Over time, the international development community has advocated various development paradigms, but countries following these paradigms have often performed poorly. We provide an explanation for this poor performance. In our model, the political leader of a developing country chooses a policy and whether to implement it in an honest or corrupt manner. These choices affect domestic production and aid inflows. Production is high when productive capacity is high, and when the policy is appropriate in the country-specific circumstances and implemented honestly. Aid inflows are high when the policy is close to the paradigm. In equilibrium, countries with low productive capacity and high corruption resulting from weak political institutions follow the paradigm more closely. Hence, our model suggests that development paradigms have a tendency to fail because they are primarily followed by countries that would fail anyway. We provide empirical evidence in support of the main assumptions and results.
This paper develops a model that can explain why natural resources are a blessing for some countries, but a curse for others. In this model, natural resources cause fighting activities between rivalling groups. Fighting reduces productive activities and weakens property rights, making productive activities even less attractive. The aggregate production decrease exceeds the natural resources' direct positive income effect if and only if the number of rivalling groups is sufficiently large. The model thus predicts that natural resources lower incomes in fractionalized countries, but increase incomes in homogenous countries. Empirical evidence supporting this prediction is provided.
Many terror attacks occur at the beginning of electoral terms. We present a game theoretical model with incomplete information to account for this empirical pattern. Both terrorists and governments can be of weak or strong types. We find that the risk of terror attacks is highest at the beginning of electoral terms, because striking early allows the terrorists to collect valuable information about the government's type, and also because terrorists know that even initially weak governments sometimes retaliate to show toughness closer to an upcoming election. The model's predictions are consistent with anecdotal evidence.
Political leaders sometimes favour their preferred regions. This column looks at regional favouritism in a large sample of countries, using information on the birthplaces of political leaders and nighttime light intensity. Being the current leader's birth region increases nighttime light intensity by around 4%, and GDP by around 1%. Such favouritism is most prevalent in countries with weak political institutions and poorly educated citizens.
We complement the literature on distributive politics by taking a systematic look at regional favoritism in a large and diverse sample of countries and by employing a broad measure that captures the aggregate distributive effect of many different policies. In particular, we use satellite data on nighttime light intensity and information about the birthplaces of the countries' political leaders. In our panel of 38,427 subnational regions from 126 countries with yearly observations from 1992 to 2009, we find that subnational regions have more intense nighttime light when being the birth region of the current political leader. We argue that this finding provides evidence for regional favoritism. We explore the dynamics and the geographical extent of regional favoritism and show that regional favoritism is most prevalent in countries with weak political institutions and poorly educated citizens. Furthermore, foreign aid inflows and oil rents tend to fuel regional favoritism in weakly institutionalized countries, but not elsewhere.
We study the strategic interaction between a decision maker who needs to take a binary decision but is uncertain about relevant facts and an informed expert who can send a message to the decision maker but has a preference over the decision. We show that the probability that the expert can persuade the decision maker to take the expert's preferred decision is a hump-shaped function of his costs of sending dishonest messages.
We test the hypothesis that the effect of foreign aid on economic growth is positive in ethnically homogenous countries, but decreasing in ethnic fractionalisation. Using panel data covering 114 aid-recipient countries over the period 1962 to 2001, and employing two-stage least squares and GMM estimation techniques, we find a strong support for this hypothesis. Our estimates suggest that foreign aid promotes growth in ethnically homogenous countries, while being ineffective or even harmful in many Sub-Saharan African countries and some ethnically fractionalised countries elsewhere.
