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This paper argues that decentralization reforms in Colombia, implemented since the 1980s, have led to the decentralization of political clientelism rather than its demise. Clientelism is a system of political and economic institutions that turns every local democracy into an extractive political institution. The authors theoretically demonstrate that an increase in public resources will increase corruption.

The authors develop and test a subnational public choice model, where clientelism in elections and corruption in public administration constitute a stable long-term institutional equilibrium. The model comprises two linked subgames: electoral tournament and corruption in public policy. The model makes two predictions that currently oppose predominant approaches: (1) increasing the severity of jail sentences to electoral crimes increases their price and the predominance of machine politics, instead of improving the quality of electoral tournaments and (2) increasing local governments' public finance increases clientelism in elections and corruption in public administration.

The authors find evidence in favor of the theoretical model of curse of public resources, using difference-in-differences estimation with a database 2016–17 of Colombia's 1,034 municipalities. This country is well-suited for our analysis because it has a long-term commitment to formal democratic processes (since 1958), while plagued by endemic corruption and clientelism problems.

(1) The theoretical approach is innovative and disruptive of current models on the problem, (2) the model builds upon the Colombian situation, a country with prominent corruption and political violence problems regardless of its relatively long-term commitment with free elections (since 1958) and (3) the theoretical discussion is tested using a comprehensive set of difference-in-differences estimations.

The purpose of this paper is to primarily investigate the ability of independent central banks (central bank independence (CBI)) to improve fiscal performances in Africa, accounting for election years, and also to examine whether the effectiveness of CBI in improving fiscal performance is enhanced by higher political institutional quality.

Using recent CBI data from Garriga (2016) on 48 African countries, 90 other developing countries and 40 developed countries over the period 1970–2012, the authors apply a two stage system GMM with Windmeijer (2005) small sample robust correction estimator to examine the impact of CBI and elections on fiscal policy in Africa, other developing countries and developed countries.

The authors provide evidence that unlike in other developing countries and developed countries, CBI does not significantly improve fiscal performance in Africa. However, the effectiveness of CBI in improving fiscal performance in Africa is enhanced by higher levels of institutional quality. Although elections directly worsen fiscal performance in Africa, institutional quality enhances CBI’s effect on improving fiscal performance in election years across Africa, other developing countries and developed countries.

The findings of the study are significant as they provide insight into the benefits of having strong institutions to complement independent central banks in order to control fiscal indiscipline in election years.

The study is the first among the studies of CBI-fiscal policy nexus, to measure fiscal policy using net central bank claims on government as a percentage of GDP. In addition to the use of fiscal balance, this study also uses cyclically adjusted fiscal balance as a measure of fiscal policy. This is a critical channel through which independent central banks can constrain government spending. It also compares findings in Africa to other developing countries, noting some differences.

This paper establishes the “Rules of Engagement” (i.e. being “Long-Term Greedy”, adopting a “Caesar's Wife Approach” and promoting “Inclusive Growth”), which aim to strengthen the chances of success of “Belt and Road Initiative” (“BRI”) projects.

This study deploys a case-study approach, supported by research on the economic and political development of developing countries.

Despite the professed altruism of BRI projects, many of these projects have been bedevilled by corruption scandals, financial overruns and spurious accusations of them being used as politically driven “debt-traps”. These problems present an urgent need for an overarching overseer to implement the “rules of engagement” needed to enhance the prospect of long-term success in BRI projects.

This study is one of the few academic research papers on the BRI.

Tax incentives can be a useful tool to stimulate investment in developing countries. However, interest groups often are able to exert considerable influence in its management, if not its design. The purpose of this paper is to use a power-based approach to the political economy of tax reform to analyse the case of tax incentives for investment in the Dominican Republic. Based on original interviews and a detailed analysis of regulations, the authors study how interest groups work within the institutional framework to seek outcomes that best fit their objectives. However, when unsuccessful, they become powerful advocates of change. These power dynamics have important implications for the design and management of tax incentives in the Dominican Republic and in other developing economies.

Case study based on informed interviews with policy makers, lobbyists and researchers combined with statistical and administrative information to test the main hypotheses.

While the role of influence groups in creating tax schemes has been widely studied, the authors show that these groups can also have an important role in the administration of the regime and making it more or less open to modifications. The paper shows that the capture of investment incentives has rendered the tax system rigid and unstable in the Dominican Republic, subjecting the public interest hostage to the gain of few.

Therefore, there is a need to review and reform tax policy, not just from a technical viewpoint, but more importantly altering the political arrangements. More transparency in assessing the impact of these schemes, disclosing information of who has access to tax exemptions and budgeting the tax expenditures can also be tools to increase public control over these instruments. Also, making it more difficult to grant tax incentives, for example by asking for an ex-ante justification and quantification of the externalities supposedly being created would reduce the abuse by power groups of these instruments. Without more balanced and independent leadership, it would be extremely difficult to advance in these fields.

The literature on the political economy of tax incentives normally focuses on how key actors work around the institutional framework to solve conflict of interests. This paper addresses a complementary – and in the viewpoint equally relevant – aspect of the political economy of tax incentives: once enacted, vested interests have a particular motivation to keep the incentives in place, and therefore the authors should understand how key actors work from within the institutional framework to seek the outcomes that better suit their interests. The analysis focuses on Dominican Republic, based on official data and additional in-depth interviews with policy makers, entrepreneurs and consultants that assist firms with tax and regulation issues.

This paper explores the role of colonial heritage on long-term economic development from a resource-curse perspective. The authors investigate the impact of colonial exports on long-term economic development through two channels: (1) a direct impact of the economic dependency on natural resources and (2) an indirect impact via its effect on colonial institutions, which persisted over time and influenced current economic development.

To address this issue, the authors use an original data set on French bilateral trade from 1880 to 1912. The authors use partial least square structural equation modeling (PLS-SEM) in the empirical analysis, so that the authors are able to construct latent variables (LVs) for variables that are not directly observable, such as the quality of institutions.

The authors find that exports of primary goods to France had a negative impact on colonial institutions and that for French colonies, this impact was driven by minerals exports. Despite its impact on colonial institutions, exports of French colonies had no significant indirect impact on their current institutions. The authors find no significant direct impact of colonial trade on current development for French colonies. Finally, colonial exports of manufactured products had no significant impact on colonial institutions among French colonies and a positive impact among non-French ones.

Research implications regarding the findings of this paper are, namely, that the relative poor performance within French colonies today cannot be attributed to the extraction of raw materials a century ago. However, human capital and institutional development, instead of exports, are more relatively important for long-term growth. Some limitations in trying to determine the simultaneous relationship among colonial trade, institutions and economic performance are the relation between colonial trade and the extent of extraction from the colonizer, which is hard to quantify, as well as its precise mechanism.

Since the initial institutions set in those former colonies presented a strong persistence in the long run, their governments should focus now on building sound and inclusive political and economic institutions, as well as on investing in human capital in order to foster long-term growth. Once a comprehensive set of institutional and human resources are put in place, the quality and quantity of exports might create a positive spillover on the short-run growth.

One social implication that can be retrieved from this study is the ever-lasting effect of both human capital investment and introduction of inclusive political and economic institutions on the long-run impact of growth.

The paper uses an original primary data set from archival sources to explore the role of colonial heritage on long-term economic development from a resource-curse perspective. It applies a relatively new model partial least squares path modeling (PLS-PM) that allows the construction of LVs for variables that are not directly observable, as well as channeling the impact on growth through both direct and indirect channels. Finally, it allows for the simultaneous multigroup analysis across different colonial groups.

Leadership; Political Economy; Strategy; Entrepreneurship.

Masters in Business Administration (MBA); MPhil in Strategic Leadership.

On 5 February 2016, South African entrepreneur Jannie Van Eeden faced a dilemma about whether to expand his current businesses or not. He had to choose between focusing exclusively on hospitality and tourism or dividing his time and resources between the tourism business and expanding his existing logistics business. Expansions to his logistics business would entail investing in a warehouse and supplying fresh produce to the lodges in the wider area of Lake Malawi where he was based. Van Eeden realised that he needed to take into account the political economy of Malawi in unpacking the contextual variables related to his decision. Various stakeholders’ roles are illustrated in the case, for example the government’s role in enabling entrepreneurial businesses as well as the investments made by foreign organisations and international donors.

Development of leaders who can take contextually intelligent decisions. Insights into conducting Political Economy analysis to enable doing business in Africa.

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CSS 7: Management Science.