Seminar Series: Abstract

2.00pm
October 06 2009
Seminar Room B (Arndt Room)

Romes without Empires: Urban Concentration, Political Competition, and Economic Growth
Mehmet Ulubasoglu, Economics and Finance, Deakin University

Many developing economies are characterized by the dominance of a super metropolis. Taking historical Rome as the archetype of a city that centralizes political power to extract resources from the rest of the country, we develop two models of rent-seeking and expropriation which lustrate different mechanisms that relate political ompetition to economic outcomes. The "voice" model shows that rentseeking by different interest groups (localized in different ecialized cities/regions) will lead to low investment and growth when the number of these groups is small. The "exit" model allows political competition among those with political power (to tax or expropriate from citizens) over a footloose tax base. It shows that when this power is centralized in relatively few urban nodes, tax rates would be higher and growth rates lower. Our empirical work ploits the connection between urban wealth (with the political ower it affords) and national soccer championships. By sing a cross-country data set for 103 countries for the period 1960-99, we find strong and robust evidence that countries with higher concentrations in urban wealth–as proxied by he number of different cities with championships in national soccer leagues–tend to have lower long-run growth rates.