s and first half of the 1990s appear to mark a fundamental
shift in the pattern of coordination in a more liberal direction. In fact, the partial nature
of these reforms and rent-seeking by the chaebol generated a new set of moral-hazard and
corporate-governance problems and helped set the stage for the economic turmoil of the
mid-1990s.
Central to these difficulties were developments in the financial sector. After a two decade
long nationalization of banks (1961–1982), the Korean government began to liberalize its
financial sector in the 1980s, with a gradual lifting of interest rate controls, the privatiza-
tion of the state-owned banks, and cautious liberalization of foreign entry and the capital
account. From the outset, the bank privatization process was incremental, politicized, and
torn between competing political objectives. No sooner had the process of privatization
of domestic banks begun than the government provided subsidized loans to restructure
a number of heavy and chemical sectors that experienced surplus capacity during the re-
cession of the early 1980s. This episode was one source of the moral hazard that fueled
the investment boom of the mid-1990s (Haggard 2000). A number of high-profile firms,
including Hanbo and Kia, faced difficulty in early 1997, well before contagion from the
regional financial crisis. In both of these cases, firms argued aggressively for government
support.
During the 1980s, the government also came under political pressure to offset the flow of
credit to the chaebol through programs for small and medium enterprises (SMEs), pressure
which only increased following the transition to democratic rule in 1987. As a result, the
share of policy loans in total lending remained surprisingly constant during the early re-
form period and even into the Kim Young Sam presidency.
These objectives of channeling credit on preferential terms could not be realized without
the government’s continuing to exercise control over the banks. This occurred both directly,
by vetting (or even direct appointment) of management, and indirectly, through various
forms of guidance. The net effect of continued state control was to weaken incentives for the
banks to develop effective risk-management capabilities.
Despite continued control over the banking system, the financial reform allowed chaebol
entry into a number of important segments of the nonbank financial sector, including mer-
chant banking, securities companies, non–life insurance companies, and installment credit
companies. These nonbank financial institutions (NBFIs) enjoyed an important advantage
in the market: They were not subject to the government’s continuing control over interest
rates. The government also lifted administrative controls on the yields and supply of com-
mercial papers (CP), allowing the chaebol to go directly to the market and circumvent state
controls altogether.
Unfortunately, these new activities were not subject to particularly rigorous regulation,
in part for reasons of political economy. The chaebol exploited affiliated NBFIs to finance
the subsidiaries within their groups in various ways: direct provision of funds; priority
underwriting of securities issued by related subsidiaries; provision of preferential financial
services and information on competing firms; management—and manipulation—of related
firms’ share prices; exercise of pyramidal control of firms via stock holdings; and other du-
bious intergroup transactions. Ultimately, NBFIs subordinated to the control of chaebol
owners had little incentive to monitor their in-group clients.
Additional problems were set in motion by developments in the external sector. The Kim
Young Sam government (1993–1998) eliminated many restrictions on the capital account
in conjunction with the process of joining the OECD in 1994–1996. Liberalization allowed
Korean banks and firms to borrow from abroad and international investors to invest in
Korean assets. Some foreign banks also entered the domestic market. Both directly and
indirectly—through the lending of Korean financial institutions—the chaebol were the pri-
mary recipients of this surge of foreign capital, contributing to a dramatic increase in debt-
to-equity ratios.
Liberalization extended to the real sector of the economy as well as the coordination
mechanisms of the developmental state broke down under private-sector pressure. Because
of the perceived need to coordinate entry into highly capital-intensive activities during
the heavy industry drive, the government had limited entry. In 1994, the government was
pressured to relax entry and investment restrictions in steel and semiconductors, setting
the stage for a burst of chaebol investment in these activities. In 1995–1996, the govern-
ment struggled to deal with the overcapacity in petrochemicals brought by the temporary
end of investment controls in that sector in 1990. In contrast to Thailand, where property
investments played an important role in the subsequent crisis, Korea’s investment boom was
led by chaebol investments in heavy and chemical industries, automobiles, petrochemicals,
steel, and electronics.
In sum, several features of the partially liberalized system of coordination contributed
to moral- hazard and corporate- governance problems. First, government- orchestrated
restructurings and ongoing government control over the banks appeared to give major pri-
vate investment projects a government imprimatur or implicit guarantee, creating moral
hazard. Second, the liberalization of the nonbank financial sector was not coupled with
adequate regulation to assure monitoring of loans to parent companies.
Finally, we should not overlook outright influence-peddling and corruption associated
with the incestuous relations between government and business during the late authori-
tarian period (Schopf 2011). The investigation of the Hanbo bankruptcy revealed that the
firm lobbied not only bank officials but also government officials and legislators to maintain
credit lines, a process replicated across numerous other firms as well. Weak shareholder
protection and other corporate governance failures also reflected the political power of the
chaebol and contributed directly both to the short-term nature of foreign lending (Rajan
and Zingales 1998) and to declining confidence in the corporate sector, capital flight, and
the collapse of asset prices (Johnson et al. 2000).
From the Crisis to a New Market

Economy: Finance and Corporate
Governance
Given the focus here on the evolution of patterns of coordination in the Korean economy,
there is no reason to dwell in detail on the events of October and November 1997 and
Korea’s ultimate recourse to the IMF (see Haggard 2000). Rather, we focus on the structural
reforms undertaken by the two center-left governments of Kim Dae Jung (1998–2003) and
Roh Moo Hyun (2003–2008) and the extent to which they constituted a fundamental shift
in patterns of coordination.
The aftermath of the crisis resulted in a profound political debate about where the
economy should go. What type of capitalism would Korea pursue? The crisis revealed not
only structural problems that had accumulated during the high growth period, but also the
perils of poorly regulated economic liberalization. Center-left governments sought liberali-
zation as a way of subjecting the chaebol to greater market discipline. Yet the move to a more
liberal market economy was affected by the entrenched power of the chaebol; this power can
be seen in the nature of financial market and corporate governance reforms.
At the same time, democratization had undeniable effects on the economic model, most
notably in the quite dramatic expansion of the welfare state. Yet the welfare state was also
affected by legacies of the developmental state era, particularly in the evolution of labor
markets and increasing informalization.
Implementing Reform I: The Financial Sector

The shift toward a more market-oriented financial system resumed with greater urgency
following the financial crisis of 1997–1998 (Hahm 2008; Hoshi et al. 2010; Kang forth-
coming). Under the duress of crisis, important reform legislation sailed through a lame-
duck National Assembly called in early 1998. One crucial piece of legislation increased
the independence of the central bank, the Bank of Korea, a crucial step in winding down
the government’s control over the financial sector. Another critical piece of this legisla-
tion was the creation of a new supervisory agency, the Financial Supervisory Commission
(FSC). The creation of the FSC sharply reduced the influence of the Ministry of Finance and
Economy and created an extraordinarily powerful new regulatory entity. Not only did the
FSC enjoy substantial short-term powers, but it oversaw a new regulatory structure under
the Financial Supervisory Service (FSS) that consolidated financial supervision across most
major financial entities and markets.
A set of market, policy, and ultimately political forces gradually pushed the Korean fi-
nancial sector in a more open and market-oriented direction in the aftermath of the crisis
(Hahm 2008; Hoshi, Kim, and Park 2010). Three reforms are of particular note: First,
restrictions on capital-account and foreign-exchange transactions were relaxed, substan-
tially opening up Korea’s capital markets to foreign investors. Second, reforms of corporate
governance, accounting, and disclosure procedures made Korean stocks more attractive
to both domestic and (particularly) foreign investors. From 2001 to the end of 2007—the
onset of the global financial crisis—the stock of foreign investment increased from $250
billion to $825 billion, with particularly robust growth in portfolio flows. At the peak in
2005, foreigners accounted for over 40 percent of holdings on the Korean stock exchange,
including an increased presence in the financial sector. Third, the governments of Kim Dae
Jung and particularly Roh Moo Hyun undertook a number of important reforms that were
explicitly designed to foster the growth of the financial markets. The culmination of this
process was the passage of the Capital Market Consolidation Act (CMCA) in 2007 (Kim
2008; Kang forthcoming). Touted as Korea’s “big bang,” this complex omnibus legislation
consolidated a number of existing financial regulations and moved toward a more inte-
grated regulatory model as well. At the same time, the CMCA was specifically designed
to generate greater institutional integration across the banking, insurance, and securities
segments of the market. The legislation permitted financial investment companies (FICs) to
engage in a full range of activities, a development its critics feared would open the door to
increased financial concentration. The conservative government of Lee Myung Bak (2008–
2013) took an even more lax approach to this issue, further reducing the barriers separating
industry and finance.
Implementing Reform II: The Reform

of Corporate Governance
While addressing the weaknesses in the financial sector, the Kim Dae Jung government
faced a second and related policy challenge: restructuring the chaebol who had been their
clients. Exploiting the unpopularity of chaebol management, their short-term financial
weakness, and his relative political independence from the private sector, Kim Dae Jung
reached an agreement in principle with chaebol leaders on five principles of corporate re-
structuring. These principles included an improvement of financial structures through a
reduction of debt-to-equity ratios and a streamlining of business activities to focus on core
competencies. But they also included longer-term changes such as an unwinding of the
complex cross-debt guarantees within groups, greater transparency, and increased account-
ability and stronger protections for minority shareholders.
Translating this agenda into policy and actually implementing it proved a lot more con-
tentious than announcing it (Haggard and Mo 2000; Mo and Moon 2003). While progres-
sive voices inside and outside the government used the crisis to advance radical solutions,
including breaking up the groups altogether, chaebol owners and managers naturally sought
forbearance. As in the financial sector, the process of chaebol reform consisted of overlapping
crisis management and longer-run institutional and legal components. Different types of
firms posed different challenges. Dominating the economy were the Big Five: Samsung,
Daewoo, Hyundai, LG, and SK. These groups were both economically and politically im-
portant, potentially too big to fail, and the government sought to deal with them through
the negotiation of informal, “voluntary” agreements. The second tier consisted of the so-
called 6–64 chaebol, for which the government developed a system for restructuring corpo-
rate debt. The third tier consisted of small and medium enterprises.
Throughout 1998 and 1999, the government engaged in an ongoing public relations
battle with the Big Five, in which it repeatedly claimed that the large chaebol were not being
aggressive enough in undertaking financial and corporate restructuring. Debt-to-equity
ratios remained high, and firms were reluctant to give up on intragroup transactions that
favored insiders. Daewoo proved a fundamental test case (Lee 2003). A political creature
since its rapid growth under Park Chung Hee, the firm had responded to the crisis by taking
on even more debt. Daewoo’s global automobile operations were exemplary of the firm’s
overextension; weighed down with over $12 billion in debt, the company faced liquidity
problems in the summer of 1999 that weighed on the group as a whole. In an epic moral-
hazard conflict, Daewoo effectively mobilized suppliers and workers to roll over short-term
debt with its creditor consortium and even secure new credits. But the government ulti-
mately reached the decision that Daewoo should be dismantled. The fall of Daewoo was one
of the most significant events in Korea’s postwar economic history, a parallel to the fall of
Lehman Brothers in the United States. Despite the high cost of the failure, it sent a powerful
signal that the government could not be counted on to rescue firms.
The government was not only interested in short-term crisis management; it also sought
internal governance changes in the chaebol. A controversial organizational change at the
larger groups was the elimination of the chairman’s office—the strategic planning and
coordination office in each group that had been dominated by chairmen (chongsu) and
served as the organizational basis for their control over group activities. Firms were re-
quired to increase the number of outside directors, a change that proved particularly dif-
ficult to effect given the myriad of personal-network connections that tied bloc-holders
to nominal outsiders. The efforts to subject management to greater oversight through or-
ganizational means were matched by legal reforms designed to change the market envi-
ronment itself, particularly through strengthening competition policy and developing a
more aggressive market for corporate control. Liberalizing foreign direct investment had
a similar function.5
The restructuring of small and medium enterprises played into politics in a very different way
than did the restructuring of chaebol. With the transition to democratic rule, each successive
administration expressed concern about the health of the small and medium-sized enterprise
(SME) sector and sought to provide supports of various kinds. Following the 1997–1998 crisis,
SME debts to the banks were rolled over, and the government used a variety of instruments to
assist the sector. Interestingly, a number of these instruments of support were revived in the
wake of the 2008–2009 financial crisis as well (Tsutsumi, Jones, and Cargill 2010).
Assessments of Korean corporate governance seem to converge on the fact that the legal
changes in the country have been very dramatic. Democratization, NGOs, and new polit-
ical coalitions (Gourevitch and Shinn 2005, pp. 123–124)—in addition to the effects of the
financial crisis—have played a crucial role in these changes. Yet, at the same time, there is
also a consensus that there is a gap between de jure and de facto managerial practices and
corporate governance (OECD 2004; Lee and Lee 2008). Procedural reforms have allowed
shareholder activists to be more engaged in monitoring the large groups, but in the absence
of complementary actions on the part of regulators, it is not clear that shareholders are ca-
pable of monitoring management effectively. In particular, the political power of the chaebol
has allowed wedges to persist between de jure and de facto corporate governance.
From the Crisis to the New Market

Economy II: Politics, Social Policy,
and Labor Markets
When the financial crisis hit Korea, democracy in the country was already a decade old.
Since the transition in 1987, there have now been six presidential elections—with presi-
dents serving five-year terms—and seven National Assembly elections. Because of divisions
within the opposition, the first two presidents headed center-right coalitions. It was thus
left to the first “real” opposition candidate—Kim Dae Jung—to confront the difficulties of
the crisis. Yet despite a relatively strong presidential office, governance has faced significant
challenges. In five of the six presidential elections, only one candidate—Park Geun-hye in
2012—garnered an outright majority. Moreover, legislative majorities have proven difficult
to maintain for both parties. No incumbent party has gained a majority of the popular
vote in staggered National Assembly elections; legislative majorities have been narrow and
have typically crumbled as presidents’ popularity tended to decline over the course of their
terms. As a result, divided government has been frequent, and presidents’ ability to act has
been checked and balanced by opposition parties.
Despite a period of polarization in the aftermath of the financial crisis, and in the election
of Roh Moo Hyun in particular, ideological differences on economic policy issues have been
relatively narrow. Conservative parties have supported smaller government, while liberal
parties have supported a bigger government. Nonetheless, political competition between
them has driven a quite substantial expansion of the welfare state, with innovations visible
under both conservative and liberal governments (Haggard and Kaufman 2008; Yang 2011).
The National Health Insurance, first introduced in 1977 during the heavy industrializa-
tion drive, was initially compulsory only for government employees, teachers, and workers
in the very largest firms. The authoritarian Chun Doo Hwan government expanded the
system incrementally; however, farmers, the self-employed, and the urban informal sector
remained outside the system, leaving total coverage at about 50 percent. As the political
battle was joined to define the nature of the transition from authoritarian rule in 1986–1987,
the Chun administration announced an expansion of health insurance and the national
pension scheme and introduced a minimum wage. The conservative Roh Tae Woo gov-
ernment integrated these social policy initiatives into his campaign platform in 1987. After
winning a narrow plurality, his administration extended health coverage to the rural and
urban self-employed through an expansion and partial subsidization of the health funds to
cover the previously uninsured.
The left-leaning Kim Dae Jung and Roh Moo Hyun governments emphasized social wel-
fare, both to address the fallout from the crisis and as a broader matter of principle. The Kim
Dae Jung government expanded coverage of all of the major social insurance programs,
pushing to unify the pension and health insurance systems, expanding unemployment in-
surance, and fundamentally changing the principles guiding social assistance. Although
proceeding on quite separate tracks, these reforms were bundled into a “productive welfare”
initiative in August 1999 that also placed emphasis on active labor market policies designed
to encourage employment. President Kim also spoke of social welfare and employment as
citizenship rights, a major departure from previous administrations that had hewn to a
Bismarckian, employment-based conception of the welfare state.
Nonetheless, Korea’s public spending for social security is one of the lowest among
OECD member countries. In the December 2012 presidential election, both candidates ran
on platforms promising an expansion of the welfare state. These promises came in the face
of some unpleasant demographic arithmetic. The demographic structure of Korea is rapidly
aging, while its birth rate was the lowest in the world as of the end of 2012. The financial vi-
ability of the pension and health systems has not yet been tested because both are relatively
new and are still in substantial surplus. But as the baby-boom generation begins to retire, it
is inevitable that political conflicts will arise over the viability social insurance system and
how to address it.
A second important social issue concerns the nature of the Korean labor market, the
system of industrial relations, and the links between labor markets and the nominally uni-
versal social insurance system. As we argued above, labor control was a key component
of the developmental state model. Democratization and economic crisis generated cross-
cutting effects on the political economy of labor. On the one hand, the transition to de-
mocracy was accompanied by an expansion of labor rights. Reforms of labor laws in 1987
and 1989 guaranteed freedom of association and limited government involvement in labor
disputes. Union membership exploded, and unions were able to press for large wage gains.
But, on the other hand, the economic crisis also put strong political and economic pressure
on the government to increase the flexibility of the labor market; the IMF, United States,
and foreign investors all pushed the issue with the Kim Dae Jung administration. A curious
legacy of the developmental state period was that Korea’s labor market mirrored its con-
centrated industrial structure. The more densely unionized chaebol maintained long-term
secure employment on a seniority-based wage and promotion system. Small and medium
enterprises, by contrast, relied on temporary and day laborers, and were characterized by
weak unions, low job security, and a flat earnings profile.
Prior to the crisis, restrictive rules governing firing and severance served as a primary
means of labor protection. In principle, workers could only be fired in the case of “emer-
gency managerial need,” and the Korean Supreme Court had ruled that such layoffs required
consultation with the unions. In the aftermath of the crisis, these rules served to deter cor-
porate restructuring, particularly through the entry of foreign investment. To secure labor
agreement to greater layoffs, Kim Dae Jung resorted to a tripartite commission. In return
for agreement to permit layoffs and to allow greater use of workers on temporary contracts,
the government increased unemployment compensation. Political concessions were also a
critical part of the bargain, including the right for public servants to form a labor consul-
tative body, for teachers to unionize, and for unions to be directly involved in political ac-
tivities. Business and labor saw the agreement very differently from the outset (Song 2003).
Management believed it had gained greater freedom to retrench; labor believed that the
terms of the bargain were not being enforced. Larger firms both downsized and aggressively
used outsourcing and nonregular employment to adjust. As a result, the share of nonregular
workers increased rapidly, nearly doubling to just under 30 percent of the workforce by
2006, and job tenure shortened.
The shorter job tenure has created a vicious cycle between labor market flexibility and
skill formation. For employers in small firms, there are few incentives to invest in on-the-
job training because of the shortness of tenure. For workers, similarly, there is little incen-
tive to invest in firm-or even industry-specific skills (Chung and Lee 2004; Ahn 2006). This
dynamic may even extend to the chaebol. Larger firms are better positioned than SMEs to
poach experienced workers from other firms, generating upward pressure on the wages of
skilled workers (Park 2007). But, as a consequence, SMEs have suffered from a shortage of
skilled and experienced workers, as well as college graduates, who have preferred to work
at large companies (Lee 2006).
The effects of labor market dualism were not limited to wages and the security of employ-
ment, but extended to the increasing gaps in corporate benefits and access to statutory social
insurance schemes. Despite their entitlements, nonregular workers have substantially lower
coverage of all statutory benefits except national health insurance, which is family-based and
heavily subsidized. A similar pattern is visible in coverage differentials by firm size as well. The
actual coverage of statutory programs for workers at small-and medium-sized enterprises is
also significantly lower than at larger firms, and corporate benefits are also less generous. At
the bottom of the welfare ladder are nonregular workers at small-and medium-sized firms.
In sum, the Korean welfare state reflects both competitive political pressures arising
out of the democratization process and the legacies of the developmental state era. The
democratic transition in Korea initially brought conservative governments to power that
cautiously expanded entitlements. This expansion was pushed ahead under more liberal
governments, but subject to fiscal constraints associated with the crisis. But the operation
of the system has also been affected by the increasing dualism in labor markets and the fact
that many workers are falling between the cracks of nominally universal social insurance
programs. Spending on social insurance and assistance still falls toward the bottom of all
OECD countries.
Conclusion
Korea achieved rapid growth in the 1960s and 1970s under the guidance of an authoritarian
state pursuing an investment-led growth strategy focused on big business. The industrial
deepening of the 1970s, in particular, resulted in a highly concentrated industrial struc-

ture. However, this strategy was neither economically nor politically sustainable. External
pressures for liberalization were coupled with political pressures from below for an end to
authoritarian rule and labor repression.
The democratic transition of 1987 and the Asian financial crisis of 1997–1998 transformed
both Korean society and economy in a more liberal direction. Democratization brought
new demands for a more expansive social policy, but also more transparent business–
government relations and corporate governance. The crisis of 1997–1998 set in motion a
wave of reforms in business–government relations and labor and social policies. Those
two center-left governments led the neoliberal reforms, pressing changes to the financial
sector, foreign direct investment, and even labor markets, while seeking to improve opaque
patterns of corporate governance. It may seem ironic that center-left governments would
push the Korean economy in a more liberal, market-oriented direction. But these policy
preferences make sense in the context of an authoritarian history characterized by overly
close, opaque, and increasingly corrupt business–government relations: A more liberal ec-
onomic model was in part a way to discipline large firms. There is little doubt that Korea
moved in the direction of a more liberal market economy during this period.
However, the legacy of the developmental state era is still visible in the Korean political
economy. First, the persistence of chaebol influence and power has allowed big business to
shape the path of reform. The assets of the top four chaebol groups reached nearly 60 per-
cent of GDP in 2010, with Samsung’s valuation alone equaling 20 percent of GDP. Major
Korean chaebol such as Samsung, Hyundai, LG, and SK have rightly earned their reputations
as internationally competitive and innovative firms. But they have also shaped the path of
economic reform in ways that favor their continued dominance—for example, with respect
to the financial sector and lagging corporate governance reform.
A second challenge for the Korean political economy is growing economic and social
polarization, inequality, and the social policy agenda. Democracy was accompanied by an
expansion of the welfare state. But as we have seen, the postcrisis labor reform served to
create a dualistic welfare state model, with (unionized) workers at large firms enjoying more
generous corporate benefits and full access to public entitlements, while workers in small-
and medium-sized firms and irregular workers are exposed to greater risk. This dualistic
labor market structure has worsened social cleavages, but may also ultimately constrain the
underlying growth model. As these developments suggest, the debate over the legacy of the
developmental state—and the way forward—is by no means over.
Notes
1. If we use different measures to calculate GDP, such as the purchasing power parity or in-
ternational Geary-Khamis dollars, the scale of the East Asia economy is much larger than
if measured by current U.S. dollars.
2. According to the World Bank’s World Development Indicators. the world’s per capita GDP
(in constant 2000 U.S. dollars) in 1961 was $2,478, with Latin America and the Caribbean
averaging over $2,100.
3. The Yushin Constitution was promulgated in October 1972 under a state of national
emergency, dissolving the legislature. It permitted the reelection of the president for an
unlimited number of six-year terms. For more details, see Lee (2005) and Kim and Vogel
(2011).
4. The plan emphasized investments in six sectors: iron and steel, machinery, nonferrous
metals, electronics, shipbuilding, and petrochemicals.
5. Gourevitch and Shinn (2005) call these types of reforms “foreign-investor driven” govern-
ance reforms.
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Index
Page ranges in bold face indicate chapters; pages preceded by t or f indicate tables and figures,
respectively.
Abiad, A., 385–386, 394, 397t Afghanistan, 52, 180, 183, 185

Abraham, A., 299, 301, 303, 318 and civil war, 191, 287
accountability by states, 231–232, 418–420 and collective action, 451–452
accountability, mutual, 420–421 military intervention in, 414
accountability, political, 69, 90, 163, 200, Africa, 44f, 46–47, 92, 98, 146
204, 453, 506. See also ‘voice and British, 311
accountability’ measures Christian missions in, 128
in Africa, 311, 316, 549–550, 554 and civil war, 67–68, 187
and democracy, 451 and colonialism, 295–327
effect of oil resources on, 207 Commission for, 278
and foreign aid, 409–410, 412, 414, 419 and conditional foreign aid, 415–416
and institutional gaps, 460 conflict in, 54
international influences on, 492 contemporary political economy of, 537–566
in MENA countries, 608 and cross-regional growth, 598f
and public service delivery, 481, 484, 487, demography of, 48, 52–53
490, 493 and ethnicity, 164, 170, 174
in rentier states, 202 and foreign aid, 94, 409, 413
and ‘resource curse’, 611 governance indicators, 613f
and state-building, 452 and manufacturing, 599f
and tax revenues, 206, 233 and modernization theory, 65
vertical, 507 and NGOs, 482
Acemoglu, D., 12–14, 45, 50–51, 57, 148, 156 and oil resources, 213
on civil war, 189 population ratios, 49f
on colonialism and development in Africa, and populism, 517, 520, 525
296, 319, 541 and public service delivery, 485–486
on democratization and development, and Washington Consensus, 77
450–451 West, 237, 491
on inequality, 140, 144, 146 Africa, sub-Saharan, 28, 146, 163, 169, 413
on political economy, 69 Chinese investment in, 35
actors, taxation, 236t and collective action, 452
adaptability in policy-making, 503–505 growth compared to MENA countries, 597,
adjustment, economic, 73, 388 599, 617
administration, public, 94, 261 and natural resources, 206–207
adults, young, 470t and public service delivery, 485
aeronautical industry, U.S., 257, 260 and social relations, 609
aerospace industry, Chinese, 372 and taxation, 227, 234, 236
686 Index
Afrobarometer, 444f American Journal of Political Science, 494

agency, human, 164, 277–278, 287–288 American Political Science Review, 4, 78, 494
and connecting institutions, 474–475 Amin, I. (Ugandan dictator), 298
and political parties, 500 Amin, S., 23, 28
and women, 368 Amsden, A., 670–671
agency, political, 110, 528, 539 Andersen, J.J., 205–206, 208
agency, state, 543 Anderson, B., 164–165
agrarian movements, 518, 522 Andhra Pradesh, India, 661
agrarian production, 27, 203 Andrews, M., 256–275, 271t
agrarian reform, 573–574 Angell, A., 416
agrarian societies, 32, 50 Angola, 50, 93, 102, 187
agricultural marketing boards, 314, 385 and colonization, 298, 305
agricultural sectors, 149, 653 and economic change, 555
Agricultural Trade Development and investment and debt in, 329
Assistance Act, 654 and natural resources, 204, 210
agriculture, 76, 143, 177, 184 war in, 551, 555
in Africa, 450–451, 537 Anner, M.S., 401
in India, 664 Ansell, B., 145–146, 156
in Kenya, 388 apartheid government, 260–261, 285, 318, 415
in MENA countries, 610 end of, 554
plantation, 46 Appadurai, A., 112
Aguirre Cerda, P. (Chilean president), 582 Applied Systems Analysis, International
aid-dependent countries, 94, 101–102 Institute for (IIASA), 191
aid, development, 126, 227, 229, 231 Apter, D., 278
aid, foreign, 93–94, 99, 200, 234 Arab Human Development Report
and democratization, 409–430 (UNDP), 600
food to India, 654 Arab Spring, 114, 370, 413, 522
and MENA countries, 615 and development in MENA countries, 599–
Ake, C., 544 600, 604, 617–618
Akerlof, G., 365 Arezki, R., 402–403
Akita, T., 572t Argentina, 6, 8, 15, 27, 34, 65
Akkoyunlu-Wigley, A., 482 and auto industry, 361
al-Assad, H. (Syrian president), 92 developmental success in, 567–595
Aldrich, J.H., 436, 440 import-substitution industrialization (ISI)
Alesina, A.F., 142, 168, 394 policies, 378
Alexeev, M., 207 infrastructure, 358
Algeria, 65, 93, 130, 135, 183 and oil resources, 206
and colonialism, 609–610 and political economy, 67
governance in, 613 and populism, 519, 525, 531
investment and debt in, 337 and provincial democracy, 233
and natural resources, 202 trade-and-investment policies, 360
and oil resources, 598 trade tariffs, 96
and political economies, 601, 603t, 604 and Washington Consensus, 76
and ‘resource curse’, 612 armed conflict, 178, 180–181, 192f. See also
Allende, S. (Chilean president), 582, 585, 587 civil war
Alliance of Civilizations, U.N. (UNAOC), 137 decline in, 194
Almond, G., 64, 109 Armenia, 337, 417
Index 687
Arnson, C.J., 530 autocracies, 46, 146, 156, 190

Asante, 301, 303, 317, 319 in Africa, 538
Asia, 46–47, f53, 67, 191 in China, 627
Christian missions in, 128 and government capacity, 259, 269
economic performance in, 539 and oil resources, 204–205, 207, 209
and ethnicity, 174 and public service delivery, 481, 485
and FDI, 360 and state-building, 452
and India, 663 automotive industry, 342, 360, 373, 377
investment and debt in, 332 automotive sector, Indian, 360
and labor conditions, 370 autonomy, embedded, 33, 169
and populism, 520 autonomy, judicial, 419
and public service delivery, 485 autonomy of governments, 328
role of the state in, 69 Auty, R.M., 201–202
Asia, East. See East Asia Ayres, R., 82
Asian values, 107, 110 Azerbaijan, 101, 209, 417
Asia, South. See South Asia
Asia, Southeast. See Southeast Asia Bahamas, 209
Aslaksen, S., 205 Bahrain, 601, 603t
assets and liabilities, foreign, 331f Bahujan Samaj Party (BSP), 171
assets, portfolio vs. FID, 337f balance-of-payments, 390–392, 605
ASSOCHAM (Associated Chambers of Baldwin, K., 489
Congress and Industry), 657 Balesariya village, 463, 468–469
Aten, B., 569t–570t Banda, H. (Malawian president), 416
Audi, 373 Banerjee, A.V., 69
austerity programs, 415, 538, 545–547 Bangalore, India, 661
Austin, G., 306 Bangladesh, 337, 368
Australia, 49, 296–297 banking, 178, 339, 386, 605
authenticity, cultural, 521–522 in China, 631, 640
authoritarian regimes, 6–7, 9, 228 in India, 656
in Africa, 314, 555, 558 in South Korea, 670–672, 675
in Chile, 89 banking network, global, 333
in China, 90 Bank of India, Reserve, 660
collapse of, 67 Bank of Korea, 676
and foreign aid, 409 Baqir, R., 168
and government capacity, 269 Barbados, 296
and institutional gaps, 460 Bardhan, P., 435
and Islam, 606 bargaining, political, 541, 557–558
in Latin America and East Asia, bargaining power, relative, 229, 235, 342
compared, 584 Barre, S. (Somalian president), 543
in MENA countries, 596, 600, 614–615 Barro, R.J., 142
and oil resources, 200, 210 Barr, R., 523–524, 530
and political parties, 509 Baskaran, T., 234
and populism, 525 Basque countries, 179
religious support of, 134 Basu, J. (Indian politician), 661
in rentier states, 227 Baten, J., 306
and ‘resource curse’, 611 Bates, R.H., 10, 64–69, 435, 450–451
in South Korea, 669–670, 673, 675, 681 Batista, C., 52
688 Index
Bauer, P.T., 295 Boeing, 372

Baum, M.A., 447, 485–486 Boix, C., 11–12, 14, 156
Bayer, R., 181 on civil war, 180, 189
Beblawi, H., 202 on democratization and development, 451
Becker, D.G., 28 on inequality, 145–146
Beck, T., 209 on political parties, 436
behavior, political and socioeconomic, Bokassa, J.B. (Central African emperor),
285–286 298, 542
Beijing, 630, 632 Bolivia, 76, 204, 259, 582
Belarus, 100 and populism, 522–523, 528–529, 531
Belgian Congo, 302t Boockmann, B., 400t
Belgium, 172 Botswana, 43, 56, 92
Belize, 337 bond issues, 345
Benabou, R., 141 and colonization, 296, 298–299, 304, 316
Ben Ali, A. (Tunisian president), 445 economic growth in, 554
Benavot, A., 305f GDP, 304f
Benhabib, J., 14 and government capacity, 257, 261
Benin, 298, 311, 415, 452 institutions in, 542
democratic transition in, 550 investment and debt in, 337
economic growth in, 554 and leadership, 277, 281
and political parties, 441 and life expectancy, 306f
politics in, 543 and ‘resource curse’, 611
protests in, 548–549 Boulding, C., 417
Berman, S., 529 bourgeoisies, 25, 27, 29, 32
Besley, T., 664 Bowden, S., 307, 308f, 309, 318
Bharatiya Janata Party (BJP), 165, 656, Brady, D., 257, 267–269, 279
660, 663 Bratton, M., 416, 482
Bhattacharya, B. (Indian politician), 661 Brautigam, D., 230
Bhattacharya, S., 209 Brazil, 6, 8, 15, 23, 27–28, 34, 65
Bhatt, E., 135 and auto industry, 361, 377
Bhavani, T.A., 657, 660 ‘blackness’ in, 114
Bianco, W., 435 developmental success in, 567–595
Biglaiser, G., 398t and economic performance, 540
Bigsten, A., 234, 309, 310f and ethnicity, 170
Bihar, India, 662 and FDI, 361
bilateral investment treaties (BITs), 357, 376 and foreign aid, 421
Bird, G., 402 import-substitution industrialization (ISI)
Birnberg, T.B., 295 policies, 378
BjØrnskov, C., 400t investment and debt in, 332
BJP (Bharatiya Janata Party), 165, 656, and IPR regulations, 376
660, 663 and oil resources, 206
‘black swans’, 54–55 and populism, 519, 525, 530–531
Blaydes, L., 607–608 and public service delivery, 486–487
Block, S., 450 and taxation, 233
Blomberg, S.B., 181–182 trade-and-investment policies, 360
Blonigan, B., 362–363 trade tariffs, 96
Bloom, D.E., 45 trade with Africa, 554
Bodin, J., 201 and Washington Consensus, 76
Index 689
breakdown, democratic, 415–417, 550 business-government relations, 612–614,

BRICS nations, 332–333, 342, 554 671, 681
Britain, 93, 226, 228, 295, 610. See also Busse, M., 210
United Kingdom
British East Africa, 298 cadre evaluations, 633–634, 636t, 637
British South Africa Company, 300 Cambodia, 124, 130, 134, 180, 183
Brollo, F., 206 and leadership, 282
Brooks, S.M., 395, 397t–398t and natural resources, 210
Brown, D., 367–368, 484–485, 488, 492 and post-World War II geopolitics, 582
Brunei, 204 wages, 368
Brune, N.E., 399t–400t Cameron, D., 78–79
Brunnschweiler, C., 212 Cameroon, 100, 134
Buddhism, 124, 127, 134 Cammett, M., 482, 596–625
budgetary revenues, local, 642f Campello, D., 342
budget oversight, parliamentary, 419–420 candidate commitments, 432, 441
budget support, 411, 419–420 candidate selection, 69, 438
Bueno de Mesquita, B., 54 Canovan, M., 517, 521
Buganda, 296, 300–301, 303, 311 capability, state bureaucratic, 231, 256–275
Buhaug, H., 54, 69 in Africa, 539, 541, 548–549
Bulte, E., 212 capacity
Bunce, V., 417, 421 agency, 468
bureaucracies, 169–170 bureaucratic, 505
and collective action, 433 and connecting institutions, 474–475
and colonialism, 579–580 extractive, 242–243
Indian, 654, 660 governance, 420
and Japanese colonization, 581 government, 508
and natural resources, 200, 208 infrastructural, 539
and political parties, 447–448, 448t manufacturing, 637, 643, 645
restraint on rulers, 452 public sector, 420
and taxation, 226, 611 regulatory, 603
bureaucratic initiative, 579 state, 187–188, 190, 193, 242–244
bureaucratic insulation, 584 Capacity Development, Institute for
Burgoon, B., 397t (IMF), 402
Burke, M.B., 54, 57 ‘capacity to aspire’, 112
Burkina Faso, 181, 182f, 317 Cape Verde, 52, 209, 554
and economic change, 555 capital, 312
state recovery in, 549 access to, 366
Burma, 97, 187, 329 domestic, 328
Burnell, P., 421 financial, 174, 178, 185, 189
Burundi, 50, 173, 181, 182f, 183, 191 footloose, 334, 336
and colonization, 298, 300, 305, 312 formation, in China, 643
development in, 556 mobile, 184, 228
and IFI lending, 402 physical, 556, 655
investment and debt in, 329 social, 165, 174
politics in, 542, 550 transnational, 25, 29
war in, 552, 555 capital account openness, 330f, 386, 387f, 402
Bush, G.W. (U.S. president), 126 in South Korea, 674
Busia, K. (Ghanaian president), 443 capital accumulation, 672
690 Index
capital controls, 329, 401 and poverty, 664

capital flight, 182, 184 and public service delivery, 491
capital flows, 331, 339, 346, 389 Castro, F., 582
capital, human, 144, 149, 178, 185, 207, 305, 346 Catholic Church, 124, 130, 135, 436
in Africa, 551, 556 Cederman, L.-E., 180
and collective action, 432 Central African Republic, 7–8, 298, 542
and colonialism, 312–313 conflict in, 555
and education, 574 politics in, 542
in India, 655, 664 Central America, 27, 131, 183, 242
investment in, 361 Central Asia, 113–114, 227, 295
in MENA countries, 596 centralization, political, 299, 301, 303, 318–320
and public service delivery, 481, 485, 494 Chad, 134
social, 461–469, 474 chaebol (Korean private groups), 670–674
capitalism, 66, 92, 95, 101 and economic liberalization, 675
in Africa, 295 influence, 681
agrarian, 664 and labor market flexibility, 680
crony, 596, 612–614 restructuring of, 676–678
emergence of, 99 and unions, 679
hothouse, 577 Chambers of Congress and Industry,
nonliberal, 670 Associated (ASSOCHAM), 657
spirit of, 110 Chambers of Congress and Industry,
and taxation, 226 Federation of Indian (FICCI), 657
Capital Market Consolidation Act (CMCA) Chandra, K., 171
(Korean), 676 Chaney, E., 607–608
capital openness, 156–157 Changchun Railways Vehicles, 372
capital shares, 148–151, 153t–155 change, 268–270, 281
and empirical tests of inequality, 152, 156 change, politics of, 270
Caraway, T., 401 change, theories of, 262, 266–267, 270
Cárdenas, L. (Mexican president), 519, 525 charitable giving, Islamic (zakat), 608
Cardoso, F.H. (Brazilian president), 23–24, charitable trusts, Islamic, 616
26–27, 35, 585 Chaudhry, K., 228, 230
career aspirations, 469, 470t Chávez, H., 8, 441–442, 447–448
career choices, 471 and populism, 520–523, 526, 530
career-counseling agencies, 472–473 checks and balances, 530, 550–551
Caribbean countries, 49f, 52, 339 Cheeseman, N., 162–176
Carkovic, M., 362–363 Cheibub, J.A., 3–21, 148
Carneiro, R.L., 47 Chen, S., 182
Carothers, T., 418, 420 Chen, Y., 634
car plants, Indian, 658, 660 Chidambaram, P. (Indian M.P.), 656
Caselli, F., 207 chiefs, 277, 301, 311, 316–317, 319
castes, governing, 521, 526–527 Chile, 6, 8, 27, 34, 65, 89
caste system, 89, 112, 114, 166, 171 and civil war, 183
and affirmative action, 658 developmental success in, 567–595
and collective action, 434 and foreign aid, 417
and governmental reforms, 665 and populism, 531
and institutional gaps, 464, 466 and public service delivery, 487
Other Backward, 656 China, 22, 26, 33–36, 669
and political parties, 661 and access to domestic market, 370
Index 691
and Africa, 543 citizenship, norms of, 432

and colonization, 296 civil liberties, 412, 417, 602
and Confucianism, 89 civil rights reform, 257, 260, 268, 413
demography of, 47, 52, 54–55 civil service, 257, 447, 452
direct investment, 347 civil society, 13, 32, 132, 134, 280
and economic statism, 92 and foreign aid, 411, 418–419
and Great Leap Forward, 55 organizations, 413, 459–460, 475
hypergrowth in, 626–651 and populism, 528–529, 531
and imperialism, 295 civil war, 52, 54, 56–57, 67–68
and India, 655, 658–659, 661, 663 and colonization, 300
investment and debt in, 330, 332–333 in Guatemala, 124
and IPR regulations, 376 and institutional gaps, 460
and lack of oil, 101 and natural resources, 200, 203, 210–213
and leadership, 281 and security, 449
and Maoism, 94 and state-building, 452
and market-nurturing reforms, 95–99 Clark, G., 45
and MENA countries, 599 Clash of Civilizations? (Huntington, S.P.),
and Myanmar, 192 68, 110
and post-World War II geopolitics, 581 class dynamics, 23, 27, 317
and public service delivery, 486, 491 classes, social, 146, 148, 174, 226. See also
and structural transformation, 364 middle class; working class
and taxation, 227 dominant, 25
and technology transfer, 357, 371–373 elite, 29
trade with Africa, 554 and ethnic diversity, 489
and Washington Consensus, 75 class structure, 567–568, 584–589
China-Africa Cooperation (FOCAC), 552 class, transnational capitalist, 32
China Land and Resources Statistical cleavages, social, 268, 436–437
Yearbook, 642f clientelism, political, 441–444, 452
China Statistical Yearbook, 642f in Africa, 542, 544, 550, 554
Chinese Academy of Science, 372 in Chile, 585
Chinese central government, 638, 645 in China, 633
Chinese Communist Party (CCP), 33, 626, in Latin America and East Asia,
629, 631 compared, 584
Chinese GDP and total government in MENA countries, 604
budget, 639f and political parties, 499, 501, 505, 507
Chinese government budget revenue, 639f and public service delivery, 485
Chinese National People’s Congress, 644 systematic, 280
Chinn-Ito index, 329 climate change, 45, 54, 56
Christian Democrats, 130 Cline, W., 360
Christian evangelical groups, 131 coalitions, 282, 284–285, 287–288, 475
Chrysler, 377 in Africa, 541–542, 549–550, 557
Chun Doo-hwan (South Korean president), cross-class, 521
90, 673, 678 ISI, 30
Churchill, W. (British prime minister), 264 political, South Korean, 678
church-state separation, 110, 131 and populism, 519
Chwieroth, J.M., 394, 397t Cobb-Douglas production function, 307
CII (Confederation of Indian Industry), 657, 662 Coercion, Capital and European States AD
citizen organizations, 449–452 990-1992 (Tilly), 228
692 Index
coercion in foreign aid, 410, 412, 414–416 investments in, 345

and democratic erosion, 417–418 prices, 338, 342, 344
coercion in lending, 393, 395–396, 401, 421 primary, 203, 210
and richer countries, 402 commodities development model, 35
coercion, political, 444 commodity export model, 543
Cogneau, D., 306 commodity prices, 75, 553, 583, 589
Cold War, 6, 12, 54, 110, 193 commodity wars, 632
and Africa, 543, 549 common pool problem, 433–435
Coleman, J., 64 commons, management of the, 432, 435
collective action, 166, 174, 186, 190 communication, chains of, 475
in Africa, 537, 544, 550 communism, 5, 67–68, 151, 581–582
and political parties, 431–457 in Latin America, 582
and populism, 522, 528 Communist Party of China (CCP), 633–634
and public service delivery, 484, 488–489 Communist Party of India-Marxist
and social capital, 468 (CPM), 660
and taxation, 233 Community of Sant’ Egidio, 127, 135
collective action problems, 283–285, 288, Comparative Political Studies, 494
475, 539 comparative politics, 480–498
collective bargaining, 343 competition, financial, 334, 340
collectivization, rural, 543 competition, geostrategic, 671
Collier, D., 272 competition, political, 162, 484–488, 501
Collier, P., 52, 203 and political parties, 508
on civil war, 181–182, 184, 186–187, 189, 191 and populism, 525
on market liberalization, 388 competition, regional, 628, 637, 639–641,
on natural resources, 210–211 645, 662
Collier, R., 272 complexity theory, 264–265, 269
Colombia, 27, 34, 76, 185 computer industry, 372
and civil war, 187, 191 ConceiÇão, P., 336
and government capacity, 257, 265–266 conditionality, 332, 390–392, 396, 401
Medellín drug wars, 261 in Africa, 538, 546–547
and natural resources, 210–211 compliance with, 401
colonial heritage, 151, 567–568, 579–581, 589 and foreign aid, 411, 415–417, 419, 546
in MENA countries, 597 conflict, 134
colonialism, 47–48, 110, 287 civil, 93, 418, 431
and development in Africa, 295–327 and colonization, 315
and economic performance in Africa, 540 ethnic, 117, 300, 314
European, 12–13, 35, 45, 47, 49 international, 213
Japanese, 30 over reform, 81–82
in MENA countries, 608–610, 617 and public service delivery, 488
colonial mechanisms, 314–316 rates, 212f
colonial states, European, 538 related to poverty, 129
Comaroff, J., 518, 524 resolution, 135, 138, 301, 459
commitments, government, 541–542, 630 sectarian, 129–130
commodities, 50, 184, 187–188, 193 social, 82, 548
in Africa, 538–539 traps, 191–194
agricultural, 227 Confucianism, 89, 277
exports of, 359 Congo-Brazzaville, 298, 548
in India, 653 Congo-Kinshasa, 551, 555
Index 693
Congo, Republic of, 7–8, 90, 135, 163 Corruption Perceptions Index, 99

and civil war, 188 Corvalan, A., 14
and colonial mechanisms, 314 Costa Rica, 358, 369, 378, 567–595
and colonization, 305, 313 Côte d’Ivoire, 54, 135, 306, 392, 491
conflict in, 555 Cotet, A., 212
and foreign aid, 418 country classifications, 402
GDP, 304f country fixed-effects, 12–14
and natural resources, 202, 210 Country Policy and Institutional Assessment
political breakdown in, 550 (World Bank), 263
protests in, 549 Country Risk Guide, International (prsgroup.
Congress Party, 440, 657, 660–661, 663 com), 447, 448t
Conrad, R., 207 country-specific factors, 12–14
consolidation, democratic, 412, 415–416, coups, military, 180, 317, 319, 417, 542
418–419, 421 coalitions, 6
constituencies, mass, 507, 509, 522, in South Korea, 670
524–525, 528 Cox, G.W., 436
constructivist school, 165, 171 CPM (Community Party of India-Marxist),
consumption, domestic, 34, 389, 643, 646 660–661
of public services, 336, 482 credit
contracting, 540–541 domestic, 390
in China, 629–631, 638, 640 market imperfections, 140, 143–144, 157
enforcement, 366 programs, 29
Conventional People’s Party (Ghana), 317 rationing, 344
convergence, policy, 341–342, 344 subsidized, 577
Cooke, W.N., 343 crises, economic, 261, 266–267, 328–329
Cooray, A., 399t in Africa, 538, 545–546
Corbridge, S., 652–668 banking and currency, 336
corporations, European, 607 and China, 637
corporations, transnational. See multinational debt, 334, 345–346, 391
corporations (MNCs) and democratization, 450–451
Correa, R. (Ecuadoran president), 525 East Asian, 335, 670
Correlates of War project, 178 and financial openness, 330, 333, 336
corruption, 90, 93–94, 98, 124, 135 and foreign aid, 415
and Africa, 540, 558 and IFIs, 388
in Botswana, 257, 261 and India, 657–658, 663
and ethnicity, 174 and policy consequences, 344
and FDI, 358, 364–365 and populism, 526–527, 530
and government capacity, 256, 269 resolution and prevention, 393
in India, 654–655 in South Korea, 673–676, 679, 681
and leadership, 280, 282 critical junctures, 54, 267–268, 281–283
in MENA countries, 604–605, 612–614 and institutional chains, 474
and natural resources, 200, 203, 208–210 in MENA countries, 618
and oil resources, 206, 213 crops, 54, 302t, 462
and political parties, 435, 447, 448t, 505 Cruz, C., 447–448, 452
and populism, 526, 530 Cuaresma, J.C., 205
in South Korea, 675 Cuba, 52, 91, 486, 575, 582
and taxation, 233, 237–238 cultivation, indigenous, 302t
and World Bank, 393 cultural fractionalization index, 489
694 Index
culture, 5, 88–89, 102 decentralization, industrial, 653

and development, 107–122 defense spending, 55, 656
heritage loss, 644 deficits, 390, 577, 598
Islamic, 606 current account, 332, 389
and religion, 125 fiscal, 545
Culture Matters (L. Harrison & S.P. in India, 656–657, 659–660
Huntington), 110 de Gramont, D., 418, 420
Cunningham, T., 207 deindustrialization, 546, 548
currency Deininger, K., 142, 146, 150
devaluation, 587–588 de Kadt, R.H.J., 309, 311f, 313f
manipulation, 547 de Klerk, F.W. (South African president), 261
overvaluation, 576–577, 583, 585 de la Torre, C., 530
revaluation, 390 democracies at risk, 15, 16t
speculation, 31 democracies, emerging, 442, 526
current accounts, 386 democracies, mass, 435
openness, 387f, 389 democracies/quasi democracies, 603t, 605
restrictions, 402 democracies, strong, 74, 442
customs collection, 237 democracy, 89, 140–161, 346
ÇzakÇa, M., 607 benefits of, 474
Czech Republic, 8 in Chile, 90
and civil war, 190
Daewoo Corp., 677 consociational model of, 172–173
Dahl, R.A., 145, 530 and development, 431, 449–452
Dahomey, 301, 311 and education, 493
Dal Bó, E., 211 effect of income on, 12
Dal Bó, P., 211 emergence vs. survival, 6–10, 67
Dalton, G.H., 301, 302t and ethnicity, 174
Dandekar, V.M., 654 gradations of, 10
Danquah, J.B., 443 and informal institutions, 281
Danzman, B., 334 and institutional gaps, 458
data, fiscal, 233–234 liberal, 527
data sets, constructing, 150–152 in local governments, 233
Davies, V.A.B., 184–186 partial, 10
Deardoff, A., 368 and populism, 525
deaths, battle, 179, 179f, 181, 183f, 191 and public service delivery, 481,
Debs, A., 81 484–485, 487
debt, 328–355, 615 and religion, 129, 134
in Africa, 538, 545, 551, 554 and resource wealth, 204
crises, 527, 546 social, 230
at Daewoo Corp, 677 in South Korea, 678
foreign, 610, 672 and taxation, 226, 233
in India, 657 and urbanization, 51
relief, 538 Democracy and Electoral Assistance,
-to-income ratio, 144 International Institute for (IDEA), 411
decentralization, Chinese fiscal, 627 democracy assistance, 409–411, 418
decentralization, democratic, 460, 475 democracy-promotion, 15
and institutions, 490 democratic breakdown, 152, 156f, 157,
and public service delivery, 481, 488, 491 420–421
Index 695
democratic institutions, 45 and developmental states, 375–376

Democratic party (U.S.), 442, 444 and financial openness, 328–333, 335
democratization, 65, 68, 78 foreign aid and democratization in,
in Africa, 312, 550, 554 409–430
and civil war, 189–190 and GDP per capita, 362
and collective action, 433 and institutional gaps, 458, 460
and demography, 48, 51–52, 56 investment and debt in, 332
and development, 449–452 and leadership, 280
and economic development, 3–21 and market liberalization, 385–408
effect of inequality on, 141, 145–146, 152, and market variations, 345
156–157 and MNC manufacturing operations, 365t
and ethnicity, 164 MNCs from, 347
and foreign aid, 94, 409–430 and political parties, 499
impeded by oil, 206 politics in, 54
and institutional gaps, 459 and populism, 518, 531
and median age, 55 and public service delivery, 480–498
and populism, 525 and sovereign debt, 341
and public service delivery, 487 trade-and-investment policies, 356, 359
resisted by landlord class, 50 and volatility of capital flows, 342
in South Korea, 670, 672, 675, 678–679, 681 development, 75–78, 177–199. See also
and taxation, 232–233 economic development
demographics, 46–54 in Africa, 544
of difference, 115 agrarian-based, 520
and economic growth, 571 assistance, 192–193
and natural resources, 213 capitalist, 25
South Korean, 679 definitions of, 177–179
Deng Xiaoping (Chinese premier), 95–97, 640 ethics of, 123
and crises, 267 and ethnicity, 170
and political risk, 99 historical determinants, 616
and pro-growth policies, 101 historical determinants of, 616
and statism, 98 human, 298
Dennard, J., 494–495 industrial, 27, 376
dependency theory, 5, 22–42, 296, 539–540 institutional, 557
Depression, Great (1929), 140, 144, 518, 527 international, 541
deregulation, 100, 256, 391, 396 interventionist-redistributive, 615
in China, 33 and leadership, 276–292
financial, 29 outcomes, 113, 509
in U.K., 658 political, 64–69, 299, 458
DeRouen, K., 398t political economy of, 431–457
Dervis, K. (Turkish finance minister), and political parties, 499–516
265–268 post-colonial, 304–313
De Schewnitz, K., 6 processes, 108
de Tocqueville, A., 173 programs, 391
Deutsch, K., 64, 68, 488 social, 278
developed countries, 52, 281 socioeconomic, 88, 517
developing countries, 143, 237, 243, 258 state-led, 29, 31, 79, 82, 519
ad borrowing, 342 and taxation, 224–255
dependence on FDI, 336 by World Bank, 393
696 Index
development aid, 410. See also aid, foreign diversity, ethnic, 113, 115, 138, 162–176
developmentalism, local, 626–651 doing-business indicators, 263, 357, 364–365
Development Economics Research, World Dollar, D., 414
Institute for (WIID), 146–147, 149 dollar, U.S., 333, 345, 390, 578
development, human, 313, 556, 596. See also domestic content requirements, 362–363, 372
Human Development Index (HDI) Dominican Republic, 204, 360, 369
in India, 652 Dornbusch, R., 520
and MENA countries, 599 dos Santos, T., 23–24
development performance, index of, Doyle, D., 400t
463–464, 468 DPI (Database of Political Institutions),
and political activity, 467t 446–447
Development Programme, United Nations Drazen, A., 394
(UNDP), 600 Dreher, A., 400t
development, study of, 26–35, 108 Dube, O., 211
and civil war, 177–199 Dunning, T., 148, 206
and culture, 107–122 Durkheim, E., 4, 65
de Zwart, P., 307, 308f, 309 ‘Dutch disease’, 358, 583, 611
Diamond, J.M., 45 dynamic probit models, 152, 153t–155
Diamond, L., 460
diamonds, 201, 203, 205, 210, 213 East Africa, 263
and colonization, 318 East Asia, 28–31, 75, 89, 107, 141, 551
effect of location, 211 and authoritarian regimes, 614
diaspora populations, 52–53, 131 and cross-regional growth, 598f
dictatorships, 6, 9, 67, 152 economic ‘miracle’, 74, 76, 613
in Africa, 295 financial crisis, 527
benevolent, 74 governance indicators, 613f
in Chile, 90 growth compared to MENA countries,
and foreign aid, 416 597, 599
military, 300, 525 and human development, 600f
diffusion of norms and knowledge, 410, 412– investment and debt in, 336
413, 415–416 and manufacturing, 599f
and foreign aid, 418–419, 421 and market liberalization, 392
diffusion-via-learning, 395 and politics of development, 567–595
Dionne, K.Y., 487 and public service delivery, 487
Dirks, N., 114 state-building in, 615
disasters, humanitarian, 130–131 Easterly, W.R., 46, 113, 151, 162, 168, 269, 414
discount rates, 229, 235 on public service delivery, 488
discourse, political, 521–522, 529–530 East Timor, 52
discrimination, racial, 318, 489 Ecevit, B. (Turkish prime minister), 259
diseases Economic Commission for Latin America,
and colonialism, 581 United Nations’ (ECLA), 23
infectious, 312 Economic Co-operation and Development,
tropical, 314 Organization for (OECD), 144, 409
Disinvestment Commission (Indian), 659 economic crisis, global. See Recession,
dissemination, 319 Great (2007)
distribution, income, 571, 663 economic development, 57, 108, 140–161
distribution of goods, 542, 553, 556 and civil war, 190
Index 697
and collective action, 431, 433, 435 economic teams, 80

and colonialism in Africa, 295–327 economies
and democracy, 449–452 agrarian, 48, 228, 655
and democratization, 3–21 command, 91, 94, 100
and ethnicity, 169 coordinated, 669
and free-riding, 433 diversified, 188–189
and government capacity, 256 dual, 297
and institutional chains, 461–469 enclave, 27, 35
and Islam, 606–607 laissez-faire, 605
in MENA countries, 602 nationally controlled, 27
and natural resources, 208 performance of, 75, 539–540
and political parties, 502 of scale, 373
and populism, 527 unprosperous, 140
Economic Freedom Index (India), 662 Economist Intelligence Unit, 443
economic growth, 25, 36, 68, 88 Economist newspaper, 656
in Africa, 317, 537, 551 economy, global, 23, 66, 241
and capital-account openness, 335 Ecuador, 202, 525–526, 531
in China, 98–99 Edgar, A.L., 114–115
and civil war, 192 education, 4, 51, 64, 93, 132, 447
and colonization, 297 access to, 447
and democracy, 450 in Africa, 312, 544, 548, 556
and ethnic diversity, 488 in Botswana, 316
experimental approach to, 77 in China, 646
and failed policies, 99 and civil war, 184–185, 187, 193
and FDI, 379 and collective action, 431–432
vs. human development, 481 and colonialism, 579–580
in India, 663–664 and democracy, 487
and inequality, 144 in developing countries, 480
and institutional gaps, 469 and economic growth, 571
and investment, 334, 336, 346 and ethnicity, 163–164, 168, 174, 489
in Latin America and East Asia, compared, of girls, 136
568–572 and government capacity, 262
and market liberalization, 388 in India, 464, 469, 660, 664–665
and public service delivery, 494 and inequality, 145, 157, 473
in rentier states, 202, 227 influence of parents’ on children’s career
in sub-Saharan Africa, 552t choices, 471–472
sustainable, 393 and institutional gaps, 459–460
and turnover of provincial leaders, 635t in journal articles, 495
without prosperity, 556 in Latin America and East Asia, compared,
Economic Planning Board (Korean), 672 567–568, 574–575, 578, 589
Economic Recovery Program (Ghana), 443 and maintaining peace, 190–191
economics, 108 in MENA countries, 601, 604
development, 69 in Mexico, 488
early development, 653 and missionaries, 298, 317
experimental, 233 primary, 450, 465
neoclassical, 29, 335 public investment in, 29, 493
welfare, 76 and public service delivery, 482, 484
698 Index
education (cont.) elites

secondary, 192, 571 African, 543
in South Korea, 670, 672 agricultural, 574
spending on, 492 behaviors of, 277
in Uganda, 486 bureaucratic, 486
university, 575 business, 658
in urban vs. rural areas, 471 counter-, 524
educational attainment, 296–297, 312 economic, 157, 528, 606
in host countries, 362 governing, 101
in India, 472 indigenous, 319
in MENA countries, 600 industrializing, 169
of parents of software engineers in political, 66–67, 234, 521, 524, 615
India, 472t ruling, 460
and social capital, 466 rural, 30
by women, 368 South Korean, 671
Edwards, S., 396, 520 tribal, 610
efficiency, microeconomic, 654 unity among, 97
efficiency, technological, 488 wealthy, 206
Egypt, 92, 304f, 358, 529 Elkins, Z., 397t
and colonialism, 610 El Salvador, 180, 259, 367
governance in, 613 Emanuel, R. (U.S. politician), 267
growth rates in, 608 emigration, 48–49, 52
and political change, 618 Emmanuel, A., 23
and political economies, 601, 603t, empirical tests, 152–157
604–605 employment, formal-sector, 659
and underdevelopment, 617 employment generation, 464–465, 654, 679
EHII (Estimated Household Income employment in Africa, 553, 556, 558
Inequality), 150, 152, 157 employment offices, 473
Ehrlich, P.R., 56 employment, public, 208, 577–578
Eighteenth Brumaire of Louis Bonaparte EMU (European Monetary Union), 341
(Marx), 286–287 endogeneity, 141–142, 147–148
elections, 7, 9, 67, 148, 345 and empirical tests of inequality, 152, 157
accountability between, 460 and oil resources, 209–210
in Africa, 538 and political parties, 500
alternative vote system, 173 energy consumption per capita, 180–181, 193
in Benin, 416 energy imports, 545
and collective action, 449–451 energy prices, 538
competitive, 446–447, 450, 542, 546 Engels, F., 185
electoral commissions, 419 Engerman, S.L., 46
and foreign aid, 411–413, 415, 421 Engineering Industry, Confederation of, 657
in Myanmar, 416 England, 5, 35, 48, 150. See also Britain; United
and public service delivery, 484–488, 491 Kingdom
in South Africa, 261 Englebert, P., 236
in South Korea, 678 enterprises, public, 546
electoral assistance, 418–419 enterprises, township and village (TVEs). See
electricity services, 481–482, 488 TVEs (township and village enterprises)
electronics industry, 360–361, 377–378 entrepreneurs, 24
elite/popular divide, 521 cultural, 164
Index 699
ethnic, 113, 211 European debt crisis, 332

political, 170, 465 European Investment Bank, 345
violence, 186–187 European Monetary Union (EMU), 341
entrepreneurship, 95–96, 98, 364, 379 European Union, 54, 259, 345, 370, 413
environmental protection, 35, 340, and East Asian growth, compared, 669
633–634, 637 and foreign aid, 411, 416
environmental regulation, 358, 376, 393, 445 Europe, Eastern, 50, 67, 151, 228, 413
in China, 637 and auto industry, 361
Epstein, A.L., 165 and command economy, 91
Epstein, D.L., 10, 12 and ethnicity, 113–114
Equality and Inefficiency: The Big Tradeoff fall of communist regimes in, 15
(Okun), 141 and political parties, 507
equality, gender, 136 and populism, 525
Equatorial Guinea, 88, 211, 568 and public service delivery, 487
Eritrea, 187, 555 and taxation, 227
Escobar, P. (Colombian drug lord), 261 Europe, Northwestern, 48
Estimated Household Income Inequality Europe, Southern, 527–528
(EHII), 150, 152, 157 Europe, Western, 13, 52, 226, 607
Ethiopia, 47, 178, 234, 295 and cross-regional growth, 598f
and colonization, 298, 301 Evans, P., 22, 26–27, 29, 36, 169
development in, 558 on China, 33
and economic change, 555 on globalization, 31
electoral violence, 417 Exchange Arrangements and Exchange
and foreign aid, 418 Restrictions, Annual Report on
institutions in, 542 (IMF), 329
and natural resources, 553 exchange rates, 227, 329, 358, 364
state recovery in, 549 adjustments, 390
ethnic diversity, 68, 481, 484, 488–490 in Africa, 543, 545, 547
ethnic groups, 213, 259, 287 in China, 643
ethnic homogenization, 56 in Latin America and East Asia,
ethnicity, 68–69, 107–108, 111–112 compared, 577
in culture, politics, and development, and market liberalization, 385
113–116 and ‘resource curse’, 611
and development, 162–176 in South Korea, 670, 673
ethnic politicization, 163 exclusion, political, 518, 526, 528
ethno-linguistic fractionalization measure, exclusion, social, 282, 531
168, 490 exemptions, tax, 235, 242–243
EU (European Union) trade agreements, 605 export industries, labor-intensive, 578
Eurasia, 56, 522 export processing zones (EPZs), 369
Europe, 55, 93, 128, 171, 410 Export Promotion Conference, Monthly
debt problems, 346 (Korean), 671
development compared to MENA export requirements, 377
countries, 597, 607 exports
immigration, 53f agricultural, 297, 577
population ratios, 49f agricultural, in Africa, 544
and populism, 517–518, 521–522, Chinese, 645
525–526, 529 and colonization, 298
European Commission, 417 commodity, 189, 202, 229, 527
700 Index
exports (cont.) and political parties, 508

dependence on, 34 promotion of, 378
labor-intensive, 584, 588 in South Korea, 677, 681
from Latin America to China, 34 Fearon, J.D., 186–187, 189, 489
manufactured, 33, 598 Fedderke, J.W., 309, 311f, 313f, 315, 318
natural resource, 202 federalism, 44, 172, 627
non-oil, in Africa, 538 Chinese-style, 632, 638
primary-product, 34 fiscal, 628–629, 631, 637, 644
promotion, 567–568, 571, 573, 575–577 in India, 662
expropriation, 146, 206, 376 market-preserving, 629
and collective action, 432 ‘without a center’, 661
of land. See land expropriation Fehr, E., 434
and market liberalization, 385 Ferejohn, J., 432, 451
of minorities, 450 Ferguson, N., 295, 314
and political parties, 445 Fernandez, R., 394
Extractive Industries Transparency Ferraz, C., 206
Initiative, 200 fertility, 46, 51, 54, 57, 571
extractive sectors, 358, 379 decline, 52, 571
and development, 178
factor endowments, 46, 141, 150–151 FICCI (Federation of Indian Chambers of
Fajardo, S. (Medellín mayor), 261, 265–266 Congress and Industry), 657, 662
Faletto, E., 23, 26–27, 35 Figini, P., 142
families, 126, 136, 487 Figueiredo, J., General (Brazilian dictator/
famines, 55, 97, 654 president), 377–378
farmers, rich, 654 Figueres, J.M. (Costa Rican president), 378
farmers, small-scale, 46, 95, 287, 435, 589 Filmer, D., 493
in Africa, 450, 541, 544 finance
in India, 440, 664 crisis, 2008. See Recession, Great (2007)
and market liberalization, 385 global, 347
farming sector, 150 government, 226
farms, family, 150, 180 housing, 347
fascism, 518–519 public, 234, 257, 261, 675
Faust, J., 420 sectors, 51, 100
FDI (foreign direct investment), 96, 329–330, sovereign, 341
332, 334, 336, 356 Financial Institutions, International (IFIs).
in Africa, 544, 551, 553–554 See IMF (International Monetary Fund);
attracting, 365 World Bank
in China, 632, 646 financial institutions, nonbank (NBFIs), 674
effect on economic growth, 335, 337, 379 financial market–government relations, 345
export oriented vs. ISI-oriented, 360 financial programming model, 390
and host-country policies, 357 Financial Supervisory Commission (FSC)
in infrastructure, 357 (Korean), 676
and investor variation, 346–347 firms, foreign-invested (Chinese), 641
and labor protests, 343 fiscal arrangements, central-local, 628,
in manufacturing, 357 637, 645
and market liberalization, 385 fiscal policy, 228
in natural resources, 338, 357 fiscal sociology, 226
and policy consequences, 340, 342 fisheries, 434–435
Index 701
Fish, M.S., 88–103, 207, 502 Gallagher, J., 296

Five-Year Economic Development Plan Galor, O., 45, 144
(Korean), 671 Gandhi, I. (Indian president), 654, 656, 664
Five-Year Plan (China, 2011-2015), 643 Gandhi, R. (Indian prime minister), 656–657
Five Year Plans (India), 653–655 Garang, J., 185
Flores, T.E., 182 Garlick, J., 309, 311f, 313f
food, 34, 68, 419, 543, 653, 657 Gat, A., 187–188, 194
Forbes, C., 142 Gates, S., 181, 414
Ford Motor Co., 361, 377, 661 Gauri, V., 486–487
foreign direct investment. See FDI (foreign GDP, comparative African, 304f
direct investment) GDP per capita, 149, 180–181
foreign exchange, 575–576, 583, 585 in Africa, 538
in China, 626, 643, 645 in Chile, 587
foreign reserves, Indian, 657 in China, 626, 646
forest products, 203, 210 and civil war, 193
Foucault, M., 32 and colonization, 296–297
France, 8, 93, 228, 392, 529 and cross-regional growth, 598f
and colonialism, 609–610 in East Asia, 669
Frank, A.G., 23, 25, 27, 35 effect of conflict on, 182f
Frankema, E., 309, 310f, 317 and FDI, 362–363
Freedom House, 52, 412, 414 and IFI lending, 402
freedoms, political, 310–311, 311f, 614 in India, 654
and foreign aid, 411, 413 in Latin America and East Asia, compared,
Freeland, C., 140 567–568, 569t–570t, 578
Freeman, J.R., 146–147, 149, 156 in MENA countries, 596
‘free-riding’, 166–167, 431–432, 434 and public service delivery, 481
and collective action, 435–438, 450 in Zimbabwe, 314
and South Korea, 673 Geddes, B., 64, 80
free trade agreements (FTAs), 357, 370–371, Gehlbach, S., 436, 439, 445, 452
375–376 Gelb, A., 202
free-trade zones, 576 Gellner, E., 50
Frei, E. (Chilean president), 584–585 gender issues, 109, 125
Freight Equalization Acts, 662 General Electric, 378
French Equatorial Africa, 302t General Motors, 361, 377
French West Africa, 302t genocides, 180, 315
Frieden, J.A., 66 geography, 45–46, 69, 540, 655
Friedman, M. (economist), 658 geopolitics, post-World War II, 567–568,
Friedrich Ebert Stiftung, 411 581–582, 588–589
Frye, T., 79, 399t Georgia (Eastern Europe), 101
Fujian, 632 Gereffi, G., 27, 31
Fujimori, A., 521 German East Africa, 50
Fujimori, A. (Peruvian president), 522 Germany, 12, 48, 93, 414, 670
Furtado, C., 23, 28 and Malawi, 417
Ghana, 92, 115, 234, 277, 299
G7 countries, 546, 549 and Asante state, 319
G8 countries, 553 bond issues, 345
Gabon, 202, 204, 345, 543, 548 and civil conflict, 315
Gadenne, L., 233 and colonization, 296, 298, 301, 304
702 Index
Ghana (cont.) nontargeted, 485

democratic transition in, 550 produced, 157
development in, 558 goods, public, 73–74, 76–77, 80, 82,
and economic growth, 553–554 166–169, 174
GDP, 304f and civil war, 186, 188, 193, 315
and hybrid politics, 558 and clientelism, 441
institutions in, 541–542 and collective action, 432
oil resources, 358 and colonization, 299, 301, 316
and political parties, 443, 444f, 542–544 distinguished from public services,
and postcolonial development, 317 482, 488
and public service delivery, 491 and ethnic diversity, 489
and railways, 319 and foreign aid, 419
and school enrollment, 305f and leadership, 280
and slavery, 315 and oil resources, 206, 209
state recovery in, 549 and political parties, 439, 503, 507
and stature, 306, 313 and postcolonial development, 318
Ghana Center for Economic Development and state-building, 452
(CDD-Ghana), 443 Goulet, D., 128
Ghobarah, H.A., 184 governance, 134–135, 409, 412, 549
Giddens, A., 286 corporate, 675–676, 681
Gini coefficients, 146–150, 153t–155 democratic, 345, 530
and empirical tests of inequality, 152, 157 economic, 541
of income inequality, 572t gap, 612
for Kenyan inequality, 310f Governance, 494
Gleditsch, K.S., 180, 183f Indian, 662
Gleditsch, N.P., 54 indicators, 613f
globalization, 22, 26, 31–32, 36 and institutions, 490
and Africa, 548 in MENA countries, 602
of automotive sector, 377 network, 243
economic, 341–342 poor, 612
financial, 336, 340 and public service delivery, 492–493
and financial openness, 331, 335 quality, 393
industrial, 363, 370 reform, 262
and populism, 520, 527 rules of, 458
and public service delivery, 491 and taxation, 224–225, 232t, 233
and taxation, 235, 239 Governance Matters (World Bank), 613f
of trade-and-investment, 356 government, representative, 225, 228
global warming, 54 governments, great, 256–275
Gluckman, M., 164 government size, 363
Gold Coast, 302t, 304, 310f governments, local, 233
gold mining, 298, 307, 309, 318 Graham, E., 368
Goldsheid, R., 226 grassroots participation, 528, 530
Goldstein, J.S., 194 Great Gatsby curve, 144
Goldstein, M., 301, 392 Great Leap Forward, 55
Goldstone, J., 10, 55–56 Greece, 341
goods greed, 186, 234
and ethnicity, 162–163 Green, E.D., 43–63
Index 703
Green Revolution (India), 655, 664 Harff, B., 180

Greenwald, B., 76 Harrison, L., 110
Grilli, V., 393 Harriss, J., 652–668
Grindle, M., 279, 652 Harrod-Domar growth model, 653
Gröning, S., 210 Hausmann, R., 364, 374, 652
Grossman, H.I., 52 Hawkins, K., 526, 529
growth Haya de la Torre, V.R. (Peruvian politician),
accelerations, 652, 655 519, 524–525
cross-regional, 598f Hayashi, M., 572t
experimental approach to, 77, 81–82 Hayek, F. (economist), 658
export-oriented, 30, 356, 363–367 health, 132
macroeconomic, 410 adverse effects on, 296
rapid, 270 health care services, 491, 495, 646
in South Korea, 670 improvement, 262, 301
sustainable, 278, 410 in India, 664
Growth and Development, Commission on, and inequality, 473
74, 77, 257–258, 263, 267, 278–279, 284 insurance, 483
on change implementation, 268 maternal, 480
on leadership, 265 Health Insurance, National (Korean),
growth rates, 142, 362, 605 678–680
Growth Report (World Bank), 77, 258, 267, 271 health, public, 312–313, 376, 432, 459, 482
Guangdong, 630, 632 in Africa, 548
Guardia, C. (Costa Rican president), 582 in Botswana, 316
Guatemala, 124, 130, 416 and democracy, 486–487
Guevara, Ché, 185, 582 and economic growth, 571
Guinea, 92, 115, 329, 541 in India, 665
politics in, 542, 544 in Latin America, 492
Guinea-Bissau, 44, 402 in MENA countries, 600, 604
Guisinger, A., 399t and political parties, 508
Gujarat, India, 661–662 in rural India, 464, 469
Gulf states, 202, 611–612, 615 spending on, 483
Gurr, T., 185 Heavily Indebted Poor Countries (HIPC)
Gurses, M., 208 initiative, 410, 551, 554
Gwenhamo, F., 309, 311f, 313f Heavy and Chemical Industrialization Plan
(Korean), 672–673
Haas, M., 55 Heavy Engineering Corporation (India), 654
Haber, S., 207–208, 212 Heckscher, C., 266
Habyarimana, J., 166–167, 169, 173, 489, 493 Hecock, R.D., 488, 492
Haggard, S., 73, 79, 146, 148, 487 hegemonies, 301, 434
on South Korea, 669–684 Hegre, H., 177–199
Hagopian, F., 442 Heldring, L., 295–327
Haiti, 329, 415 Hellman, J., 73, 79
Hall, P., 258, 272 Hellman, T., 76
Hamilton, N., 27 Helmke, G., 81
Hanbo Corp., 674–675 Helsinki Accords, 413
Hanusch, M., 448 Henisz, W.J., 400t
Harding, T., 374 Henrich, J., 111
704 Index
Henry, C.M., 614 Hume, D. (philosopher), 568

Herb, M., 207 Hungary, 361
Herbst, J.I., 44 hunger. See famines
Herrling, S., 414 Hunter, W., 485, 492
Hertog, S., 612 Huntington, S., 5–6, 65, 68, 110, 413, 475
Hess, G.D., 181–182 Hussain, M., 402
Heston, A., 569t–570t Huth, P. K., 184
Hibbs, D.A., 180, 186 Hut Tax Rebellion, 319
Hicken, A., 499–516 Hutu-Tutsi tensions, 315
‘Hindu growth rate’, 89, 110, 654 Hyderabad, India, 661
Hindus, 89, 114, 130, 165 Hyde, S., 417
HIPC (Heavily Indebted Poor Countries) hydrocarbons, 93, 99, 101. See also oil
initiative, 410, 551, 554 resources
Hirschman, A.O., 53 Hyundai Corp., 371, 677, 681
Hiskey, J.T., 488
Hitachi, 371 Iceland, 330, 345, 402
HIV-AIDS, 125, 132–134, 480 identities
and foreign aid, 419 communal, 163–164, 315–316
and natural resources, 213 ethnic, 168
programs, 138 tribal vs. linguistic, 43
and public service delivery, 487, 489, 492–493 identity, 107, 110, 132
Hobbes, T., 181, 187 identity cards, 315
Hobday, M., 372 identity politics, 130
Hodler, R., 209 ideology, 342, 345, 392–393
Hoeffler, A., 52, 186–187, 189, 203, 414 in Africa, 543–544
on natural resources, 210–211 and beliefs, leader’s, 80
Hoff, K., 112, 434 government, 394
Honduras, 337, 367, 568 interventionist, 79
Hong Kong, 94, 567, 669 and political parties, 442, 507, 509
and exports, 360 IFIs and market liberalization, studies of,
and industrialization, 671 397t–400
Hong Kong Trade Ministerial Conference, 375 IFIs (Financial Institutions, International),
Hopkins, D., 402 385–408. See also IMF (International
Horowitz, D., 173 Monetary Fund); World Bank
host countries, 336, 342, 347, 356–357, 377 and Africa, 538, 546, 551, 555
Houle, C., 140–161 and MENA countries, 605
House Live Broadcast, 419 IIASA (International Institute for Applied
Huber, J.D., 489 Systems Analysis), 191
Hu Jintao (Chinese premier), 96, 637 Illicit Wealth Accumulation, Special Law for
Human Development Index (HDI), 600f, Dealing with, 671
601, 602f Imagined Communities (Anderson), 164
humanitarian relief, 125, 128 IMF Institute, 402
humanitarian revolution, 190 IMF (International Monetary Fund), 75, 80,
human rights, 137–138, 347, 393 329, 334–335, 385–408
and foreign aid, 414 and Africa, 546
violations, 417, 420–421 and Benin, 415
Human Rights, Universal Declaration of, and India, 657
136–137 and populism, 520
Index 705
and South Korea, 675, 679 India, 15, 56, 89–90, 107, 130

immigration, 52, 110, 207 automotive sector, 360
in Asia and Europe, 53f and BRICS, 332–333
restricting, 172 and caste system, 112, 166, 434
immiseration, 66, 297–298, 300, 314 communal violence in, 114
immunization, 486, 489–490, 492–493. See also compared to China, 100
vaccines Congress Party, 440
in China, 639 devaluation of rupee, 656, 660
imperialism, 23, 295. See also colonialism and economic statism, 92
European, 46, 52 and ethnicity, 115, 165, 171
import-substitution industrialization (ISI), 6, and foreign aid, 421
28, 30, 34, 36, 76, 78 and government capacity, 256, 259–260
in Africa, 538, 543–544 growth and development in, 652–668
development strategies, 359–362 and ‘Hindu growth rate’, 110
in electronics industry, 378 infrastructure, 358
and FDI, 363 and institutional gaps, 458–479
and financial openness, 333 and IPR regulations, 376
in India, 652, 657–658 and leadership, 281
in Latin America and East Asia, compared, and market-nurturing reforms, 97
575–577, 582–584, 586 and MENA countries, 599
and market liberalization, 395 and Myanmar, 192
in MENA countries, 603, 605, 615, 617 and political institutions, 98
and populism, 518–519 and populism, 517
and state hardness, 587 and pro-growth policies, 101
in trade-and-investment policies, 356 and public service delivery, 491
imputation procedure, 151–152 and school enrollment, 368
incentive problems, 143–144, 147, 157, 184 and structural transformation, 364
incentives trade with Africa, 554
career, 627–628, 632–636 Indian Industry, Confederation of (CII),
elite, 537, 539, 549, 557–558 657, 662
fiscal, 627–628, 631 Indian Self-Employed Women’s Association
politicians’, 644 (SEWA), 135
provision of, 410, 412–414, 418, 421 indirect rule, 311, 315–316, 319
provision of, and collective action, 434 by Asante chiefs, 317
reform, 549 in MENA countries, 610
incentives-based approach to foreign Indonesia, 90, 97, 130, 135, 669
aid, 419 1998 rescue package, 392
inclusion, economic, 665 developmental success in, 556, 567–595
inclusion, social, 520, 530 and foreign direct investment, 646
income distribution, 82, 243, 571, 663 growth rates in, 608
income, per-capita, 11, 13–15, 259 infrastructure, 358
and colonialism in Africa, 296, and natural resources, 202, 207, 210
304–305, 309 and public service delivery, 491
in India, 657 and ‘resource curse’, 611
in postcolonial Africa, 312 and structural transformation, 364
after Scramble for Africa, 313 wages, 368–369
and taxation, 241 Industrial Development Organization, United
income tax, enterprise, 641. See also taxes Nations (UNIDO), 148, 150
706 Index
industrialization, 25, 28–29, 31, 171 Inequality Project, University of Texas

in Africa, 543 (UTIP), 150
in China, 628, 637, 646 infant mortality rate, 178–181, 183, 191, 193
and civil war, 188 reduced, 194
and colonialism, 579, 581, 610 inflation, 333, 341, 363–364
and demography, 50–51 in Africa, 545
in Europe, 670 in Latin America and East Asia, compared,
export-oriented, 30, 333, 359–362 578, 588
import-substitution (ISI), 333 in MENA countries, 598
in India, 654, 661 informal sector, 149, 558
and inequality, 146 in India, 653
labor-intensive, 577 in South Korea, 675
in Latin America and East Asia, compared, informatics policies, 360, 378
575, 586–587 information, access to, 51, 174, 445, 460, 474
light-handed policies, 378 and Africa, 540
and Marshall Plan, 93 and career choices, 472–473
in MENA countries, 597–599 and public service delivery, 485
and natural resources, 583 information, asymmetric, 76, 484
and oil resources, 601 infrastructure, 163, 166, 174, 178
and populism, 519–520 in Africa, 537, 544, 548, 551, 556
state-led, 527 in Botswana, 316
and taxation, 241 in China, 637
and underdevelopment, 617 and civil war, 184, 187
and Washington Consensus, 75 and collective action, 432
industrialized countries, 442 and colonialism, 300–301, 579, 581, 610
industrial parks, 374, 643 and FDI, 357–358, 374–375, 378–379
industrial relations, 343 and foreign aid, 410
inequality, 25, 34, 46, 50–51, 388, 492 and government capacity, 256, 262
in Africa, 558 in India, 655, 660, 665
between-group, 489 and investment, 340, 343, 347, 359, 374
and civil war, 180, 185 and market liberalization, 385, 391
and colonization, 297, 300, 309, 314, 320 need for reliable, 366
durable, 112 in nondemocracies, 445
economic, 66, 140–161, 287 and social capital, 466
ethnic, 490 Inglehart, R., 109
and ethnicity, 168, 170 Inkeles, A., 109
gender, 600 instability, economic, 143, 336
global, 26 instability, political, 282, 317–319, 505
income, 150, 152, 157, 568–572 and economic growth, 571
Indian regional, 662 and political parties, 509
and institutional gaps, 469–473 institutional chains, 458–479
in Kenya, 310f institutional gaps, 461, 464, 469, 474
in MENA countries, 605 institutionalization, party-system, 501,
and postcolonial development, 318 504–509
socioeconomic, 528 institutional quality, 313, 602
in South Korea, 681 institutions
urban-rural, 34 bonding, 174
in Zimbabwe, 318 chain of, 459, 474–475
Index 707
colonial, 314 intermediation, financial, 76, 237–238

commercial, 607 International Development, Department for
democratic, 74, 314, 524 (DFID), 414
development, 128, 133 internationalization, financial, 333
economic, 299, 301, 303, 317 International Monetary Fund (IMF). See
electoral, 436 IMF (International Monetary Fund)
of extraction, 541 International Republican Institute (IRI),
financial, 539, 608 411, 417
formal vs. informal, 281–282 International Settlements, Bank of, 209
grassroots, 459–460 intervention, government, 77–78, 356, 363,
long-term development, 607–609 370, 373–374, 376, 394
party, 527 and market liberalization, 385, 392
political, 6, 13 and political parties, 443
and taxation, 235 interventionism, Keynesian, 284
traditional, 65, 315 intervention, military, 414
institutions, political, 69, 80, 82, 97–98, 102, investment, 157, 178, 208
144, 315 in China, 33
in Africa, 311, 540 by China in Latin America, 34
checks and balances, 530 and debt, 328–355
and civil war, 181, 190 exploitive, in Africa, 549
and collective action, 453 export-oriented, 673
and colonization, 296, 298, 300–301, 309 foreign, 25, 29–30, 34, 36, 182
and economic growth, 335 in India, 656
effect of oil resources on, 207 low-skill, 368
and ethnicity, 170, 174 in MENA countries, 614
exclusive, 140, 144, 151 portfolio, 336, 346
and foreign aid, 409, 412 private, 334, 543, 553
fragmentation of, 486 in public goods, 503
hybrid, 110 and taxation, 241
inclusive, 163 investment promotion agencies (IPAs), 366, 374
in India, 655 investment restrictions, 330
informal, 491 investment treaties, bilateral, 371
and investment, 338 investors, corporate, 229
Islamic, 606, 609, 616 investors, overseas, 235, 335
in MENA countries, 603 investor-state disputes, 376
and natural resources, 208–210 investors, variation among, 346–347
and policy consequences, 340, 343 Iqbal, Z., 184
and political parties, 500 Iran, 55, 93, 99, 202, 316
and populism, 523, 531 and colonialism, 296, 610
and public service delivery, 481, 484, governance in, 602
490–492 and oil resources, 210, 598
representative, 518 and political economy, 601, 603t, 605
and taxation, 224–225, 229, 233–234 Revolution (1979), 129–130, 545
weak, 611, 615 Iraq, 93, 414
integration, financial, 328, 331 and colonialism, 609
intellectual property rights, 373, 375, 645 governance in, 613
interest groups, 5, 74, 80 and oil resources, 598, 610
interest rates, 577 and political economy, 601, 603t
708 Index
IRDP (Integrated Rural Development and colonialism, 610

Program), 464 governance in, 613
Ireland, 131, 341 growth rates in, 608
‘irrational choice’ models, 115 Joyce, J.P., 398t, 402
irrationality, collective, 283 judicial systems, 135, 256, 419, 459
Islam, 68, 89, 124–125, 130
and economic development, 606–607 Kahl, C., 50
political, 124 Kai Londo, 301
and populism, 529 Kaldor, N., 141
Islamic Conference, Organization of the Kaltwasser, R., 530
(OIC), 124, 129 Kalyvas, S., 436
Islamic Development Bank, 129 Kang, M.-K., 669–684
Islamic Relief, 127, 133 Kaplan, S.B., 341
Islamist Justice and Development Party Karl, T.L., 202
(AKP), 617 Karnataka, 469–470, 473
Israel, 130, 179–180, 360 Kataoka, M., 572t
Issar, S., 482 Katz, R.S., 526
Italy, 48–49, 90, 341, 461–462 Kaufman, R., 73, 79, 146, 148, 487
Ivory Coast, 543–544 on public service delivery, 492
Iyigun, M.F., 52 Kaunda, K. (Zambian president), 44, 416
Kazakhstan, 209
Jamahiriya, 603t Keefer, P., 431–457, 484–485
Janata Dal party, 660 Keen, D., 210
Japan, 30, 33, 47, 49, 52, 66, 507, 669 Keita, I. (Malian president), 416
and capitalism, 670 Kennedy, J.F. (U.S. president), 3, 260
and China, 97, 646 Kenya, 47, 54, 124, 168, 234, 419
and colonization, 296, 579–581, 586 bond issues in, 345
economic growth and political regime, 90 and career aspirations, 473
and lack of oil, 101 and colonization, 298–299, 302t, 304
and leadership, 280 and distributive problems, 558
median age in, 55 economic growth in, 554
military intervention in, 414 and electoral violence, 418
nineteenth century, 320 and foreign aid, 416
and per-capita income, 313 GDP, 304f
post-war, 584 and hybrid politics, 558
and religious decline, 128 and inequality, 309, 310f
and technology transfer, 370–371, 373 and institutional gaps, 458, 542
Jeffrey, C., 652–668 and land expropriation, 307
Jenkins, R., 662–663 politics in, 542–544
Jiang Zemin (Chinese premier), 96 protests in, 551
Johnson, L. (U.S. president), 654 and public service delivery, 489
Johnson, S., 45, 296 and school enrollment, 305f
joint ventures, 360–363, 372 and stature, 306
in China, 372 and wages, 308f, 310f, 312
in MENA countries, 604 and World Bank, 388
Jones, B., 265, 272, 278 Kenyatta, J. (Kenyan president), 168, 542
Jordan, 601, 603t, 604–605 Kerala, India, 653
Index 709
Kérékou, M (president of Benin), 415, 543 skilled, 178, 363

Keynes, J.M. (economist), 344, 583, 658 standards, 368
Khalegian, P., 486, 490 supply, 157, 347, 671
Kia Motors, 674 unskilled, 185
Kim Dae Jung (South Korean president), Labor Contract Law (China), 644
675–680 labor force, 50, 149, 341
Kim Il Sung (North Korean president), 582 in China, 644
Kim Young Sam (South Korean shrinking, 55
president), 674 labor markets, 379, 664, 675
Kindleberger, C., 344 flexibility, 391, 680
King, M.L. Jr. (U.S. civil rights leader), 260 in South Korea, 678–681
Kingstone, P., 400t Labor Organization, International (ILO),
Kitschelt, H., 435, 437, 439–440 368–369
Knack, S., 209 labor-sharing groups, 462
Kobrin, S.J., 399t labor unions, 149, 169–170, 272, 288, 413,
Kogut, B., 400t 507, 659
Kohl, H. (German chancellor), 392 in Africa, 548
Kohli, A., 170, 475 and collective action, 453
Kollman, K., 508 in India, 655, 657
Konrad Adenauer Stiftung, 411 in Latin America, 582
Koo, H., 30 in Latin America and East Asia, compared,
Korean Businessmen, Association of, 671 582, 587
Kosovo, 187, 415 in MENA countries, 604
Koubi, V., 181–182 and populism, 519
Kovalcik, B., 507 regulation of, 637
Kramer, M., 69 repression of, 581–582, 614
Kreuger, A., 360 in South Korea, 670, 672, 679–680
Krishna, A., 458–479, 484, 491 and state hardness, 588
Kristensen, I., 10 Lacina, B., 180, 183f
Kshetramade, M., 434 Laclau, E., 517
Kubitschek, J. (Brazilian president), 585 Laeven, L., 209
Kubota, K., 399t Lago-Peñas, I. and S., 508
Kuomintang, 581, 586 Lai, B., 184
Kuran, T., 89, 606–608 Laitin, D.D., 186–187, 189
Kurtz, M.J., 395, 397t–398t Lake, D.A., 447, 485–486
Kuwait, 601, 603t, 612 Lamb, R., 261
Kuznets curve, 51, 142, 149 Lamont, M., 111
Land Acquisition Act, 1894 (Indian), 660
labor Landes, D., 110
compulsory, 301, 315 land expropriation, 297, 307, 309, 312, 314, 574
international division of, 32–35 in China, 644–646
legislation, 340 in Ghana, 317
migration, 50 and postcolonial development, 318
organizations, 32 land lease fees, 642f, 643
peace, 369 Landless Movement (Brazil), 585
protests, 342–343 landlord class, 30, 48, 50, 580–581, 653
relations, 5 Land Management Law (China), 646
710 Index
landowners, 27, 189, 585, 610 and taxation, 227, 243

land preservation, 634 ‘turn to the left’, 81
land redistribution, 50, 578, 586, 589 and Washington Consensus, 76, 82, 359
in MENA countries, 604 and working class incorporation, 272
land resources, 51, 143, 178, 185, 188, 317 Launching a New Generation (Moran), 365t
and collective action, 434 law, rule of. See rule of law
land rights, communal, 53, 463–464 leaders
land scarcities, 53–54 vs. leadership, 276, 288
land tenure, 567, 571, 573–574, 579–580 as learners, 81–82
Lane, P.R., 208, 331, 337 political vs. nonpolitical, 277
languages, 44, 164 provincial, 635t–636t
Laos, 191, 582 leadership, 51, 128, 258, 269, 276–292
La Porta, R.L., 69 in Africa, 542, 558
Latin America, 6, 23, 34, 36, 333 antiestablishment, 521. See also populism
Catholic Church in, 130 charismatic, 440–442, 445, 501, 519, 522
Christian missions in, 128 consistent, 269
colonialism in, 35 counter-elite, 524
comparative-historical studies of, 28 developmental, 282–283
and cross-regional growth, 598f and foreign aid, 411
debt crises, 75, 335, 546 and government capacity, 265–266, 269
development in, 22, 26–28 and institutional chains, 475
economic performance in, 539 in Latin America and East Asia,
and ethnicity, 164, 171 compared, 588
and FDI, 360 multi-agent, 270
governance indicators, 613f personalistic, 531
growth compared to MENA countries, of political parties, 436
597, 599 populist, 522, 528, 531
and health care, 492 professionalized, 522
and human development, 600f and public service delivery, 485
and inequality, 141, 473 and shirking, 435–436, 439, 445–446
investment and debt in, 332, 336, 342 strong, 272
and labor conditions, 370 top-down, 271
and leadership, 279, 287 transactional vs. transformational,
links to Europe and China, 35 279–281, 284
and manufacturing, 599f leaders, new village, 465, 468–469, 474
and market liberalization, 395–396 and public service delivery, 491
nineteenth century, 320 League of Nations, 298
and oil resources, 206 Lebanon, 172, 177, 179–180
and political economy, 67 and colonialism, 609–610
and political parties, 507 governance in, 602, 613
and politics of development, 567–595 and political economies, 603t, 605
population, 49f, 52 Le Billon, P., 210
and populism, 517–518, 520, 525, 527, Lee Kuan Yew (Sinapore prime minister), 257,
530–531 265–267
and public service delivery, 485, 487 and industrialization, 378
and South Korea, compared, 669 and leadership, 269–270, 272
and sovereign debt, 341 Lee Myung Bak (South Korean president), 676
Index 711
Leftwich, A., 276–292 state recovery in, 552

legal systems, 69, 301, 314 war in, 555
Lei, Y.-H., 213 liberties, 225, 228
lending, conditional, 388–393, 396, 401 Libya, 190, 202, 601
Leninist theories, 64–66 governance in, 602
Lenin, V.I. (Russian politician), 295 and political change, 618
Lerner, D., 64–65 and political economies, 603t
Lesotho, 298, 316, 415, 553–554 Lichbach, M.I., 186
Levi, M., 228–230, 235–236 Lieberman, E.S., 480–498
Levine, R., 46, 113, 162, 362–363, 488 life expectancy, 193, 296–297, 305, 306f
Levin, V., 414 and development, 178
Levitsky, S., 414, 417, 501 in postcolonial Africa, 312–313
Lewis, O., 109 and public service delivery, 481
Lewis, P.M., 537–566 Li, H., 634
Lewis, W.A., 653 Lijphart, A., 172–173
LG Corp., 677, 681 Li, K. (Chinese premier), 646
Liaoning, 630 Limongi, F., 7, 14
Libecap, G., 434 Lindberg, S.I., 443
Liberal Democratic Party (of Japan), 507 Lindert, P., 150
liberalism, economic, 518 Lin, J.Y., 364
liberalism, embedded, 340–341 linkages, 662
liberalization, capital-account, 334, 336, backward, 359, 361, 366, 589, 642
339, 345 between countries, 414, 417
liberalization, economic, 357, 409, 443, 549 industrial, 628, 637, 641–643, 645
in India, 665 participatory, 523, 525, 529
in MENA countries, 605 patron-client, 465
in South Korea, 673–675 plebiscitary, 523–525, 528–530
liberalization, financial, 76, 100–101, 329 trade, 36
in China, 626, 640 Lions on the Move (McKinsey & Co.), 552
and economic growth, 335, 337 Lipset, S.M., 4–6, 145–146, 436
index of, 385, 386f Lipsey, R., 368–369
in India, 657 liquidity, global, 344
and political parties, 503 literacy, 93, 164, 190, 297, 480
in South Korea, 674 in Africa, 305
trends in, 329–330 and colonialism, 580
liberalization, market, 385–408, 530–531 and human development, 601
in India, 656 in Latin America and East Asia,
in South Korea, 670 compared, 574
liberalization, political, 411, 485, 538, 549 in rural India, 466
liberalization, politics of, 334 and social capital, 468
liberalization, trade, 362, 387f, 396, 670 living standards, 297–298, 307, 309, 313
Liberia, 180, 191, 210, 299 and investment, 359
development in, 556 Living Standards survey, World Bank, 306
and economic performance, 539 Lloyd-Ellis, H., 142
investment and debt in, 329 Loayza, N.V., 182
political breakdown in, 550 Locke, R.M., 347
and slavery, 316 Long, A.G., 181
712 Index
Long, G., 373 democratic transition in, 550

lootability, 188–189, 211 development in, 556
Lourenco, I., 309, 311f, 313f malnutrition, 663
loyalty, political, 99 Malthus, T., 55, 109
Lucas, R., 141 Mandela, N. (South African president), 261, 285
Lucky Goldstar, 371 Mann, M., 50
Luiz, J.M., 309, 311f, 313f Manor, J., 279, 475
Lula da Silva, L.I. (Brazilian president), 585 Mansfield, E.D., 399t, 414
Luong, J., 209 manufacturing, 149–150, 178
Lyne de Ver, H., 276–292 banned in Brazil, 581
Chinese, 641
Machiavelli, N., 201, 277 and civil war, 177
Maclean, L.M., 491 and GDP, 599f
Macpherson, J.M., 399t–400t labor-intensive, 577, 582, 672
macroeconomic management, 567–568, 571, middle-skilled, 370
577–579, 589 original equipment (OEM), 361, 371
Madagascar, 360, 367, 416, 548 manufacturing sectors, 357
Maddison, A., 304f, 305, 598f in Africa, 541, 543–544
Madhya Pradesh, India, 461, 662 in China, 646
Magee, C.S.P., 181 and FDI, 357–359, 379
Maharashtra, India, 661–662 foreign-owned, 368
Mahathir, M. (Malaysian prime minister), in India, 653
377–378 and ‘resource curse’, 611
Mahdavy, H., 202 Maoism, 94, 664
Mahoney, J., 22–42 Mao Zedong (Chinese premier), 91–92,
Mahon, J.E., 233, 583 95–96, 582
Maine, H.S., 65 marginalization, economic, 528
Mainwaring, S., 499, 501 marketing boards, 543–544, 546
Mair, P., 526 markets, derivative, 337
Making Services Work (World Bank), 484, 493 markets, international, 367
Malawi, 305, 311f, 312, 556 market-skeptics, 100
economic growth in, 554 Marshall, K., 123–139
and foreign aid, 416–418 Marshall Plan, 15, 93
and human rights, 420 Marx, A., 114
and natural resources, 553 Marxism, 23, 26, 32, 543
and property rights, 313f Marxist scholars, 32, 67, 108–109
Malay Federation, 259, 267 Marxist school, analytical, 57
Malaysia, 130, 204, 263, 378, 669 Marx, K., 4, 32, 50, 148, 185
development in, 556 on leadership, 286–287
and FDI, 360–361 and taxation, 226
growth rates in, 608 Massoud, T.G., 181
investment in Africa, 554 Mauritania, 47
and Sharia Law, 136 Mauritius, 52, 230, 296, 360, 541
state-building in, 557 McAdam, D., 530
and technology transfer, 372 McCubbins, M.D., 436
Mali, 115, 337, 416, 548–549 McFaul, M., 417
conflict in, 555 McGovern, M., 115–116
Index 713
McGuire, J.W., 482–483, 486, 493, 567–595 and public service delivery, 485
McGuirk, E., 207 and taxation, 227
McNamara, R. (World Bank president), 391 Middle East/North Africa (MENA) region,
MDGs. See Millennium Development 191–192
Goals (MDGs) middle-income countries, 599f
MDRI (Multilateral Debt Reduction middle-skilled sectors, 368, 370, 377
Initiative), 554 migrant communities, 126
Medellín miracle, 261, 265 migrant laborers, 574
media migration, 53–54, 69, 165, 187
communications, 499, 528 rural-urban, 48, 653
coverage, 485 Miguel, E., 45, 69, 168–169, 489
freedom, 416, 419 Milesi-Ferretti, G.M., 331, 337, 393
independent, 417, 550 military assistance, 229
international, 413 military capabilities, 188
mass, 56, 64, 418 military conscription, 44, 608
median age, 55, 178 military intervention, 414, 421
median voter theorem, 142, 145–146 military recruits, 298, 306
Mehlum, H., 208 military regimes, 67, 227, 317, 416
Melitz, M., 363 in Africa, 538, 542–543
Melo, M.A., 279 military spending, 184
Meltzer, A.H., 142 Millennial Summit 2000, United Nations, 129
Menaldo, V., 207–208, 212 Millennium Challenge Corporation, 414
MENA region (Middle East/North Africa), Millennium Declaration 2000, 137
191–192, 596–625 Millennium Development Goals (MDGs),
Mendeland, 299, 301, 303, 318–319 137, 409–410, 480, 483, 492–493
Menelik II (Ethiopian emperor), 295 and Africa, 556
Meseguer, C., 81 Milner, H., 80–81, 399t
Mexico, 15, 27, 65, 67 minerals, nonfuel, 203, 210, 213
and auto industry, 361, 377 mining, 201, 239, 297–298, 316
and ‘culture of poverty’, 109 minorities, political, 530
and decentralization, 488 minority groups, 109, 173
developmental success in, 567 minority veto, 172
and FDI, 360–361 mismanagement, economic, 227
import-substitution industrialization (ISI) missionaries, 298, 317, 319
policies, 378 Mitchell, C., 165
and natural resources, 204 Mitsubishi, 371–372
and populism, 519, 525 Mitterand, F. (French president), 413
trade-and-investment policies, 360 mobility, capital, 631–632
and Washington Consensus, 76 mobility, factor, 628–629, 639–641, 643, 645
Michaels, G., 213 mobilization
Michalopoulos, S., 314 civic, 525
microfinance, 131 electoral, 441
middle class, 8, 145, 178, 558, 663 labor, 523
Middle East, 65, 92, 98, 131, 596–625 patterns, 523
and Arab Spring, 413, 529 political, 169, 522, 524–525, 548
and inequality, 146 social, 64–65, 283, 287
and natural resources, 204 working-class, 519
714 Index
Mobuto Sese Seko (Zairean dictator), 90, 280 Moses, J.W., 53

modernism, high, 653–654 Mosley, L., 328–355
modernity, transition to, 46 Mosley, P., 307, 308f, 309, 318
modernization theory, 3–21, 57, 65–66, 278 motivation, intrinsic, 434, 451
and Africa, 539–540 movements, social, 523–524, 530–531
and cultural politics, 68 Mozambique, 135, 298, 337, 418
and cultural values, 109–110 economic growth in, 554–555
in Europe, 226 and natural resources, 553
and inequality, 145 state recovery in, 552
and leadership, 280 Mubarak, H. (Egyptian president), 529
and political development, 64 Mudde, C., 530
and political parties, 499 Mugabe, R. (Zimbabwean president), 314
and public service delivery, 484 Mukherjee, B., 397t–398t
and religious decline, 128 Mukherji, R., 657
Modi, N. (Indian politician), 661–662 Multilateral Debt Reduction Initiative
Mody, A., 394, 397t (MDRI), 554
Moene, K., 208 multinational corporations (MNCs), 24–25,
Moi, D. arap (Kenyan president), 168, 416 30, 32, 336
Moldova, 172 in China, 644
monarchies, 44 and FDI, 365
constitutional, 225, 228, 579 and government intervention, 374
governance in, 613 and host countries, 342
Gulf, 596, 602, 603t, 604 and investor variation, 347
Monga, C., 364 Japanese, 378
Monteiro, J., 206 labor preferences, 340
Montesquieu, C.-L., 201 manufacturing, 361, 364, 365t, 367
Montinola, G., 629, 640 and market liberalization, 385
Moore Jr., B., 5, 28 and policy consequences, 343
Moore, M., 224–255 and trade-and-investment policies, 360, 363
Moradi, A., 306, 318 multiparty regimes, 415–416
Morales, Evo (Bolivian president), 523, 528 Murdoch, J.C., 181
moral-hazard problems, 675, 677 Murdock Ethnographic Atlas, 312
moral standing, 491, 493 Museveni, Y. (Ugandan president), 485–486
Moran, T.H., 356–384 Muslims, 114, 125, 664–665. See also Islam
Morocco, 124, 130, 136, 337 Myanmar, 7–8, 15, 192, 416
and colonialism, 609–610
governance in, 613 NAFTA (North American Free Trade
and political economies, 601, 603t, 604–605 Agreement), 378
and structural transformation, 369 Naidu, C. (Indian politician), 661
Morrison, K.M., 73–87, 206–207 Namibia, 298, 310, 311f, 312
Morrison, M.K.C., 443 economic growth in, 554
mortality, 46, 48, 50, 57 institutions in, 541
child, 480 investment and debt in, 337
decline, 48, 51 and property rights, 313f
infant, 97, 147 NASA (National Aeronautics and Space
maternal, 420 Administration), 260
urban, 51 Nasser, G.A. (Egyptian president), 92, 604
Index 715
‘national champions’, 371–374 Netherlands Institute for Multi-party

National Democratic Alliance (India), 663 Democracy (NIMD), 411, 418
National Democratic Congress (NDC), 443 networks, mutual-support, 462
National Democratic Institute (NDI), 411, 417 networks, transnational, 421
nationalism, 64, 164, 280, 520 Neumayer, E., 184
in Africa, 543 Newly Industrializing Countries (NICs),
and communism, 581 28–31, 36, 64
in India, 656 New Patriotic Party (NPP), 443
nationalization New Right Neoclassicism, 284
of Korean banking sector, 671, 673–674 newspapers, 460
of land, 44 New York Times, 140
party-system, 502, 507–509 New Zealand, 284
post-colonial, 604–605 Ng’ethe, N., 279
National Party Congress (China), 634 NGOs (non-governmental organizations),
National People’s Congress, 646 298, 482, 494, 678
nation-building, 44, 44f, 168, 489, 610. See Nicaragua, 191, 568, 582
also state-building Nielsen, R., 417
Native Land Act (1913), 307, 309 Niger, 337
natural resources, 69, 92–93, 151, 500, 633 Nigeria, 44, 50, 54, 99–100
African, 339, 540, 544, 553 benefits of FDI, 358
and borrowing, 342 bond issues, 345
conservation of, 132 and civil conflict, 315
extraction, 177, 185, 187, 189, 537 and colonial borders, 287
and FDI, 357 and colonization, 298, 302t, 309, 316
and investment, 337–338, 344–346 conflict in, 555
in Latin America and East Asia, compared, development in, 558
567–568, 583–584, 589 and distributive problems, 558
in MENA countries, 615 economic growth in, 554
and politics, 200–223 and ethnicity, 170
in South Korea, 671 GDP, 304f
Naxalism, 664–665 institutions in, 542
Ndulu, B., 77, 91 and natural resources, 202
Nehru, J. (Indian prime minister), 92, 654 and oil exports, 203
Nehru-Mahalanobis era, 653–655, 662 and oil wealth per capita, 210
neighboring countries, 141, 151–152, 157, 182 politics in, 542–543
and communism, 581 protests in, 548, 551
and diffusion of norms and knowledge, 413 and reliance on oil, 93
and FDI, 361 and Sharia Law, 136
and financial crises, 328 and slavery, 315
and public service delivery, 489 and taxation, 233
Nelson, J., 79 unemployment in, 556
Nelson, J.M., 486, 488 and wages, 310f
Nelson, S.C., 385–408 Nkrumah, K. (Ghanaian president), 92, 317,
neoliberal economics, 392, 394, 548, 660 319, 443, 543
neopatrimonialism, 169–171, 174, 539 Noble, D.S., 343
Nepal, 47, 185 Non-Aligned Movement, 543
Netherlands, 48, 172, 228, 417, 529, 579 nondemocracies, 444–445
716 Index
Nooruddin, I., 182 oil production, 88, 178, 203, 210, 213

norms oil resources, 200–201, 203
international, 192 antidemocratic effects of, 205
local, 458 and collective action, 434
of reciprocity, 435 and corruption, 210, 213
social, 434–435, 451 effect of location, 211, 212f
traditional, 68, 277, 287 in Equatorial Guinea, 568
North Africa, 130, 204, 413, 596–625 in Ghana, 358
North America, 49f, 52, 55 and government accountability, 204
North, D., 69, 450, 541 in Iraq, 610
Northern Ireland, 179 in MENA countries, 596, 598, 601, 616
North Korea, 91–92 and ‘resource curse’, 611–612
North Korean invasion, 581, 586 and taxation, 227, 231
Norway, 611 timing of discovery, 611
Noy, I., 398t and transitions to democracy, 205f
Nunn, N., 45 oil-rich countries, 11, 15
Nyerere, J. (Tanzanian politician), 51, 92, Okun, A., 141
168, 543 oligarchies, 460, 521, 525
Oliveira, G., 309
OAS (Organization of American States), 413 Olken, B., 265, 272, 278, 491
Oberhofer, H., 205 Olson, M., 73, 185, 433
O’Donnell, G., 5–6, 27 Oman, 183, 601, 603t
O’Dwyer, C., 507 Omgba, L.D., 206
OECD countries, 149, 227, 241 Oneal, J., 189
and corruption, 612 On the Principles of Political Economy and
and financial integration, 331 Taxation (Ricardo), 201
and foreign aid, 419 OPEC (Organization of Petroleum Exporting
governance indicators, 613f Countries), 545
and investment, 337 openness
non-, 144, 157, 206 capital-market, 339–344
openness scores, 329 and domestic political economy, 333–334
and South Korea, compared, 672 economic, 500
OECD (Organization for Economic Co- economic consequences of, 335–339
operation and Development), 144, 409 financial, 328–332, 342
OEM (original equipment manufacturing) Orange Revolution, 417
suppliers, 372 Ortega, D., 148–150
offset agreements, 372 Osafo-Kwaako, P., 303
Of Rule and Revenue (Levi), 229 Østby, G., 180
O’Halloran, S., 10 Ostrom, E., 434–435
OIC (Organisation of the Islamic Ottoman Empire, 295, 597, 607–609, 616
Conference), 124, 129 overpopulation, 48, 55–56
oil dependence, 102, 180, 204, 232 ownership
oil exports, 93, 203, 227 corporate, 616
oil price shocks, 202–203, 210, 230, 598, 604 foreign, 334
in 1970s, 604 government, 596
and Africa, 545, 555 private, 631
and India, 655 public, 543
Index 717
restrictions, 338 ethnic, 171, 452

structures, 611 and foreign aid, 419
Oxhorn, P., 528 and institutional chains, 475
and institutional gaps, 459, 469
Pacific Islands, 277 leftist, 531
PAFs (performance assessment machine, 437–441, 446
frameworks), 420 in MENA countries, 604
Pahlavi monarchy, 610 national leaders, 506
Pakistan, 130–131, 337, 441, 653–654 and national policies, 505–508
Paler, L., 207, 233 in nondemocracies, 444–445
Palestine, 179, 609–610 number of, 500–501, 504
Palestinian Territories, 613 organization, and public policy, 448t
Palma, G., 24 partisan divides, 444f
Pamuk, S., 598f patron-client, 437, 440–442, 446–448
Panama, 415 and politics of development, 499–516
Panasonic, 371 and populism, 519, 526, 528, 530–531
panchayats, capacity of, 465, 475, 491 programmatic, 437–440, 443
Pandya, S., 399t and public service delivery, 494
Panebianco, A., 436 right-wing, 529
Papaioannou, E., 314 ruling machines, 445
Papua New Guinea, 280, 287 single-party systems, 488
Paradox of Plenty (Karl), 202 in South Korea, 678
Paris Club, 345, 416, 546 working class, 529
Paris Declaration on Aid Effectiveness, 2005, Partition of India, 1947, 128, 653
410, 418, 420 partnership, 129, 134, 137–138
Park Chung-hee (South Korean dictator), 90, and foreign aid, 410
97, 257, 265–266, 578, 677 politics of, 126
and crises, 267 path-dependence theory, 267–268, 475
and developmental state, 670–671 patronage, 206, 208–209, 233
and leadership, 269–270 in Africa, 542, 544–545, 550, 557
Park Geun-hye (South Korean president), 678 in China, 640
Park, S., 403 in Latin America and East Asia,
parliamentary strengthening programs, 419 compared, 586
Parliament of the World’s Religions, 137 and leadership, 280
Parsons, T., 4 in MENA countries, 604
participation, democratic, 414, 460–469 and political parties, 447
Partido Socialista Unido de Venezuela and public service delivery, 486
(PSUV), 442, 447 in rural India, 465
parties, political, 148, 410, 412, 418 PAYE (pay as you earn), 241, 243
in Africa, 538, 554 PDIA (problem-driven iterative adaptation),
capacity of, 465 257, 262, 270, 271t, 272–273
‘cartel’, 526 peace, 188, 320, 409, 555
caste-based, 661 peacebuilding, 131, 134–135, 190–191
Christian Democrats, 436 peacekeeping operations, 192–193
clientelist, 507 peasant masses, 95–96
and collective action, 431–457 pensions, 55, 578
competitive, 418–421 Pepinsky, T.B., 334, 398t
718 Index
Pereira, L.B., 309 and collective action, 450

performance assessment frameworks development, 169–171, 440, 500
(PAFs), 420 distrust of, 504
performance requirements, 375, 378, 586 economic, 28
‘perils of pooling’, 401 and economic development, 588–589
peripheral economies, 24–25 effect of capital markets on, 339–344
Perón, J.D. (Argentine president), 519, 521, effect of investment on, 336
523, 525, 582, 585 failed, 99–101
Perotti, R., 144 fiscal, in India, 659
Persian Gulf, 93 for globalization of industry, 376
Persson, T., 142, 432 in India, 655
Peru, 27, 34, 76, 239, 337 industrial, 357, 370, 373–375, 377
and career aspirations, 473 labor-market, 356, 367–370
and institutional gaps, 458 left-leaning, 446
and populism, 519, 522, 524–526 macroeconomic, 520, 548
petrochemicals, 604, 675 national, 503, 508
petroleum. See oil resources nationalistic, 527
Pew surveys, 444f orthodox vs. heterodox, 74, 80f
Pfutze, T., 414 and political parties, 502
pharmaceutical industry, 133, 375 populist, 96, 520
Philippines, 49, 124, 130, 337 pro-business, Indian, 662
and FDI, 360 progressive, 141
and inequality, 141 pro-growth, 101–102
and labor conditions, 369 public-regarding vs.
and populism, 525 private-regarding, 506
and South Korea, compared, 669 and public service delivery, 482–483
Philips, 371, 378 quality of, 446
Phimister, I., 312 regional, 288
Pierre, G., 367 ‘right’, 265, 271, 283
Pinker, S., 187, 190, 194 social, Korean, 678–680
Pinochet, A. (Chilean dictator), 89, 417, 575, trade, 391, 503, 506
582, 585 welfare-state, 340
and state hardness, 587 policy change, 80f, 539, 547
Plaza Accord (1985), 378 policy choices, 338, 342, 344–345, 489
plebiscites, 491 policy commitments, 390–391, 401, 505
Plümper, T., 184 policy emulation, 395
Poelhekke, S., 212 policy implementation, 483, 505
Polak, J., 390 policy norms, 403
Poland, 101, 234 policy paradigms, 284
Polanyi, K., 99, 530 policy pressures, 346
policies, industrial, 573, 575 policy reform, theories of, 81–82
in Africa, 544 policy reversals, 505
coordinating, 76 ‘policy space’, 357, 359, 371, 375–376
Japanese and Korean, 371 polio, 256, 259
in South Korea, 671 political activity, index of, 463–464, 468
policies, public, 346, 602, 677 political budget cycle, 449
agricultural, in Africa, 450–451 political business cycle, 419
Index 719
political economy, 65–66, 140, 142–143, 278 investment and debt in, 334

Chinese, 627 and oil exports, 203
in contemporary Africa, 537–566 and political parties, 446
in MENA countries, 601–606 and public service delivery, 484
Political Institutions, Database of (DPI), and taxation, 228–229, 235, 239, 243
446–447, 448t Pop-Eleches, G., 402
political participation, 460 Popkin, S.L., 65
political regimes, 14, 89–91, 152 population
‘political space’, 282 aging, 55, 57, 646
politics, 23, 32, 64, 68, 165, 277 densities, 47, 47f
antiestablishment, 523 growth, 46, 48, 51, 56
antiparty, 526 growth, European, 48
coalition, 288 growth, political consequences of, 54
‘criminalization’ of, 67 growth, post-famine, 55
developmental, 43, 108 management, 114
of economic adjustment, 73 planning, 634
elite, Indian, 658 ratios, 49f
ethnic, 43, 171 redistribution of, 49
Hindu nationalist, 656 size, 44f
hybrid, 558 Population Conference, World (1927), 49
in India, 654 Population Fund, United Nations (UNFPA), 137
Indian, 660 populism, 517–534
interorganizational, 238 in Africa, 538
microlevel, 287 in MENA countries, 604, 615–616
multiparty, 605 and ‘resource curse’, 612
and natural resources, 200–223 Portillo, L. (Mexican president), 377–378
neopatrimonial, 163, 485 Portugal, 201, 204, 341, 579
personalization of, 170 and exports, 360
programmatic, 507 and human development, 601
and religion, 123–139 Posner, D.N., 43, 69, 168
South Korean, 678–680 Potrafke, N., 400t
and taxation, 225 poverty, 88–91, 102, 135
winner-takes-all, 169–171 in Africa, 295, 552–553
within-country variation, 69 and civil war, 179f, 181, 185–186, 190, 193
working class, 518 culture of, 109
politics, identity, 32 and ethnicity, 169
Politics of Modernization (Apter), 278 and foreign aid, 410, 421
Polity, 10, 52, 204, 310, 412 global, 137
pollution, 492, 644 in India, 652, 654, 663–664
poor countries, 95, 193, 670 in MENA countries, 596
and civil war, 177, 180, 190 and populism, 528
and collective action, 433 reduction, 113, 183f, 367, 393, 637
and decentralization, 490 related to conflict, 129
and democracy, 421 in rural India, 466
and FDI wages, 368 and social capital, 464–465
and government capacity, 258 urban, 111
informal economies of, 241 Poverty Reduction Strategy Papers, 410
720 Index
poverty research, 111 programmatic parties, 447, 449–450, 452

poverty traps, 109, 191–194 progress, human, 32, 65
power promotion maximizers, 632–636
causal, 286 property bubbles, 645
centralized, 268–269 property rights, 75, 143, 178, 225, 228, 313f, 314
distribution of, 282 in Africa, 312, 540–541
powerlessness, 409 and authoritarian regimes, 614
power-sharing, 172 in China, 629, 640, 645
Prachanda (Nepalese prime minister), 185 and civil war, 190
Prados de la Escosura, L., 297–298, and collective action, 432
305–306, 313 and colonization, 301, 313
Prebisch, R., 23, 28, 359, 653 effect on investment, 332
predation, 282, 432, 450, 541 in India, 655
predatory officials, 99, 211, 299, 554 intellectual, 373, 375, 645
and Africa, 558 in Latin America and East Asia,
in China, 627, 629, 631 compared, 583
prediction, power of, 54–56 in MENA countries, 603, 605, 608
preferences and populism, 519
common ethnic, 489 and public service delivery, 485
development of, 493 and taxation, 233
formation of, 80 ‘pro-poor expenditures’, 547
homogeneity of, 438 proselytizing, 130–131
leaders’, 80f, 81–82, 207 protectionism, 583, 628, 632, 640, 653, 659
mechanisms of, 166–167 protection pacts, 541, 557
policy, 444, 489, 503, 507 protections, social, 393
voter, 81 protests, 529, 549, 644
prices, 307, 309, 338, 392 provisioning pacts, 557
Prichard, W., 234 prsgroup.com, 447
PRI (Institutional Revolutionary Party), 67 Przeworski, A., 7–12, 14, 148
Prince, The (Machiavelli), 277 on democratization and development,
prisoners, political, 416 450–451
Pritchett, L., 271t, 312, 482, 493, 652 on domestic control variables, 151
private sectors, 364, 605 on Washington Consensus, 79
privatization, 33, 96, 134, 391 PSEs (public-sector enterprises), 653, 659
in Africa, 547–548 public goods. See goods, public
in China, 626, 628, 641 public goods game, 434
in India, 659 public policy, 69
and market liberalization, 396 public-private deliberation councils, 374
in U.K., 658 public-sector enterprises (PSEs), 653
‘problem-driven iterative adaptation (PDIA), 257 public sectors, 34, 374, 507, 604
production, labor-intensive, 568 public service, 231, 551
productivity, agricultural, 143 ‘Publish What You Pay’ movement, 200, 358
productivity, factor, 665 Puga, D., 45
program-based approaches (PBAs), 410–411 ‘pull’ factors, 336
programmatic appeals, 439, 442, 444, 452 ‘push’ factors, 342
programmatic commitments, 441–442, 445–446 Putin, V. (Russian premier), 99, 101
‘programmatic crystallization’, 437–438, 440 Putnam, R., 173–174, 461–462
Index 721
Qadhafi, M. (Libyan prime minister), 603t Reed, T., 319

Qatar, 599, 601, 603t, 612 reform backtracking, 268
Qian, Y., 629, 640 reform loans, 447
quality-control procedures, 367 ‘Reform! Reform!’ strategy, 356–357, 364, 377
Quinn, D.P., 146–147, 149, 156, 398t reforms
on market liberalization, 386 agrarian, 653, 665
Quintyn, M., 402–403 dual price, 632
electoral, 585
race-to-the-bottom, 339–340, 343, 369 institutional, 334, 366, 460
racism, 300, 314, 320 Korean corporate governance, 676–678
Radelet, S., 414, 554 labor-market, 375
radicalism, political, 66 market-nurturing, 94–97, 99
railways, 297, 319, 372 market-oriented. See liberalization, market
Rajan, R., 658 partial, 79, 547
Rajasthan, 461–462, 469–470, 471t, 473 public awareness of in India, 658
Rajoelina, A. (coup leader in resistance to, 394
Madagascar), 416 tax-for-profit, 630
Ramachandran, V., 361 reforms, economic, 73–87, 182, 333
Ranger, T., 164–165, 315 in India, 665
Rao, N. (Indian prime minister), 656–657 of South Korean financial sector, 676
Raschky, P., 205 reforms, fiscal, 638–639
Rashtriya Swayamsavak Sangh (RSS) party, 657 in China, 640–641
Rath, N., 654 refugees, 184, 417
Ravalomanana, M. (Madagascar regime change, 13–15, 145
politician), 416 regimes, control, 91
raw materials, 34–35, 662 regimes, political, 102, 148–150, 205
Razafindrakoto, M., 367 authoritarian, 525
RCA, 371, 378 communist, 486
Reagan, R. (U.S. president), 392 democratic, 342, 481
rebellion, 25, 54, 66, 190 effect of revenues on, 230–234
and natural resources, 211 effect on investment, 332
rebel groups, 185–186, 211 market-oriented, 544
recentralization, fiscal, 637, 643 in MENA countries, 602, 616
Recession, Great (2007), 74, 140, 144, 259, 330, and political parties, 500
332, 346 and public service delivery, 482, 484–488
and Africa, 555 regime transition, 145–147
and China, 637, 646 regionalism, 632
recessions, 68, 90, 181 regulations, environmental, 343
redistribution, 142–143, 145, 147, 157 regulations, financial, 338–339, 605, 675
and civil war, 189 regulations, labor, 370
and ethnicity, 162 regulatory changes, 329
in Latin America and East Asia, compared, regulatory regimes, 92, 99, 364, 375
573, 581 in China, 642
in MENA countries, 602, 605 and collective action, 432
and political parties, 442, 448, 508 and market liberalization, 385
and populism, 520–521 Reinhart, C.M., 336
and ‘resource curse’, 612 reliability, legal and regulatory, 365–366
722 Index
Reliance Industries, 661–662 revenue imperative, 638–639

religion and development, 123–139 revenue maximizers, 628–632
religious organizations, 229, 413 revenues and regimes paradigm, 224–226,
Remmer, K., 81 228–230, 233–234, 236, 243
Reno, W., 210 independent variables, 231
rentier states, 202, 206–207, 210–211 revenues, domain, 226
and ‘resource curse’, 611 revenues, government, 224, 227
and taxation, 227–228, 230–231, 234 affect on regimes, 230–234
rents, economic, 201, 206, 208, 377, 670–671 parlimentary vs. crown control, 225
rent-seeking, 227, 232, 236, 312 sources of, 240t
in Africa, 541, 544, 547, 558 statistics, 243
and collective action, 433, 453 subnational, 236
and colonization, 309 Revised Minimum Standard Model (RMSM),
and ethnic diversity, 488 World Bank, 391
in India, 660, 662 Revolutionary United Front, 186
and MENA countries, 598 revolutions, 56, 189, 433
and political parties, 439, 441, 448, 507 armed, 549
and populism, 521 electoral, 522
in South Korea, 671, 673 silent, 385
and state-building, 452 Reynal-Querol, M., 182
repertoires, behavioral, 107, 111–112 Reynolds, A., 452
representation, political, 517–534 Rhodesia, 315
repression, 33, 51, 145, 207, 614, 681 Rhodes-Livingstone Institute (RLI), 164–165
reproductive health, 124–125, 137 Ricardo, D., 201
reproductive rights, 109 Richard, S.F., 142
Republican party (U.S.), 442, 444 rich countries, 239, 386f–387f, 402, 450
republics, single-party, 602–603, 603t, Rickard, S.J., 401
604–605 Riddle, P., 305f
research, cross-national, 167–168, 181, 185, ‘right policy’ approach, 265
193, 206 rights, equal, 459, 486
research, micro-behavioral, 111 rights of workers, 343
research, subnational, 201, 487 rights, political, 312
reserves, international, 390 Riley, J.C., 305, 306f
Resistência Nacional MoÇambicana risk attitudes, 345
(RENAMO), 418 risk aversion, 342, 377
Resnick, D., 409–430, 520 risk, currency, 358
Resnick, S.A., 295 risk, implementation, 505
‘resource curse’, 200–223, 227–228, 540, 583 risk, political, 99, 102, 332
and India, 662 risk, ‘reversal’, 504
and MENA countries, 606, 611–612 risky behavior, 338
resource extraction, 227, 234 RLI (Rhodes-Livingstone Institute), 164–165
resource management, 431, 451 roads, 301, 639
resources Roberts, K.M., 517–534
collective, 461, 474 Robertson, R., 367
economic, 433 Robinson, J.A., 45, 50–51, 148, 156, 207
natural, 69 on civil war, 189
responsiveness, state, 231–232 on colonialism and development in Africa,
revenue collection, 237, 239, 242 295–327, 541
Index 723
on democratization and development, 451 and civil war, 179

on inequality, 140, 144, 146 and imperialism, 295
on political economies, 603 and natural resources, 204, 209
Robinson, R., 296 and political parties, 442
Rod, J.K., 69 and populism, 518
Rodney, W., 28 and pro-growth policies, 101
Rodriguez, F., 148–150 and taxation, 234, 239
Rodríguez-Franco, D., 22–42 Rwanda, 44, 50, 172, 239, 296
Rodrik, D., 33, 46, 75–76, 80, 142, 148 and accountability, 316
on capability, government, 258–259 and civil conflict, 315
on financial institutions, 394 and colonization, 298–300, 305
on liberalization in India, 100, 652 development in, 558
on political parties, 503 and economic change, 555
on trade-and-investment policies, and elections, 417
364, 374 and foreign aid, 418
Rogoff, K.S., 336, 393 and hybrid politics, 558
Rogowski, R., 66 institutions in, 542
Roh Moo Hyun (South Korean president), and life expectancy, 306f
675–676, 678–679 and natural resources, 553
Roh Tae-woo (South Korean president), 90, political breakdown in, 550
673, 679 and political institutions, 311
Rokkan, S., 436 and postcolonial development, 316–317
Romania, 204, 414 state recovery in, 549, 552
Romer, P., 364
Rosecrance, R., 188–189 Sachs, J.D., 45, 202–203, 393, 583
Ross, M.L., 200–223 on India, 655–656
Rotberg, R., 279–280 Salinas, C. (Mexican president), 378
Rouanet, L., 306 Samsung Corp., 371, 677, 681
Roubaud, F., 367 Samuels, D., 145–146, 156, 525
Rudra, N., 492 Sanchez-Puerta, M.L., 367
Rueschmeyer, D., 8, 24 sanctions, 167, 173, 415–416
rule of law, 136, 208, 225, 228, 260, 346 and collective action, 436–437
and Africa, 540–541 and ethnic diversity, 489
and corruption, 612 for free-riding, 439
in India, 655 at local level, 468
in Latin America and East Asia, trade, 421
compared, 583 Sandler, T., 181
in MENA countries, 604–605, 614 sanitation provision, 480–481, 487–489
and populism, 526, 530 Sare village, 463
Rupert, M.C., 181 Sarney, J. (Brazilian president), 585
Rupprecht, S.M., 400t Satyanath, S., 45
Rural Development Program, Integrated Saudi Arabia, 93, 202, 227
(IRDP), 464 and colonialism, 609
Rural Employment Guarantee Act, National and oil wealth per capita, 211
(2005), 663 and political economy, 601, 603t, 604
Russett, B.M., 184, 189 and ‘resource curse’, 612
Russia, 65, 93, 99, 656. See also Soviet Union and taxation, 230
and BRICS, 332 savings and investments, 76, 141
724 Index
SCCS (Standard Cross-Cultural Sample), 303, ‘shadow’ structures, 539

312, 316 Shanghai, 630, 632
Schamis, H., 73 Sharia law, 136
Schedler, A., 412 Shefter, M., 452
school enrollment, 305f, 420, 447, 448t Shekhar, C. (Indian prime minister), 657
in Africa, 548 Shinawatra, T. (Thai prime minister), 526
in China, 637, 639 Shining India, 663
and public service delivery, 485 shirking by leaders, 435–436, 439, 445–446
in South Korea, 672 shocks, economic, 503, 545. See also oil
schools, 314, 319, 445. See also education price shocks
Schumpeter, J., 226–227 Shugart, M.S., 525
Scotland, 172 Siemens, 372
Scott, J.C., 65 Sierra Leone, 186–187, 210–211
Scramble for Africa, 295, 297–299 and civil conflict, 315
development on eve of, 301–303 and colonization, 298–299, 301, 311
and ethnic conflict, 314 and economic performance, 539
and per-capita income, 313 and government capacity, 259
Scully, T., 501 and indirect rule, 319
secession, 172, 180 political breakdown in, 550
sectors, formal, 297–298 and postcolonial development, 318–319
security, 432, 449, 453, 482 and school enrollment, 305f
and Africa, 541, 552 and slavery, 315
SEDLAC (Socioeconomic Database for Latin and wages, 309, 310f
America and the Caribbean), 572t war in, 551–552, 555
Segura-Ubiergo, A., 485, 492 Sifang Locomotive and Rolling Stock, 372
Sékou-Touré, A. (Guinean president), 92 Silver, B.J., 342
selection models, two-stage, 401 Simmons, B.A., 397t, 402
semiconductor MNCs, 361 Simmons, J., 508
Sen, A., 474 Simon, D.J., 69
Sender, J., 295 Singapore, 66, 94, 97, 266, 669
Senegal, 115, 391, 542, 548 and crises, 267–268
economic growth in, 554 development in, 556
state recovery in, 549 and electronics industry, 378
Senghor, L. (Senegalese president), 542 and exports, 360
September 11, 2001, 125, 129 and government capacity, 256–257, 259,
sequencing issues, 338–339 263–265
Sergenti, E., 45 and industrialization, 671
Serrano, J.A. (Guatemalan president), 416 and lack of oil, 101
service delivery, politics of, 483f and leadership, 269, 280–281
service industries, 641–643 ‘miracle’ economy, 110, 567
service providers, non-state, 494 and technology transfer, 372
service sectors, 51, 97 Singer, D.A., 397t
and civil war, 177 Singer, H., 653
and FDI, 357–358, 379 Singh, M. (Indian prime minister), 656, 660
services, public, 280, 480–498 single-party systems, 542, 549
SEZs (Special Economic Zones), 368, 660, Singur, India, 660
662–663 Sinha, A., 662
Index 725
Sjoholm, F., 369 SOEs. See state-owned entreprises (SOEs)

SK Corp., 677, 681 software industry, Bangalore, 471
skills, higher, 375–376, 379 Sokoloff, K.L., 46
Skocpol, T., 28 solidarity, 462, 491
Slater, D., 557 Solow, R., 74, 77
slavery, 151 Solt, F., 147, 150, 152, 157
abolition of, 299, 303, 314, 316 ‘solution-and leader-driven change’
military, 608 (SLDC), 257
slave trade, 35, 296, 300–301, 311 Somalia, 168, 172, 178, 183, 191
and colonization, 315 and colonization, 298, 300, 303
SLDC (solution-and leader-driven change), political breakdown in, 550
257–258, 262, 270, 271t, 272–273 and political institutions, 311
Slovakia, 414 politics in, 543
small and medium enterprises (SMEs), 674, and postcolonial development, 318
678–681 state recovery in, 549
smallholdings, 568, 573–574, 580–581, 589 war in, 551, 555
Small, M., 112 South Africa, 114, 256, 260–261
Smarzynska Javorcik, B., 374 and apartheid, 318
SMEs (small and medium enterprises), 674, and BRICS, 332
678–681 and colonization, 298, 304, 309
Smith, A., 76, 201 and distributive problems, 558
Smith, B., 206 and economic growth, 537
Smith, I. (Rhodesian prime minister), 314 and foreign aid, 421
Smith, S., 295 GDP, 304f
Snyder, J., 414 and Great Recession, 555
social contract hypothesis, 615–616 institutions in, 541–542
social dilemmas, 283 investment in sub-Saharan Africa, 554
social identity theory, 488 and leadership, 285
social inclusion, 520, 530 and mining, 307, 316
social insurance, Korean, 670, 672, 679 and political freedoms, 311f, 312
socialism, 6, 25, 518 and property rights, 313f
African, 92, 543–544 and public service delivery, 487
Arab, 604 and sanctions, 415
in Chile, 582 and school enrollment, 305f
collapse of, 520 unemployment in, 556
state, 92 South Asia, 65, 89, 599, 617
socialist market economy, 631 and foreign aid, 94
social justice, 129, 600 governance indicators, 613f
social media, 529 and human development, 600f
social mobility, 144, 157, 473 and manufacturing, 599f
social relations, 607–609 Southeast Asia, 131, 333, 361, 517, 540, 646
social responsibility, corporate, 347 development in, 556–557
social sanctioning mechanisms. See sanctions industrial policies, 378
social security contributions, 224 Southern Common Market
social services, 260, 607 (MERCOSUR), 413
social struggles in Latin America, 34 Southern Rhodesia, 302t
social unrest, 140, 143, 157 south, global, 227–230
726 Index
South Korea, 22, 26, 28–30, 66, 169, 669–684 policy, 394

and authoritarian regimes, 614–615 public good, 445
and China, 33, 97 technological, 76, 359, 379
and civil war, 183 Springborg, R., 614
and cultural factors of growth, 89 Squire, L., 142, 146, 150
demography of, 52 Sri Lanka, 130–131, 179–180, 183, 187
developmental success in, 567–595 stability
and economic statism, 91–92 democratic, 206
and ethnicity, 170 economic policy, 338
and foreign aid, 94 financial, 261
governance in, 613 political, 278, 300, 608
and government capacity, 256–257, 259, social, 634, 637
263–265 stability, macroeconomic, 338–339, 365,
growth compared to MENA countries, 617 391, 393
and inequality, 141 in Africa, 546, 548, 551
investment in Africa, 554 and foreign aid, 420
and lack of oil, 101 in Latin America and East Asia,
and leadership, 269, 281 compared, 576
median age in, 55 and political parties, 500
‘miracle’ economy, 110 stagnation, economic, 540, 548–549
and political institutions, 97–98 Standard Cross-Cultural Sample (SCCS), 303,
and populism, 615 312, 316
and technology transfer, 370–371, 373 Stasavage, D., 447, 450, 485–486
sovereign credit, 340 state-building, 225, 228–230, 256. See also
sovereign debt, 341, 345, 402 nation-building
Soviet Union, 11–12, 67, 78, 98, 132. See in Africa, 540, 557
also Russia in China, 633
and Africa, 543 and collective action, 433, 452–453
and command economy, 91, 94 and institutional chains, 474
and economic statism, 92 in MENA countries, 605, 615, 617
and ethnicity, 115 in Southeast Asia, 557
fall of, 64, 67, 114 state-business relations, 671
and human rights, 136 state, developmental, 32, 670–673
and taxation, 227 state failure, 540
Spain, 201, 204, 341, 579 state hardness, 584–588
Spear, T., 315 state histories, 47f
Special Economic Zones (SEZs), 368, 660, state-intervention paradigm, 75
662–663 state-owned entreprises (SOEs), 96, 347, 385
speculation, 547, 645 in Africa, 543, 558
Spence, M., 77, 257, 267–269, 279 in China, 628–632, 638–641, 644
spending, decentralization of, 638 in Latin America and East Asia,
spending, public, 241, 342, 346, 659 compared, 578
Spiegel, M.M., 14 in MENA countries, 603–604
Spilimbergo, A., 52 privatization of, 640
spillovers, 641–643 and ‘resource curse’, 612
institutional, 369 state ownership, 587
manufacturing, 639 state, roles of, 132, 356–384
Index 727
states, 25 protests in, 548

autonomy of, 29–30 war in, 551, 555
centralized, 298–299, 316 Sudan, South, 172, 178, 298, 311, 318
competition between, 661–662 Su, F., 626–651
despotic, 311 suffrage, universal, 450–451
developmental, 91, 375–376 Suharto, H. (Indonesian president), 90,
failures of, 135 97, 582
fiscal, 227 Sukarno (Indonesian president), 577
fragile, 134–135 Summers, L.H., 482
gatekeeper, 314 Summers, R., 569t–570t
one-party, 44, 269, 312, 319 Sunkel, O., 23
strong, 30, 607 supply-and-demand risk, 358
territorial, 301 supply chains, indigenous, 359, 361, 366, 370
weak, 68 Supreme Court, Korean, 679
statism, economic, 91–92, 94–95, 100 sustainability, 433, 480, 520
in China, 96, 98 Swaziland, 298, 315
and predatory officials, 99 SweatFree Communities, 367
shift from, 101 sweatshop abuses, 360, 367
Statistics Korea, 572t Sweden, 257, 261, 415, 473
Statistics, National Bureau of, 639f Swidler, A., 111
stature, 297–298, 305–306, 312–313 Switzerland, 172, 209
in Kenya, 318 Syria, 92, 190, 601, 603t
status quo bias, 394, 402 and colonialism, 609–610
Steele, C., 112 and political economies, 604
Stephens, E.H., 8 and populism, 615
Stephens, J.D., 8 systematic process analysis, 258, 272
Stern, R., 368 Szereszewski, R., 304
Stewart, F., 180
Stiglitz, J., 76, 393 Tabellini, G., 142, 432
Stokes, S.C., 11 Taiwan, 22, 26, 29–30, 66, 169
Stone, R., 392 and China, 33, 97
structural adjustment, 94, 100, 388–389, 391, and cultural factors of growth, 89
393, 538 developmental success in, 567–595
in Africa, 545, 547 and economic statism, 91–92
and foreign aid, 410 and foreign aid, 94
and political parties, 507 growth compared to MENA countries, 617
Structural Adjustment Fund (SAF), 391 and industrialization, 671
structural conditions, 392 and lack of oil, 101
structuralism, 43–63, 539 and leadership, 281
structure-agency issue, 285–288 ‘miracle’ economy, 110
Studies in Comparative International and populism, 615
Development, 494 and technology transfer, 370–371, 373
Subramanian, A., 46, 100, 655 Taiwan CEPD (Council for Economic
subsidies, consumer-price, 603 Planning and Development), 572t
subsidies, state, 375, 576, 586, 656–657 Tamil Nadu, India, 661
subsistence activities, 301, 302t Tanganyika, 302t
Sudan, 7–8, 93, 210, 542 Tangshan Railway Vehicle Company, 372
728 Index
Tanzania, 44, 50, 92, 168, 236 technology transfers, 356–357, 359–362

bond issues, 345 and develomental states, 375
and colonization, 310 and FDI, 363, 370
economic growth in, 554 and national champions, 371–373
and political freedoms, 311f, 312 and public service delivery, 493
politics in, 542–544 telecommunications MNCs, 361
and property rights, 313f Tendulkar, S., 657, 660
and public service delivery, 489 Texas Instruments, 361, 378
and school enrollment, 305 textile industries, 342, 360
state recovery in, 549 TGPT (theory-guided process tracing), 272–273
Tao, R., 626–651 Thailand, 47, 55, 97, 296, 299, 316, 669
tariffs, 96, 577, 656 and auto industry, 377
Tarrow, S., 530 developmental success in, 556, 567–595
taxation and development, 224–255 and electronics industry, 378
taxation, resistance to, 242–243 and exports, 360
tax avoidance, 343 and financial crises, 675
tax credits, export, 586 and foreign aid, 416
taxes, 143, 172, 189, 200, 209, 343 and foreign direct investment, 646
and African trade, 539 nineteenth century, 320
in China, 630–631, 637–638, 640, 642 and policy reform, 505
and colonialism, 301, 609 and populism, 525–526
corporate, 336, 340 and structural transformation, 364
in democracies, 207 and technology transfer, 372
direct vs. indirect, 243 Thatcher, M. (British prime minister), 392
in India, 656, 659, 663 Theisen, O.M., 54
inefficient systems, 209 Themnér, L., 183f
and natural resources, 202, 206, 208 theory frames, 24–25
reform, 391 ‘theory-guided process tracking’ (TGPT), 258,
in South Korea, 670 272–273
withholding, 241 Therkildsen, O., 236
tax havens, 243 Third World, 23
tax rebates, 576 Thomas, D., 413
tax revenues, 54, 96 Thyne, C., 190
technological policies, 29 Thyne, D., 184
technologies, advanced, 343 Tianjin, 630, 632
technologies, green, 556 Tienanmen Square protests, 96–97, 640
technology Tilly, C., 28, 228–230
and growth, 329, 335 on collective action, 449–451
Indian Institutes of (IITs), 655 on state-building, 452
mechanisms, 167 time horizons, 4, 184, 229, 347
medical, 314 executive, 487
production, 361, 367 and political parties, 506, 509
skill-intensive, 364 Toennies, F., 65
technology dissemination, 297–298, 300, Togo, 44, 542
309, 318 Tommasi, M., 506–507
and colonization, 320 Tönnies, F., 4
pre-Scramble for Africa, 301, 303 Topolova, P., 663–664
Index 729
Tornell, A., 208 and oil resources, 205f, 207

Torvik, R., 208 postcommunist, 391
Toscani, F., 402–403 precolonial to colonial rule, 312
Toshiba, 371 and public health in Brazil, 486
Touré, S. (Guinean president), 542 and public service delivery, 486
‘tournament’ game, 628, 632–636, 645 and resource wealth, 200
Township and Village Enterprises (TVEs). See in South Africa, 257, 285
TVEs (township and village enterprises) in South Korea, 673, 680
Toyoda, A.M., 386, 398t traditional to modern, 109
trade, 95, 129, 189, 239, 303 Transjordan, 609
trade agreements, EU, 605 transnational corporations (TNCs), 32. See
trade-and-investment, 356–384 also multinational corporations (MNCs)
trade barriers, 76, 91, 334, 360, 363 transparency, government, 213, 546, 615
in China, 632 Transparency International, 99, 662
and colonialism, 609–610 treasury securities, U.S., 332
and market liberalization, 394 Trebbi, F., 46
trade, international, 24–25, 66, 389 tribalism, 164, 451, 609
and China’s market reforms, 96 Trinidad, 202
and civil war, 181 TRIPS-plus requirements, 376
and colonization, 297 Troesken, W., 312
of commodities, 202 Tsai, L.L., 491
effect on drinking water, 492 Tsui, K.K., 212
and India, 655 Tunisia, 202, 413, 445, 548
and market liberalization, 385 and colonialism, 609–610
and taxation, 241 governance in, 602, 613
trade openness, 180, 207, 341, 362–363 and political change, 617
Trade-Related Investment Measures (TRIMs), and political economy, 601, 603t, 604–605
375–376 and underdevelopment, 617
trade unions. See labor unions Turkey, 130, 204, 402, 617
traditional societies, 303 and colonialism, 609–610
traditions, backward, 107 and crises, 267–268
tradition vs. modernity, 4 and foreign aid, 421
‘tragedy of the commons’, 431–433 governance in, 602, 613
‘tragedy of the tropics’, 540 and government capacity, 256, 259,
training, IMF, 402–403 263–264, 266
training, vocational, 361, 366, 374–375, 418 investment in Africa, 554
and FDI, 378–379 and leadership, 280
and inequality, 473 and per-capita income, 313
in South Korea, 672–673 and political economy, 601, 603t, 605
transactions costs, 229, 235 and populism, 615
transfers, private, 440, 445 Turkmenistan, 114–115, 209
transformation, structural, 280, 356, 359, TVEs (township and village enterprises), 96,
364–367 628, 630–632, 640–641, 644
transitions, regime, 145, 147, 152, 153t–155
from dictatorship to democracy, 156f, 204, UCDP (Uppsala Conflict Data Program), 178,
410, 413 179f, 183f
and foreign aid, 412, 415–417, 420 Udry, C., 301
730 Index
Uganda, 43–44, 54, 137 peacekeeping operations, 192–193

bond issues, 345 proposed ‘spiritual council’, 130
and career aspirations, 473 United Nations Development Program
and civil war, 184 (UNDP), 411, 416
and colonization, 298, 300, 302t, 305 United Progressive Alliance (Indian), 656
and economic growth, 553, 555 United Religions Initiative, 136
and ethnicity, 167 United States, 30, 34, 48
and foreign aid, 419 and aid to India, 654
and institutional gaps, 458 ‘blackness’ in, 114
investment and debt in, 329 and BRICS, 332
and life expectancy, 306f and China, 333
and political institutions, 311 and civil rights reform, 257, 260, 268
and postcolonial development, 317 and colonization, 296–297
and public service delivery, 485, 489 and conditional foreign aid, 415, 417
state recovery in, 549 and cross-regional growth, 598f
and taxation, 239 diasporas in, 52
and wages, 309, 310f and East Asian growth, compared, 669
Ukraine, 417 and ethnic diversity, 163
UNAOC (United Nations Alliance of and FDI, 336
Civilizations), 137 financing for HIV-AIDS, 126
UNCTAD (U.N. Conference on Trade and and foreign aid, 411, 416, 581–582
Development), 365t, 376 and government capacity, 261
underdevelopment, 23–25, 36 and government oversight of financial
in Africa, 28, 296 sector, 100
causes of, 142 and IFIs, 392
and Islam, 89 immigration restrictions, 49
and Leninist theory, 66 inequality in, 150
in MENA countries, 596–625 and institutions, 458
and Washington Consensus, 76 investment and debt in, 332
unemployment, youth, 596, 599, 617 and market variations, 345
UNESCO, 137 and Marshall Plan, 93
UNFPA (United Nations Population and oil resources, 203, 206
Fund), 137 political dependence on, 35
UNICEF, 134 and political parties, 443–444, 444f
UNIDO (United Nations Industrial and populism, 518
Development Organization), 148, 150 and sanctions, 416
United Arab Emirates (UAE), 601, 603t, 613 and South Korea, 673, 679
United Front (Indian), 656 trade with Africa, 554
United Kingdom, 172, 332–333 United States Agency for International
and foreign aid, 414–415, 417 Development (USAID), 3
and government oversight of financial Unted Nations Millenium Declaration, 480
sector, 100 Upper Volta, 542
and India, 658 Uppsala Conflict Data Program (UCDP), 178,
United Nations, 124–126, 136, 183f 179f, 183f
and civil war, 191 urban interests, 543
and colonization, 301 urbanization, 51, 55–57, 64, 171
and good governance, 409 in China, 628, 637, 643–646
Index 731
and civil war, 193 and political institutions, 98

and taxation, 241 and post-World War II geopolitics,
Uruguay, 6, 531, 601 581–582
USAID (U.S. Agency for International war, 64, 66, 654
Development), 3–4, 413–414 violence, 56, 115, 178
U.S.S.R.. See Soviet Union and Chinese land expropriation, 645
U.S. Treasury, 75 civic, 67
UTIP (University of Texas Inequality and collective action, 433
Project), 150 in Colombia, 257
Uttar Pradesh, 434 communal, 56, 114
Uzbekistan, 100, 209 costs of, 189–190
ethnic, 168
vaccines, 314. See also immunization gender-based, 420
Vadlamannati, K., 399t in India, 660
Vail, L., 164–165 in Indonesia, 582
value chains, global, 241 interethnic, 165
value infusion, 501 and oil resources, 200
values paramilitary, 211
cultural, 109 political, 180–181, 189, 213, 417
democratic, 130, 145, 418 in South Africa, 260
missing, 140, 146 Vishwa Hindu Parishad (VHP) party, 656
social, 132 Vlaicu, R., 441, 445
Van der Ploeg, F., 212 ‘voice and accountability’ measures, 604,
van de Walle, N., 309, 318, 388, 416 612, 614
Vanhanen, T., 150 volatility, aid, 418
van Waijenburg, M., 309, 310f volatility, economic, 200, 328, 336, 342
Vargas, G. (Brazilian president), 519, 525, of commodity prices, 202
582, 585 financial, 336, 339
Vargas, J., 211 and investor variation, 346
Varshney, A., 56, 114, 658, 660 protection from, 341
Vatican, 130 volatility, political, 501
VAT (value-added tax), 243, 638–642 Volcker, P. (economist), 75
Venezuela, 8, 27, 93, 99 Volkswagen, 361, 377
and FDI, 358 volunteerism, 131, 462
and oil shocks, 202 Vora-Sittha, P., 572t
and political parties, 447–448 vote-buying, 69, 448–449
and populism, 523, 526, 531 voters, 342, 440–442
Verba, S., 109 alienated, 526
vested interests, 486 education of, 417
veto players, 504–505, 508 ethnic, 174
Vetterlein, A., 403 intentions, 69
Vicente, P.C., 52, 209 preferences of, 81
Vietnam, 55, 65, 358, 486 pro-market, 444f
and command economy, 91 and tax cuts, 443, 444f
development in, 556 voting process, 143
doi moi reforms, 97 voting rights, 311, 453
and India, 661 Vreeland, J.R., 3–21
732 Index
Wacziarg, R., 386 welfare, social, 465

wage premiums, 368–369, 379 welfare state, 109, 340, 487, 491
wages, 149–150, 310f, 312, 314 in South Korea, 670, 672–673, 675, 678,
and colonization, 297–299, 307, 309 680–681
in India, 664 Wen, J. (Chinese premier), 96, 637, 646
for mine workers, 308f West Bank and Gaza, 601
and multinational corporations, 343 West Bengal, India, 662
and natural resources, 583 Westminster Foundation, 411
and postcolonial development, 318 Weyland, K., 81, 486–487, 520, 523
and post-World War II geopolitics, 582 Weymouth, S., 399t
premium in foreign-owned factories, white settlements, 298–300, 312–313, 316
343, 367 and postcolonial development, 318, 320
and trade-and-investment policies, 367 WHO (World Health Organization), 298
urban, 34 Why Nations Fail (Acemoglu, Robinson, &
Wagner’s Law, 241 Woren), 144, 257
Waisman, C., 577 WIDER (World Institute for Development
Waldner, D., 615, 617 Economic Research), 572t
Wallensteen, P., 183f Wigley, S., 482
Wallis, J., 450, 541 WIID (World Institute for Development
Wang, M.G., 362–363 Economics Research), 146–147, 149
war, civil, 177–199, 287, 319 Wilkinson, S., 165, 171
Warner, A.M., 202–203, 393, 583 Wilks, I., 303
Warren, B., 295 Williamson, J., 75, 150, 359
Warren, Pastor Rick, 133 Williamson, O., 541
wars, 8, 115, 129, 555 Wilson, F., 298, 307, 308f, 309
Washington Consensus, The, 73–87, 100, 359, Winters, M.S., 416
539, 546 Wolchik, S., 417, 421
water, safe, 184, 480–482, 486–487 Wolfensohn, J.D., 123, 125, 129
in China, 491, 639 women, 109, 124
and ethnic diversity, 489 and civil war, 184
in journal articles, 495 and employment, 368
in Mexico, 488 income earning potential, 136
and trade, 492 in India, 664
water supply, 464, 469 in labor force, 200, 571
Way, L., 414, 417 and land reform, 574
Wealth and Poverty of Nations (Landes, D.), 110 and leadership, 287
wealth, causes of, 88–91 in MENA countries, 600
Wealth, Health and Democracy in East Asia and natural resources, 213
and Latin America (McGuire), 486 role of, 136
‘wealthier is healthier’, 482 Woolcock, M., 107–122, 271t
Wealth of Nations (Smith), 201 workers
wealthy countries, 109 landless, 664
Weber, M., 4, 65, 110, 226 migrant, 644
Weidmann, N.B., 180 organized, 585
Weingast, B., 450, 541, 629, 640 skilled, 347, 366
Weinthal, E., 209 workers’ rights, 342–343, 347, 367
Wei, S.-J., 396, 399t, 401 in China, 644–645
Welch, K., 386 in South Korea, 673, 679
Index 733
Workers Rights Consortium, 367 Yom Kippur/October War, 545

working class, 8, 272, 518–519 Yongji Electric, 372
World Bank, 29, 74–75, 78, 80, 129, 135, 599f Young, J., 400t
and Africa, 413, 546–547, 552 Youngs, R., 420
and Benin, 415 youth population, 187, 600
and colonization, 298 Yushin Constitution (Korean), 672
and financial openness, 334
and foreign aid, 416 Zaaruka, B.P., 309, 311f, 313f
on governance, 613f Zaire, 90, 280. See also Congo, Republic of
and government capacity, 262–263 zakat (Islamic charitable giving), 608
and leadership, 278 Zambia, 43–44, 47, 102
and market liberalization, 385–408 bond issues, 345
on natural resources, 202, 212 and colonization, 305
and political parties, 447 copperbelt, 165
and populism, 520 democratic transition in, 550
and public service delivery, 480, 483, and distributive problems, 558
492–493 economic growth in, 554
and religion, 123, 126 and foreign aid, 416
World Bank Living Standards survey, 306 GDP, 304f
World Council of Churches, 127, 129–130 and government capacity, 259
World Development, 128 and political freedoms, 311f, 312
World Development Indicators, 552t, 599f and property rights, 313f
World Development Report (2004), 480 protests in, 548–549
World Development Report (2011), 135 ZANU-PF (Zimbabwe African National
World Economic Outlook (IMF, 1980), 391 Union Patriotic Front), 314
World Evangelical Alliance, 130 Zeira, J., 144
World Health Organization (WHO), 298 Zelner, B.A., 400t
World Politics, 494 Zenith, 371, 378
world-systems theory, 5, 23 Zhang, Z., 396, 399t, 401
World Values Survey, 109 Zhou, L.-A., 634
World Vision, 127 Zhu Rongji (Chinese premier), 96
World War II, 12, 414, 581 Zimbabwe, 259, 282, 298, 300, 304
and MENA countries, 597 and civil conflict, 315
post-, 128, 389, 410 and foreign aid, 418
Wright, J., 416 GDP, 304f
WTO (World Trade Organization), 357, 371, and health, 312
373, 375 and inequality, 309
Wukan rebellion, 644 institutions in, 542
and life expectancy, 306f
Xi, J. (Chinese president), 646 and political freedoms, 311f, 312
Yadav, Y., 458 and postcolonial development, 318
and property rights, 313f
Yang, D.L., 626–651 and school enrollment, 305f
Yemen, 52, 93, 230, 287, 596 and wages, 308f
governance in, 613 Zoco, E., 499
and political economy, 601 Zululand, 296, 298, 303, 311, 318

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The Oxford Handbook of

Published in the United States of America by Oxford University Press

© Oxford University Press 2018

All rights reserved. No part of this publication may be reproduced, stored in

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Library of Congress Cataloging-​in-​Publication Data

Preface: Nicolas van de Walle ix

1. Modernization Theory: Does Economic Development Cause

7. Culture, Politics, and Development 107

9. Does Inequality Harm Economic Development and

PA RT I I I : I N T E R NAT IONA L FAC TOR S

16. Colonialism and Development in Africa 295

21. Organizing for Prosperity: Collective Action, Political Parties, and

26. Africa’s Political Economy in the Contemporary Era 537

31. The Politics of Growth in South Korea: Miracle, Crisis, and

Matt Andrews Harvard University

Evan S. Lieberman Professor of Politics, Princeton University

Moderniz ation T h e ory

José Antonio Cheibub and

Theories about democracy—​its emergence, sustainability, and breakdown—​have long

Political Order before Change

Distinguishing Dynamics: Emergence versus

democracy. Transition games are characterized by a multiplicity of equilibria, including

What Can Be Done?

Table 1.1 Current Democracies with Per Capita Income Less Than $8,000

Thailand $7,794 Macedonia $7,678

democratic); it shows that an additional 10 million dollars in democracy and governance

Dependenc y T h e ory

What Is Dependency Theory?

analyzing historical processes of development in specific cases. One’s understanding of the

The Rise of Dependency Theory

Dependency Theory as a Theory Frame

Dependency theory—​as a theory frame—​calls on scholars to pay attention to these kinds of

Dependency Theory as Testable Hypotheses

Dependency Theory and the Study of

Historical Trajectories of Development in Latin America

The East Asian Newly Industrializing Countries

China and the New Global Division of Labor

Emmanuel, Arghiri. 1972. Unequal Exchange: A Study of the Imperialism of Trade.

LES MWI SUD ETH

6 BWA CAR MOZ

SOM ZIM AGO

GBI TOG RWA SEN

Figure 3.1 Nation-​Building and Population Size in Contemporary Africa

A second source of structural change is demography. Like geography, demography changes

Figure 3.2 Population Density in 1950 and State History

Early Demographic Transition

Figure 3.3 Ratio of Population in Europe to Africa, 1750–​2050

The onset of the demographic transition also corresponded to a period of industrializa-

Late Demographic Transition

Net Immigration in Asia and Europe, 1950–2015

Figure 3.5 Net Immigration in Asia and Europe, 1950–​2010

Structuralism and the Power of Prediction

Acemoglu, D., S. Johnson, and J. A. Robinson, (2002). “Reversal of Fortune: Geography and

The End of Empire

Political development gained recognition as a subfield of political science in the 1960s.

From Modernization Theory

By Leninist theory, I mean a form of political economy that views development

Library of Congress Cataloging-in-Publication Data

Theories about democracy—its emergence, sustainability, and breakdown—have long

Table 1.1 Current Democracies with Per Capita Income Less Than $8,000

Dependency theory—as a theory frame—calls on scholars to pay attention to these kinds of

Figure 3.1 Nation-Building and Population Size in Contemporary Africa

Figure 3.3 Ratio of Population in Europe to Africa, 1750–2050

Figure 3.5 Net Immigration in Asia and Europe, 1950–2010

The literature on economic reform arose during the ascendancy of market-liberalizing

How Market-Oriented Strategies Work

(e.g., to marriage and participation in professional sports), immigration, and church–state

countries, making cross-country comparisons meaningful. This stands in stark contrast to

Log–pseudolik. –551.42 –4535.57 –553.51 –554.16

* $p < .01$, and, $p < .05$.

Inequality .008 .046 –.039 .164 –.6 –3.074 .39 .848

Log–pseudolik. –551.42 –5662.7 –551.26 –375.46 –553.51 –550.79 –554.16 –553.78

* $p < .01$, $p < .05$ and * $p < .1$.

An armed conflict is a contested incompatibility that concerns government and/or territory

The Development–C onflict Correlation

Figure 11.1 Deaths in Internal Conflicts, 1965–2013, vs. Poverty, 1965

Figure 11.3 Poverty Reduction, 1965–2013, vs. Deaths in Internal Conflicts, 1965–2013