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North Korea: Witness to Transformation

Sources: Faisal Z. Ahmed on the Perils of Unearned Income

by | October 9th, 2012 | 07:00 am

We periodically report on interesting academic research that is relevant to North Korea. In an earlier post, for example, we summarized an interesting paper by Jessica Weeks that considered why some autocracies were more conflict-prone than others (surprise, surprise: North Korea is of the conflict-prone type).

We recently noticed an interesting paper by Faisal Ahmed in the American Political Science Review that considers the effects of unearned foreign income, and particularly remittances, on the longevity of authoritarian rule (for those with access to Cambridge UP journals, click here).

The engagement argument has long held that economic exchanges have liberalizing effects, for example by creating vested interests in trade and investment that moderate foreign policy behavior and by stimulating domestic oppositions. But as we have noted in several of our papers, the domestic-foreign nexus can be captured by state-owned firms and foreign resources can be diverted.

Faisal makes exactly the same point. He argues that autocratic regimes are capable of capturing foreign aid and remittances and channeling them into patronage that serves to consolidate their power. Higher remittances tend to prolong the lives of autocracies and dampen protest.

[For those interested in the technical details, Faisal develops a formal model and substantiates the argument with a dataset on government turnover in 97 countries for the period from 1975-2004. In a base model, he finds that unearned foreign income reduces the likelihood of government turnover, regime collapse, and outbreaks of major political discontent in authoritarian regimes.

However, Faisal is aware that there may be an endogeneity problem: outside powers may seek either to reward autocracies that are democratizing or prop up corrupt governments. If this is the case, it would be difficult to identify the independent effect of outside income because it would be related to the nature of the regime rather than the other way around. He therefore pursues a clever instrumental variables approach using a subsample of countries receiving largesse from Gulf oil producers. For largely historic and religious reasons, these countries send aid to Muslim non-oil states in North Africa, the Middle East, and South Asia. The instrumental variables results confirm the baseline model, and he provides a nice case study of Jordon to underscore the point.]

The bottom line: as always, more research is needed. It could be that the instrumental variable part of the paper is capturing some other dynamics at work between this particular subset of states. But the basic argument is one that needs to be considered:. Interdependence may not be the solvent for authoritarian rule that it is sometimes thought, particularly when authoritarian incumbents control trade and capital flows, including remittances flowing in from refugee networks.