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 with secure property rights and accountable governments, households, firms, and governments
are likely to innovate and adopt new technologies from abroad. In undemocratic regimes, however, political
elites can poten tially extract rents an d protect the survival of the r egime by repressing economic dev elopment.
Acemoglu and Robinson (2000) show that if technology adoption increases the risk that an autocratic 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 Austria- Hungarian and Russian empires opposed industrialization. In contrast, English and German
elites, who were more politically secure, supported industrialization (Acemoglu & Robinson, 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- extracting 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 fiscal capacity can
increase technology by preventing the ousting constraint
from binding. Consistent with this prediction, tax collec-
tions and total fac tor productivity are negati vely related in
autocratic regimes . Extensions show that natura l resources
can divorce fiscal revenues from technology, 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 (2007) introduce technology blocking in a Schumpeterian growth model and present examples of
technology blocking from the Roman Empire, China, Japan, the Islamic world, the Soviet Union in the 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 contrast, the Ot toman Empire quickly adopted military technology, which preserved religious
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 more technolog y. Intuitively, 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 extensions. First, I show that if natural resources are easy to tax (Kasara, 2007;
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 blocking. Put differently, when the elite can tax natural resources, technological progress becomes 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, 2011; 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 investment and other technology transfers when the economy engages in technological catch- up (Aoki
et al., 1997; Gerschenkron, 1952; Hoekman et al ., 2005; Rodrik, 1995). A welfare- maximizing social planner would
only adopt technology until t he marginal social benefit equ als the marginal social cost. However, 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 Kingdom, Colombia, 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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