Technology adoption in autocratic economies: The role of fiscal capacity
| Published date | 01 September 2023 |
| Author | Thorsten Janus |
| Date | 01 September 2023 |
| DOI | http://doi.org/10.1111/sjpe.12345 |
Scott J Polit Econ . 2023;70:355–371 . wileyonlinelibrary.com/journal/sjpe
|
355
© 2023 Scottish E conomic Society.
1 | INTRODUCTION
In economies wit h secure prope rty right s and accountab le governments , households , firms, and gover nments
are likely to innovate a nd adopt new tech nologies from ab road. In undem ocratic regim es, however, politic al
elites can poten tially extract rents an d protect the survival of the r egime by repressing economic dev elopment.
Acemoglu and Robi nson (2000) show that if technol ogy adoption i ncreases the r isk that an autocr atic elite will
be ousted from of fice, the elite can choose to bl ock technological progress . This idea might explain why lande d
elites in the Aus tria- Hungarian and R ussian empires op posed indus trialization . In contrast, En glish and Germ an
elites, who were m ore politica lly secure, supp orted indus trializatio n (Acemoglu & Robi nson, 2000). Chaudhry
Received: 17 March 2 021
|
Accepted: 11 May 2023
DOI: 10 .1111/sjpe.1 2345
ORIGINAL ARTICLE
Technology adoption in autocratic economies: The
role of fiscal capacity
Thorsten Janus
Departm ent of Economics, Uni versity of
Wyoming, Laramie, Wyoming, USA
Correspondence
Thorsten Janus, Department of Economics,
Universit y of Wyoming, Dept. 398 5, 1000
E. Universit y Ave., Laramie, W Y 82071,
USA.
Email: tjanus@uwyo.edu
Abstract
What determines tech nology in autocratic regimes? In this
paper, I assume that a rent- extractin g regime can adopt
technology fro m the global technology frontier, tax- paying
citizens can oust the r egime, and technology can decrea se
the ousting cost . I show that a lack of fisca l capacity ca n
increase technolo gy by preventing the ous ting constraint
from binding. Consis tent with this predic tion, tax colle c-
tions and total fac tor productivity are negati vely related in
autocratic regimes . Extensions show that natura l resources
can divorce fiscal r evenues from technol ogy, which can
encourage technology blocking. However, if technology
adoption is socially co stly, autocratic regimes can ado pt too
much technology.
KEYWORDS
autocracy, polit ical losers, rentier s tates, resource curse ,
technology
JEL CLASSIFI CATION
D74, O33, P51, Q32
356
|
JANUS
and Garner (20 07) introd uce technolog y blocking in a Sc humpeterian g rowth model an d present exam ples of
technology b locking from t he Roman Empire, Ch ina, Japan, th e Islamic world, t he Soviet Union in t he 1920s,
and contempo rary China. Coşge l et al. (2012a, 2012b) assume that differe nt social institutions, such as religious,
military, socioeconomic, or bureaucratic institutions, can bestow legitimacy on autocratic rulers, which reduces
tax distor tions. Since a reducti on in tax distortio ns benefits the rul er, technologies that reduce t he ability of social
institution s to bestow legitimacy may be re sisted. This idea might exp lain why Europe adopted the pr inting press
in the 15th Centur y, whereas the Ottoman Emp ire, which depended m ore on religious legitima cy, waited until the
18th Century. In cont rast, the Ot toman Empire quickly adopted mil itary techn ology, which pres erved religi ous
legitimacy (Co şgel et al., 2012a, 2012b).
In this paper, as in the ex isting literature, I con sider a strategic game b etween a rent- extr acting autocratic el ite
that can adopt technology from the global technology frontier and political opponents that can oust the elite.
However, I extend the lite rature by assuming that the eli te has limited fiscal capaci ty, such that it might be tech-
nically unabl e to tax beyond a point. For exa mple, the citizens can poten tially hide their output . The paper shows
that if rent extr action is only bounded by fisc al capacity, the regime adopts m ore technolog y. Intuit ively, when
fiscal capa city is low, the lack of fiscal c apacity is the only bin ding constraint on rent ex traction. The fac t that the
citizens can ous t the elite if it extrac ts too much rent is irreleva nt since the elite cannot ex tract that much incom e
anyway. In that case, t he elite increases tax collec tions by increasing the tax ba se, which requires technologi cal
progress. Onc e fiscal capacit y crosses a thresho ld, the ousting con straint star ts to bind, and the gover nment start s
to block technol ogies that reduce the o usting cost. Fisc al capacity shou ld, therefore, be neg atively related to tech-
nology adopt ion in autocracies. Con sistent with this idea, tot al factor producti vity relative to the Unite d States is
smaller on average a s well as negatively relate d to fiscal capacit y (proxied by tax colle ctions) in autocratic r egimes.
I also develop two e xtensions. Fi rst, I show that i f natural resou rces are easy to ta x (Kasara, 2 007;
McMillan, 2001; Venables , 2016), they increase effe ctive fiscal capacit y (defined as income plus reso urce taxes).
Natural resources, therefore, increase the likelihood that the ousting constraint binds and the likelihood of tech-
nology bloc king. Put diff erently, when the el ite can tax natu ral resources , technologic al progress be comes less
important for increasing the tax base. T he elite's tradeoff betwee n increasing the (nonresource) t ax base, which
requires more technology, and increasing the ousting cost, which can require less technology, shifts in favor of
less technolog y. Thus, resource- rich autocracies shou ld be more technolog y- averse and have high er ousting costs .
This result might contribute to explaining the resource curse and the emergence of “rentier states,” which are
characterized by high fiscal and economic dependence on natural resource rents (Beblawi & Luciani, 2015; van
der Ploeg, 20 11; Wright et al., 2015 ).
Second, I assum e that technology adopt ion is socially costly, and the gover nment must incur the cost . For ex-
ample, the govern ment might have to finance infras tructure, educat ion, tax breaks or subsid ies to attract foreign
direct invest ment and other tec hnology tr ansfers when t he economy enga ges in technologi cal catch- up (Aoki
et al., 1997; Gerschenkron, 1952 ; Hoekman et al ., 2005; Rodrik, 1995). A welfare- maximizing social planner would
only adopt tech nology until t he marginal social benefit equ als the marginal social cost. H owever, the autocratic
regime maximize s rent extraction rat her than welfare. If rent ex traction is constrain ed by the ousting cost rath er
than fiscal c apacity, and if technol ogy increases th e ousting cost, the g overnment can adopt m ore technology th an
the social planner.
The paper contributes to the literature on the political economy of technology adoption and comparative
economic development. Parente and Prescott (1994) argue that economic d evelopment can be explained b y the
stock of global kn owledge and country- specific barr iers to technology a doption. Their cal ibrations can expla in the
income gap from 1950 to 1988 bet ween, on one hand, the United Ki ngdom, Colomb ia, Paraguay, and Pak istan,
and, on the othe r hand, the United States, if bar riers to technology adopt ion are, respectively, 1.3, 2. 3, 2.8, and
3.5 times lar ger than in the United States. Ea sterly et al. (1993) pres ent evidence that is consistent wi th the idea
that global tech nological progress deter mines economic growth and c ountry characteris tics (or country policies)
determine rela tive incomes. This paper sugge sts that one of the barrier s or country characteris tics/policies that
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