Why Doesn't Capitalism Flow to Poor Countries?

38 Pages Posted: 27 Jun 2007 Last revised: 22 Dec 2021

See all articles by Rafael Di Tella

Rafael Di Tella

Harvard Business School - Business, Government and the International Economy Unit; National Bureau of Economic Research (NBER)

Robert MacCulloch

Imperial College London - Tanaka Business School

Date Written: June 2007

Abstract

We find anecdotal evidence suggesting that governments in poor countries have a more left wing rhetoric than those in OECD countries. Thus, it appears that capitalist rhetoric doesn't flow to poor countries. A possible explanation is that corruption, which is more widespread in poor countries, reduces more the electoral appeal of capitalism than that of socialism. The empirical pattern of beliefs within countries is consistent with this explanation: people who perceive corruption to be high in their country are also more likely to lean left ideologically (and to declare support for a more intrusive government in economic matters). Finally, we present a model explaining the corruption-left connection. It exploits the fact that an act of corruption is more revealing about the fairness type of a rich capitalist than of a poor bureaucrat. After observing corruption, voters who care about fairness react by increasing taxes and moving left. There is a negative ideological externality since the existence of corrupt entrepreneurs hurts good entrepreneurs by reducing the electoral appeal of capitalism.

Suggested Citation

Di Tella, Rafael and MacCulloch, Robert, Why Doesn't Capitalism Flow to Poor Countries? (June 2007). NBER Working Paper No. w13164, Available at SSRN: https://ssrn.com/abstract=993066

Rafael Di Tella (Contact Author)

Harvard Business School - Business, Government and the International Economy Unit ( email )

Cambridge, MA
United States
617-495-5048 (Phone)
617-496-5985 (Fax)

HOME PAGE: http://www.people.hbs.edu/rditella/

National Bureau of Economic Research (NBER)

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Robert MacCulloch

Imperial College London - Tanaka Business School ( email )

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London SW7 2AZ, SW7 2AZ
United Kingdom

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