Journal Article

Growth in the Shadow of Expropriation

Mark Aguiar and Manuel Amador

in The Quarterly Journal of Economics

Published on behalf of President and Fellows of Harvard University

Volume 126, issue 2, pages 651-697
Published in print May 2011 | ISSN: 0033-5533
Published online June 2011 | e-ISSN: 1531-4650 | DOI: https://dx.doi.org/10.1093/qje/qjr015
Growth in the Shadow of Expropriation

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  • International Factor Movements and International Business
  • Economic Growth and Aggregate Productivity
  • International Finance
  • Capitalist Systems
  • Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
  • Macroeconomic Aspects of International Trade and Finance

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We propose a tractable variant of the open economy neoclassical growth model that emphasizes political economy and contracting frictions. The political economy frictions involve a preference for immediate spending, while the contracting friction is a lack of commitment regarding foreign debt and expropriation. We show that the political economy frictions slow an economy's convergence to the steady state due to the endogenous evolution of capital taxation. The model rationalizes why openness has different implications for growth depending on the political environment, why institutions such as the treatment of capital income evolve over time, why governments in countries that grow rapidly accumulate net foreign assets rather than liabilities, and why foreign aid may not affect growth.

Keywords: E62; F21; F34; F43; O43; P16

Journal Article.  15695 words.  Illustrated.

Subjects: International Factor Movements and International Business ; Economic Growth and Aggregate Productivity ; International Finance ; Capitalist Systems ; Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook ; Macroeconomic Aspects of International Trade and Finance

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