Protest, violence and investments: essays on the political economy of less developed countries/ Abhinandan Sinha

Thesis (PhD) - Indian Statistical Institute, 2022

Includes bibligraphical references

Introduction -- Review of literature -- Land protest and civil society -- Political violence and informal sector -- Investment and democracy -- Conclusion

Guided by Prof. Abhirup Sarkar

This thesis attempts to develop a formal literature of the political economy of Less Developed Countries (L.D.C.s) with three different questionsprotest, violence and investments with the interlinking theme of coordination failures in collective action and its effects on economic development.
The first chapter provides a theoretical analysis of civil society activism and
development. When citizen-activists observe a noisy signal about unwilling
land losers being evicted by the Government for a development project, they
protest against the forceful land acquisition for the project. We find an increasing role of ideological activism to have a positive welfare effect on raising
the compensation for the land losers but a negative effect on the chances of
the project’s success. In an extended model with political campaign, ideological activism and Incumbent’s politicization are complementary.
In the second chapter, we formally establish the relationship between political violence and the informal sector. When large sections of the population
work in a semi-legal environment of the informal sector needing political protection for survival of livelihood, it gives rise to political clientelism. Violence
is the tool through which the political parties send the signal of their de facto
political strength to the informal sector workers to gain their support. We
find that an increase in the size of informal sector employment, clientelistic
benefit and the ideological spectrum of the formal sector voters increases
political violence, and also increases the winning chances of the worse performing party, where as a rising competition in the performance among the
formal sector voters decreases political violence by both the parties and increases winning chances of the better performer. We also explain the puzzle
of why well-performing incumbents engage in high violence in a democracy.
The final model represents a backward economy where the Government
invests in a costly effort to switch to a modern sector by attracting capital investments. Investors take investment decisions based on a noisy signal about the overall investment climate of the region. Strategic complementarity in
profits resulting from positive externalities from the investments gives rise
to a coordination problem, turning investments into a collective action. We
establish the conditions under which the roles of local and foreign investors
become complementary or substitutes in a poor economy. A political constraint on the Government increases the government’s effort for investments
when welfare transfers for ensuring votes are costly, and reduces the effort for
cheaper transfers. The findings explain how a poor region with a democratic
political system runs the risk of falling into a perpetual low investment trap.
In each chapter, the formal treatment in modelling the coordination and
collective action consists of Global Games, which help to solve the problems
of multiplicity of equilibria.