Monday, July 09, 2007

Why Doesn't Capital Flow to Poor Countries?

The paper's abstract states:

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).

My question is: Does their argument apply with equal force across political regimes? What about China? China scored 3.3 out of a possible 10 in the Trasparency International's Corruption Percetpion index, which was a bit low, yet the place is a foreign capital magnet!

India seems to be a better fit with the authors' claim, a democratic country which scored the same point as China did in Transparency International's Corruption Perception Index, and it attracts far less foreign capital as China does.

Then what about Hong Kong? A lot of Hong Kong people here, including this party, are demanding the government to introduce universal suffrage. Given that Hong Kong has scored high (8.3) in the Transparency International's ranking, does it mean that policies would not be left-leaning even if democracy were in place?

If this were indeed one of the implications of the author's theory, perhaps someone from Hong Kong's pro-democrats should relay this info to this pro-business political party whose reason for delaying the introduction of universal suffrage is its fear that the introduction of universal suffrage means turning Hong Kong into a welfare state.

Transparency International's index could be accessed here. HT to Marginal Revolution and Econlog.

Read the paper here.

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