Walk the Line: Conflict, State Capacity and the Political Dynamics of Reform
Walk the Line: Conflict, State Capacity and the Political Dynamics of Reform, Sanjay Jain, Sumon Majumdar and Sharun W Mukand, Journal of Development Economics, Vol. 111 pp. 150-166 (2014)
This paper develops a dynamic framework to analyze the political sustainability of economic reforms in developing countries. First, we demonstrate that economic reforms that are proceeding successfully may run into a political impasse, with the reform’s initial success having a negative impact on its political sustainability. Second, we demonstrate that greater state capacity, to make compensatory transfers to those adversely affected by reform, need not always help the political sustainability of reform, but can also hinder it. Finally, we argue that in ethnically divided societies, economic reform may be completed not despite ethnic conflict, but because of it.
State Capacity, Redistributive Compensation and the Political Economy of Economic Policy Reform
State Capacity, Redistributive Compensation and the Political Economy of Economic Policy Reform, Sanjay Jain and Sumon Majumdar, International Review of Economics & Finance, Vol. 42 pp. 462-473 (2020)
If governments can compensate “losers” from large-scale economic reform, such as trade liberalization, by redistributing some of the “winners'” gains, then any potentially Pareto-improving reform should be implemented. However, in many economies, the state's capacity to identify and tax winners is limited. How do such limitations impact the adoption of reforms? We show that for reforms where the distribution of winners and losers is exogenously given, higher state capacity unambiguously helps the adoption of Pareto-improving reforms. However, for reforms which require individual investment decisions by potential winners, better state capacity may not always translate into higher political support for reform.
