International influence on regime change and democratization

1. International influence on regime change and democratization Roberto Bonfatti March 2006

2. 1a - Motivations • No formal theory of the economic motivations underlying international influence on regime change and democratization in developing countries. • Plenty of historical evidence suggesting that such influence – economic, diplomatic and military – is strong: • Support to coups against democracy: e.g. Iran (US, 1953), Guatemala (US, 1954), Chile (US, 1973). • Support to counter-insurgence efforts: e.g. Guatemala (US, 1960s and 1970s), Nicaragua (US, 1960s and 1970s), East African Mutinies (Britain, 1964), Cameroon (France, 1960s), Gabon (France, 1960s), Congo-Brazzaville (France, 1968),Chad (France, 1968-1972), Congo (several countries, 1970s), Rwanda (France, 1990). • Support to insurgence efforts: e.g. Ethiopia (Cuba and USSR, 1972-1975), Congo-Brazzaville (France, 1997). • Selective support to democratization: e.g. NO SUPPORT: Latin America (US, 1970s), Nigeria (US 1990s). SUPPORT: Latin America (US, 1980s), Iraq and Middle East (US, 1990 - ). • Selective support to electoral campaigns: e.g. Chile (US, Christian Democrat 1964), Cameroon (France, 1992), Benin (France, 1996).

3. 1b - Motivations • Many empirical works in political science and economics find that international aid depends on strategic considerations: • If international aid affects regime change, donors should be included as strategic players in models of regime change and democratization.

4. 2 - Research question • What are the economic motivations underlying international influence on regime change and democratization in developing countries?

5. 3a – Related literature Democratization • Work by political scientists: • International Security Liberalism, or “Wilsonianism” (e.g. Smith 1994, 2000): democratization as a foreign policy goal. Motivation: to foster international political stability. • Polyarchy us democracy promotion (Dahl, 1971; Robinson, 2000) • Recent work by economists: • Acemoglu and Robinson (2004) analyse the impact of free trade and free capital movements on democratization through their impact on the income distribution. They do not include in their model foreign agents behaving strategically. Internationalaid • Boschini and Olofsgard (forth. JDS): find a negative differential impact of 1989 on international aid for countries that were strategically important before 1989. • Alesina and Dollar (JEG 2000): find that strategic considerations (colonial past, UN voting behaviour) are a key positive determinants of foreign aid allocation. Democracy has also a positive marginal effect. • A voluminous, older literature points in the same direction (see for example Schraeder, Hook and Taylor, 1998; Maizels and Nissanke, 1984).

6. 3b – Related literature Domestic determinants of international relations: • Putnam (1989): two-level game of international relations and domestic politics; does not investigate the possibility that governments influence each other’s domestic politics to obtain a higher bargaining power; • International trade relations: Grossman and Helpman (JPE 1995, AER 1995) • Hagan (1989, 1993): study the effect of political regime change on international alliances (UN voting patterns) and foreign policy behaviour (CREON). • Richardson (1976, 1978): study the importance of economic dependence for international alliances (UN voting patterns). • Dependency School (Frank, 1967; Dos Santos, AER 1970s; Furtado; Marini) Nationalization and international relations: • Sigmund (1980): on the politics of nationalization in Latin America • Krasner (1978): on raw materials investments and US foreign policy

7. 4 - Summary of contribution • Simple extension of Acemoglu and Robinson (2004) to start analysing external influence on regime change and democratization. • Point to some possible directions for future research

8. 5 - Model Agents, income and domestic policy Two domestic agents, R and P, and one foreign agent, F. There are two sources of redistributable income in the economy: a tax on foreign direct investments ( ), and foreign aid ( ). Domestic policy sets the shares of income for R and P:

9. Foreign policy There is a binary alliance decision ( ): “ally” ( ) or “ennemy” ( ) of F. The ruling domestic agent and F can bargain over and only if .

10. Payoffs The payoffs of the three agents are: where the are exogenous payoffs to the agents from their allignment decision, and is the geopolitical value of the alliance for F. Define:

11. Assumptions • : there are gains from bargaining over and • , and : both agents prefer to be allies of F, but R’s preference is stronger. • : the joint welfare of F and the ruling agent is increasing in , independently on who is the ruler. • are non re-distributable.

12. Negotiations Given assumption 1 and 3, it always in the interest of the two parties to agree on the foreign policy: (I am also assuming that F has all the bargaining power in the negotiations).

13. Political game At the beginning of the game, R is in power (state N). P can size power at a cost . The timing of the game is: • The cost of revolution ( ) is revealed; • R and F negotiate foreign policy ( ), aid ( ) and taxes ( ); • R decides whether to transfer power to P (state D); if he doesn’t, he promise transfer to agent P. • P decides whether to stage a revolution or not (state RR); • If P has gone to power, P and F negotiate foreign policy, aid and taxes, and P sets domestic policy; otherwise, R can change the domestic policy with probability 1 – p. • All the payoffs are realized. μ

14. Time 5 If R is in power, he can reset domestic policy with probability 1 – p: in this case, he sets: If P is in power he negotiates and with F. This leads to:

15. Time 4 If P is in power, he stages a revolution iff: Define: that is, the level of cost above which there is no revolutionary threat.

16. Time 3 • : there is no revolutionary threat, thus . • : there is a revolutionary threat, but agent P staves it off by setting: • : there is a revolutionary threat, and R staves it off by transferring power to P (D = 1).

17. Time 2 • : there is no revolutionary threat, and F sets . • : there is a revolutionary threat, but R is able to stave it off even if F does not increase aid. Thus, F sets • : there is a revolutionary threat and F’s aid offer determines whether R has to hand in power to P or not. The maximum that F is willing to concede to prevent P from going to power is . Define:

18. Time 1 Depending on the value of , we have four different cases:

19. 6 – Remarks • From F’s point of view: • The agent with the higher stake in the alliance should be in power; • But if such a stake is perfectly re-distributable, F is indifferent between the two parties. • Provided that R can renegotiate domestic policy more more easily than can F renegotiate foreign policy: • in case of a revolutionary threat, F’s emergency aid is only imperfectly converted into redistribution to P; • When the revolutionary threat is strong enough, F prefers to allow P to power rather than paying emergency aid to R; • For some range of μ, the expected income of P (and therefore, expected corruption in the allocation of international aid) is decreasing in the revolutionary threat.

20. P in power R in power

21. x is higher than when x x

22. 7 – Future directions? • Trade model • Competition between superpowers?

23. Polity IV Democracy Index, averages