Faith in the Future and Social Conflict: Economic Growth as a Mechanism for Political Stabilization

Abstract

This paper studies the mechanisms that link sociopolitical conflict and (expectations about) economic prosperity. Motivated by a large body of empirical and historical work on the correlation between economic development and democratization, I develop a game-theoretic model of economic growth with political economy constraints. In an economy where low income agents are credit constrained, rapid and robust economic growth leads to increasing inequality early on, but provides the means to mitigate civil conflict when inequality becomes sufficiently large. The rate and persistence of growth similarly determines the stability of extant political institutions and the ability to transition from dictatorship to democracy.