The Control of Politicians in Divided Societies: The Politics of Fear

Autocrats in many developing countries have extracted enormous personal rents from power. In addition, they have imposed inefficient policies including pervasive patronage spending. I present a model in which the presence of ethnic identities and the absence of institutionalized succession processes allow the ruler to elicit support from a sizeable share of the population despite large reductions in welfare. The fear of falling under an equally inefficient and venal ruler that favours another group is enough to discipline supporters. The model predicts extensive use of patronage, ethnic bias in taxation, and spending patterns and unveils a new mechanism through which economic frictions translate into increased rent extraction by the leader. These predictions are consistent with the experiences of bad governance, ethnic bias, wasteful policies, and kleptocracy in post-colonial Africa.     

族群多样性与地方经济增长—来自中国城市层面的证据

族群多样性的经济影响及其发生机制,是经济学中一个方兴未艾的前沿研究领域.文章利用全国人口普查数据和抽样调查资料,构建了中国300多个城市族群多样性的面板数据,通过计量分析发现,高的族群多样性显著降低了地方经济增长率.在考察了测量指标的影响和内生性问题后,结论依然稳健.通过对影响机制的探讨,文章发现:高的族群多样性显著增大了语言沟通成本,降低了私有部门投资率;另一方面,公有部门投资率不受族群多样性的影响,人均中央财政转移支付和族群多样性显著正相关,这两者缓解了族群多样性的不利影响.以上发现,一方面为族群多样性经济影响的研究提供了新的实证证据;另一方面也为中国地方经济增长的差异性提供了一个新的解释,并衍生出新的学术课题和政策意涵.     

Ethnic Networks in FDI and the Impact of Institutional Development

Ethnic Chinese entrepreneurs are known for their active business networking practices, particularly in Southeast Asia. This paper empirically investigates the role of ethnic Chinese networks in promoting foreign direct investment (FDI). We further evaluate whether the effectiveness of networking activities are affected by the level of economic and institutional development of the source and the host countries. Using a standard gravity model, we find that ethnic Chinese networks are significant in facilitating cross‐border investment between countries. The strength of ethnic Chinese networks between country pairs, approximated by the product of the numbers of ethnic Chinese in both countries, is positively correlated with the cumulative amount of their reciprocal FDI. More importantly, this significant relationship is not limited to countries in Southeast Asia, but is applicable to other country pairs included in the study as well, regardless of whether the investment is originated from industrial countries or developing economies. Finally, the analysis finds no evidence that ethnic networks are only effective in countries where economic and legal institutions are under‐developed. Ethnic Chinese networks have played a significant role in promoting FDI to countries with a relatively higher bureaucratic quality, much more so than to countries with a lower bureaucratic quality.     

A constitutional theory of public enterprise

This article rationalizes public enterprise by analyzing the constitutional choice between private and public ownership of production arrangements. Arguing that results depend on who does the choosing, the article compares choices by self-governing citizens with choices by self-directed governmental officials. The resulting institutional theory identifies four conditions that cause citizens to favor public over private ownership. None of the conditions refers to the standard concept of economic efficiency, which guides most economic comparisons of public and private enterprise.     

Minorities and Democratization

We analyze the process of democratization in a polity with groups that are divided along ethnic as well as economic lines. We show that: (i) the presence of ethnic minorities, in general, makes peaceful democratic transitions less likely; (ii) minorities suffer from discriminatory policies less in democracies with intermediate levels of income inequality; and (iii) in new democracies with low levels of income inequality, politics is divided along ethnic lines, and at greater levels of inequality economic cleavages predominate.     

Nation-State Size,Ethnic Diversity and Economic Performance in the Advanced Capitalist Countries

This paper examines the proposition that the economic performance of advanced capitalist countries depends on their size and ethnic composition. As such it blends insights from two important literatures in comparative political economy. One is exemplified by the work of Peter Katzenstein, who wrote the classic treatise on the relationship between nation-state size and economic performance. Another is illustrated by the work of Ernest Gellner, whose work suggested that economic performance depends on the ethnic composition of the nation-state. The argument is tested on pooled data from 30 advanced capitalist countries for the 1985 through 2007 period. Regression analysis confirms that ethnically homogenous countries tend to have stronger rates of economic growth during this period than ethnically heterogeneous countries but that neither the size of countries nor the interaction of size and ethnic composition have significant effects. This points to the need for further exploration of these issues either with data covering a longer time frame or historical case studies.     

The problem of constitutional legitimation: what the debate on electoral quotas tells us about the legitimacy of decision-making rules in constitutional choice

Proponents of electoral quotas have a ‘dependent interpretation’ of democracy, i.e. they have formed an opinion on which decision-making rules are fair on the basis of their prior approval of the outcomes these rules are likely to generate. The article argues that this position causes an irresolvable problem for constitutional processes that seek to legitimately enact institutional change. While constitutional revision governed by formal equality allows the introduction of electoral quotas, this avenue is normatively untenable for proponents of affirmative action if they are consistent with their claim that formal equality reproduces biases and power asymmetries at all levels of decision-making. Their critique raises a fundamental challenge to the constitutional revision rule itself as equally unfair. Without consensus on the decision-making process by which new post-constitutional rules can be legitimately enacted, procedural fairness becomes an issue impossible to resolve at the stage of constitutional choice. This problem of legitimation affects all instances of constitutional choice in which there are opposing views not only about the desired outcome of the process but also about the decision-making rules that govern constitutional choice.     

Redistribution from a constitutional perspective

In its traditional form, Paretian welfare economics has little to say about policies of redistribution. I argue that by adopting a constitutional perspective, elements of a theory of redistribution can be developed without recourse to interpersonal utility comparisons. Individuals who find themselves under an imperfect veil of uncertainty at a constitutional stage face a tradeoff between the costs and benefits of redistribution. The benefits consist of a reduction in the variance of a risk-averse agent's income distribution. The costs are represented by deadweight losses caused either by bureaucracy or by disincentive effects associated with the transfer scheme. My simple formal analysis shows that individuals may, even under an imperfect veil of uncertainty, be able to agree unanimously on a certain transfer policy if their personal characteristics are not too different from each other. This paper is a modified version of a chapter from my Master's thesis, submitted at the University of Bonn in 1992. Revisions were done during a stay at DELTA/Ecole Normale Supérieure, Paris. A scholarship from the German Academic Exchange Service is gratefully acknowledged. I wish to thank Urs Schweizer, Hartmut Kliemt, Niclas Berggren, and an anonymous referee of this journal for valuable comments and suggestions, which have greatly improved the paper.     

Pure eclecticism—The tool kit of the constitutional economist

It is claimed here that the epistemics of constitutional economics has hitherto at best played a minor role but that dwelling on the epistemics might prove useful to understand why the positive branch of constitutional economics is not as far advanced as its normative counterpart. Four possible methods-namely comparative institutional analysis, economic history, conjectural history, and laboratory experiments-are analyzed with regard to their epistemic potential. It is hypothesized that conjectural history promises only little potential while the other three methods can be used to complement each other.     

Madison's constitutional political economy: Principles for a liberal order

When persons are modelled as self-interested in politics ... the constitutional challenge becomes one of constructing and designing framework institutions or rules that will, to the maximum extent possible, limit the exercise of such interest in exploitative ways and direct such interest to furtherance of the general interest. It is not surprising, therefore, to discover the roots of a public choice perspective ... in the writings of the American Founders, and most notably in James Madison's contributions toThe Federalist Papers. This paper draws on my earlier work covering Madison's political and economic thought (Dorn 1988, 1990). I wish to thank Thomas M. Humphrey and an anonymous referee for their comments on an earlier version of the paper, and William A. Niskanen and Roger Pilon for fruitful discussions of the general topic. The usual caveat applies.     

Does ethnic diversity decrease economic interactions? Evidence from exchange networks in rural Gambia

Using a unique dataset collected in 59 rural Gambian villages, we study how ethnic heterogeneity is related to the structure of four economic exchange networks: land, labour, inputs and credit. We find that different measures of village‐level ethnic fragmentation are mostly uncorrelated with network structure. At a more disaggregated level, household heads belonging to ethnic minorities are not less central than those from the predominant ethnicity in any of the networks and, at the dyadic level, the fact that two households share ethnicity is not an economically significant predictor of link formation. Our results indicate that, in the particular setting of our study, the structure of the exchange networks is better defined by other variables than ethnicity and that ethnic heterogeneity is unlikely to be a driver for sub‐optimal economic exchanges.     

The exchange paradigm of constitutional economics: implications for understanding the third sector

This paper reconsiders the exchange paradigm of constitutional economics from the perspective of the theory of the division of labor. According to this theory, human wants can be satisfied by two basic mechanisms—exchange and self-sufficiency. The exchange paradigm of constitutional economics emphasizes the former mechanism while neglecting the latter. Building on major economic theories of the third sector, it is argued that the latter mechanism is more helpful than the former in explaining the existence of third sector organizations. The paper concludes by discussing implications of this argument for the further development of constitutional economics.      

The emergence of a protective agency and the constitutional dilemma

In the last decades' revival of contractarianism a constitutional contract is interpreted as a device to overcome the hypothetical state of anarchy. It is not entirely clear, however, how, in a pre-constitutional setting that lacks any institutional forms, an unanimous agreement on the rules and the agency enforcing the rules can be imagined to emerge. This paper conceptualizes the problem in game-theoretic terms. A solution is discussed together with an old dilemma that turns up in this context. The dilemma results from the fact that the protective agency has to be endowed with sufficiently powerful coercive means to prevent anyone breaking the social contract. However, this concentration of power itself may induce a violation by making the protective agency usurp its power. The logical basis of the dilemma is explored together with the conditions under which it may challenge the contractarian approach. I would like to thank Juli Irving-Lessmann, Dennis Mueller, Viktor Vanberg, Georg von Wangenheim, and in particular Hartmut Kliemt for helpful comments on an earlier draft.     

Political capitalism: The interaction between income inequality,economic freedom and democracy

We study the relationship between income inequality and economic freedom for a panel of 100 countries for the 1971–2010 period. Using a panel Granger non-causality approach, we reject the null hypothesis of Granger non-causality running from income inequality to economic freedom, but not vice versa. From a series of dynamic panel estimations we show that the effect of income inequality on economic freedom is negative and robust to the inclusion of additional controls. In particular, inequality is negatively associated with those components of economic freedom related to international trade, domestic market regulation as well as the rule of law and property rights protection. We argue that the negative effect of inequality on economic freedom is due to the economic elite converting its economic power into de facto political power to defend its economic interests; these interests run counter to economic freedom, discouraging innovation and competition as well as protecting the elite's rents. Finally, we show that economic freedom decreases with income inequality even in democratic countries, suggesting that democratic institutions do not prevent economic freedom from eroding. We argue that the latter finding corresponds to a system of political capitalism or captured democracy, where a powerful economic elite can nevertheless exercise de facto political power by cooperating with politicians and other decision-makers for their mutual benefit.     

Regional development and national identity in sub-Saharan Africa

We study how regional development affects identification with the nation state using a sample of 192 African regions in 16 countries. We measure national identification with survey data from the fourth wave of the Afrobarometer and proxy regional development with night lights data. To account for the endogeneity of regional development, we employ an instrumental variables approach and use a proxy for mineral resource wealth as our main instrument. Our results show that inhabitants of more prosperous regions are more likely to identify with their nation rather than their ethnic group. Regarding transmission channels, we find suggestive evidence consistent with the interpretation that national identification is higher in richer regions because of different cultural beliefs and a lower reliance on traditional ethnic networks. Overall, our research implies that African governments can foster national identification by ensuring that all parts of a country participate equitably in economic development.     

Oil and ethnic inequality in Nigeria

Although it is known that ethnic biases exist in Africa, less is known about how these respond to natural resource prices. Many ethnically fragmented African countries depend on a small number commodities for their export base. Oil prices experienced in early life predict differential adult outcomes across Nigerian ethnic groups. Our difference-in-difference approach compares members of southern ethnicities to other Nigerians from the same birth cohort. This North-South distinction mirrors several economic, political, and religious cleavages in the country. Greater prices in a southern individual’s birth year predict several relative outcomes, including reduced fertility, delayed marriage, higher probabilities of working and having a skilled occupation, greater schooling, lower height, and greater BMI. These microeconomic impacts are explained by macroeconomic responses to oil prices; relatively, urban incomes increase, food production declines, and maternal labor intensifies in the South.     

Seeds of distrust: conflict in Uganda

We study the effect of civil conflict on social capital, focusing on Uganda’s experience during the last decade. Using individual and county-level data, we document large causal effects on trust and ethnic identity of an exogenous outburst of ethnic conflicts in 2002–2005. We exploit two waves of survey data from Afrobarometer (Round 4 Afrobarometer Survey in Uganda, 2000, 2008), including information on socioeconomic characteristics at the individual level, and geo-referenced measures of fighting events from ACLED. Our identification strategy exploits variations in the both the spatial and ethnic intensity of fighting. We find that more intense fighting decreases generalized trust and increases ethnic identity. The effects are quantitatively large and robust to a number of control variables, alternative measures of violence, and different statistical techniques involving ethnic and spatial fixed effects and instrumental variables. Controlling for the intensity of violence during the conflict, we also document that post-conflict economic recovery is slower in ethnically fractionalized counties. Our findings are consistent with the existence of a self-reinforcing process between conflicts and ethnic cleavages.     

社会主义与统一多民族国家的国家建设(1947-1965)

在民族区域自治制度的奠基过程中,通过社会主义宗旨所要求的贯彻群众路线、培养少数民族干部,成功促进了中央政府和各族人民群众的直接沟通;通过让各族人民群众翻身当家做主、改善民生福祉等社会主义性质的政治举措,形塑起各族人民群众对党和国家发自内心的认同;通过民族平等之制度前提、社会主义经济制度等制度性组织模式,以及相关具体实践途径,实现了中国各族人民大团结;在社会主义国家单一制、人民共和、中国共产党领导的制度基础之上,民族区域自治成功地将国家内部的不同民族凝聚成为具备有机整体结构的"中国人民",呈现为一种促进沟通、赢得认同、实现团结、巩固统一的统一多民族国家的国家建设过程。因此,民族区域自治成功实现清末以来统一多民族国家之国家建设质的飞跃的制度要义,恰在于社会主义这一国家根本制度。     

Public choice versus constitutional economics: A methodological interpretation of the Buchanan research program

Through conceptual redirections, the Buchanan research program attempts to react to the fact that economic policy advice is often ignored. In terms of positive analyses, the research perspective is focused on institutions, i.e., the rules of economic as well as political games. In terms of normative analyses, the democratic criterion of unanimous consent is substituted for the normative efficiency criterion employed by welfare economics. The underlying idea is to direct positive analyses toward developing informative explanations on which normative analyses can build in order to provide intellectual orientation and thereby to contribute to democratic self-enlightenment. However, large parts of the existing public choice literature can be regarded as empirically oriented welfare-economic analyses of the political sector. Consequently, they run the danger of duplicating the failure of economic policy advice. This is why, during the 80s James Buchanan has changed the name of his research program from public choice to constitutional economics.     

Conditions affecting the survivial of constitutional rules

Massive changes in the effective constitution—primarily bearing on the economic powers of the federal government, primarily in the past 60 years—have revived interest in the problem of constitutional maintenance. This paper finds the conventional American theory of constitutional maintenance to have at least three major problems. The paper then suggests three propositions about constitutional maintenance, building on the developing theory ofproprietary government. The most important conclusion is how little we know about this subject. Paper presented at Panel on Constitutional Political Economy: Annual Meeting of the Southern Economic Association; Orlando, Florida; 19–21 Nov. 1989