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Investment in the Shadow of Conflict: Globalization, Capital Control, and State Repression

  • MEHDI SHADMEHR (a1)

Abstract

In conflict-prone societies, the fear of expropriation that accompanies a regime change reduces capital investment. These reductions in investments, in turn, harm the economy, amplifying the likelihood of regime change. This article studies the implications of these feedback channels on the interactions between globalization, capital control, state repression, and regime change. I show that processes that facilitate capital movements (e.g., globalization, economic modernization, and technologies that reduce transportation costs) amplify the likelihood of regime change in conflict-prone societies and strengthen the elite’s demand for a strong coercive state. In particular, to limit their collective action problem and manage the political risk of regime change, capitalists support a state that imposes capital control. We identify two conflicting forces, the Boix Effect and the Marx Effect, which determine when capital control and state repression become complements (Nazi Germany) or substitutes (Latin American military regimes) in right-wing regimes.

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Corresponding author

*Mehdi Shadmehr, Harris School of Public Policy, University of Chicago, and Department of Economics, University of Calgary, mshadmeh@gmail.com.

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I am grateful for comments of Dan Bernhardt, Raphael Boleslavsky, Ethan Bueno de Mesquita, Roberto Chang, Georgy Egorov, Soroush Ghazi, Alex Horenstein, Stephen Morris, David Myatt, Ronny Razin, Jesse Shapiro, Konstantin Sonin, Scott Tyson, Manuel Santos, seminar participants at 2017 APSA, 2018 EEA-ESEM, 2019 Econometric Society Winter Meeting, Princeton University, Northwestern Kellogg, University of Miami, University of Calgary, Drexel University, University of Warwick, LSE, University of Chicago Political Science, University of Chicago Harris School of Public Policy, and Indiana University Kelley School of Business. I have received excellent research assistance from Sina Ferdowsi. This research was supported by the Social Sciences and Humanities Research Council of Canada and the Institute for Advanced Study at Princeton.

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Investment in the Shadow of Conflict: Globalization, Capital Control, and State Repression

  • MEHDI SHADMEHR (a1)

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