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Poverty and Political Risk

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  • Philipp Harms

Abstract

The paper explains the negative correlation between developing countries’ per capita incomes and measures of political risk by relating a government’s decision to tax foreign investors to distributional interests in the host country’s population. Using a dynamic general‐equilibrium model in which agents make irreversible investments abroad to insure against country‐specific technology shocks, it is shown that the political risk for foreign investors is prohibitive if the host country’s initial per capita income is too low and if the benefits of international diversification are not high enough to generate a sufficiently strong opposition against discriminatory taxation.

Suggested Citation

  • Philipp Harms, 2002. "Poverty and Political Risk," Review of International Economics, Wiley Blackwell, vol. 10(2), pages 250-262, May.
    • Handle: RePEc:bla:reviec:v:10:y:2002:i:2:p:250-262
    DOI: 10.1111/1467-9396.00330
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    Cited by:

    1. Demir, Firat, 2006. "Volatility of short term capital flows and socio-political instability in Argentina, Mexico and Turkey," MPRA Paper 1943, University Library of Munich, Germany.
    2. Waldenström, Daniel, 2005. "Does Sovereign Risk Differ for Domestic and Foreign Investors? Historical Evidence from Scandinavian Bond Markets," SSE/EFI Working Paper Series in Economics and Finance 585, Stockholm School of Economics, revised 18 Feb 2005.
    3. repec:zbw:rwirep:0229 is not listed on IDEAS
    4. Philipp Harms & Philipp an de Meulen, 2010. "Demographic Structure and the Security of Property Rights in Developing Countries – An Empirical Exploration," Ruhr Economic Papers 0229, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
    5. Philipp Harms & Philipp Meulen, 2012. "The demographics of expropriation risk," Journal of Population Economics, Springer;European Society for Population Economics, vol. 25(3), pages 809-832, July.
    6. Harms, Philipp & an de Meulen, Philipp, 2013. "Demographic structure and the security of property rights: The role of development and democracy," European Journal of Political Economy, Elsevier, vol. 29(C), pages 73-89.
    7. Harms, Philipp & an de Meulen, Philipp, 2010. "Demographic Structure and the Security of Property Rights in Developing Countries – An Empirical Exploration," Ruhr Economic Papers 229, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.

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