Manuel Oechslin

Government Revenues and Economic Growth in Weakly Institutionalised States

The lack of sustained growth in poor countries has often been attributed to ‘fiscal weakness’. Empirical evidence suggests that governments often fail to provide crucial public goods. I argue that this failure may be the result of a political instability effect: more resources fuel power struggles among competing elites – and decrease the incumbent regimes time horizon in office. But with a shorter time horizon, it is less attractive to finance growth-promoting institutions whose returns only accrue in the future. The model further predicts the instability effect to be stronger in countries with little capital or in remote places which render technology adoption expensive.

Foreign Aid, Political Instability, and Economic Growth

Relying on a simple endogenous growth model, this paper highlights a political instability effect as a potential explanation for why foreign aid is frequently ineffective with respect to economic performance. In the present framework, the role of the state is to fund institutions allowing for ongoing technology adoption and hence long-run growth. However, providing a self-interested government with additional resources to fill a possible i?½financing gapi?½ may not result in better institutions. More money in the hands of the regime fuels conflict over the distribution of the funds - and decreases the incumbent regimei?½s time horizon in office. With a shorter time horizon, it is less attractive to finance good institutions whose returns mainly accrue in the future. Panel data evidence points indeed to a sizable causal effect of foreign aid on political instability in the 1980s and 1990s.

Disagreement and Learning About Reforms

Abstract: When it comes to economic reforms in developing countries, many economists agree on broad objectives (such as fostering outward orientation). Broad objectives, however, can be pursued in many di¤erent ways, and policy experimentation is often indispensable for learning which alternative works locally. We propose a simple model to study this societal learning process. The model explores the role of disagreeing beliefs about “what works”. It suggests that this type of disagreement can stall the societal learning process and cause economic stagnation. Interestingly, this can happen even if everybody knows that Pareto-improving reforms do exist. Our analysis is motivated by the empirical observation of a negative relationship between disagreement and economic growth among poorer countries.

Agricultural Shocks and Riots: A Disaggregated Analysis

Combining theoretical and empirical work, this paper explores the impact of economic shocks on the incidence of social unrest (i.e., mass demonstrations and violent riots) in autocracies. Our theory predicts negative economic shocks to boost unrest since-in bad times-fighting the regime to reduce the level of resource diversion becomes cheaper. Using a new dataset on political instability in Africa, our empirical analysis confirms this prediction. The instrumental variables estimates-which take into account the potential endogeneity of economic shocks-suggest a significant increase in the level of social unrest as a response to a decline in real per capita GDP.Every year, riots cause a substantial number of fatalities in less-advanced countries. This paper explores the role of agricultural output shocks in explaining riots. Our theory predicts a negative relationship between the level of rioting and the deviation of the actual output from the average one. Relying on monthly data at the cell level (0.5×0.5 degrees), and using a drought index to proxy for output shocks, our empirical analysis confirms such a negative relationship for Sub-Saharan Africa: A one-standard-deviation decrease in the drought index rises the likelihood of a riot in a given cell and month by 8.4 percent. The use of highly disaggregated data accounts for the fact that riots are temporally and geographically confined events.