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Public Choice77: 385-405, 1993.

@ 1993KluwerAcademicPublishers.Printedin the Netherlands.

Rent-seekingand institutionalstabilityin developingcountries*

MWANGIS. KIMENYI
Departmentof Economics,Universityof Connecticut,Storrs,CT 06269

JOHN M. MBAKU
Departmentof Economics, WeberState University,Ogden, VT84408

Accepted30 August 1991

1. Introduction

Althoughdevelopingcountriesare most often associatedwith institutionalin-


stability,most arefairlystable- andmaybe consideredextremelystableif one
takes into accountthe fact that policiesadoptedby many of these nationsare
highly inefficient. In a large numberof cases, post-independenceeconomic
policiesadoptedby developingcountrieshave resultedin very slow, stagnant
or even negativeeconomicgrowth. In more advancedand democraticcoun-
tries, such policieswould preventthe reelectionof leaders.Althougha small
fraction of the populationenjoys an extremelyhigh standardof living, the
majorityof the populationin developingcountrieshave not experiencedany
significantgainsin theirstandardof livingsinceindependence.Yet, whilethere
have been severalcoups and attemptedcoups, many governmentshave re-
mainedrelativelystablewithsomeleadersremainingin powerfor overa quart-
er of a century.In othercasesleadershave serveduntil theirdeathand succes-
sors have continueduninterruptedwith remarkablestabilityeven when such
leadersadoptwhatmay be consideredextremelyinefficientpolicies.Whythen
have many institutionsremainedso stable?
The presentpaper argues that the stability observedin many developing
countriesis a resultof a rent-seekingequilibriumbetweenwell organizedin-
terestgroupsin the populationthat competefor wealthtransfersgeneratedby
the relativelyweakerand more poorly organizedgroups. In this equilibrium,
the militaryis one of the most importantinterestgroupsthat benefit from the
transfers.Becauserent-seekingin these countriesoften involvesviolence, the

* We are gratefulto Mark Toma, Gordon Tullock, StephenDrew Smith, Bob Collinge and
participantsof the rent seeking panel held at the 1990 meetingsof the SouthernEconomic
Associationfor theirhelpfulcomments.Remainingerrorsare our responsibility.

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386

militaryhas a comparativeadvantagein the competitionfor rentsdueto its vio-


lence potentialand as a resultplays a criticalrole of ascertainingstabilityby
enforcingthe acceptedsharingformula.To the extentthatthe flow of transfers
is not interrupted,and for so long as the sharingformulais enforced,stability
will prevail.Thus when instabilityoccurs(as evidencedby changesin leader-
ship by way of militarycoups or eruptionof riots and protestsagainstgovern-
mentpolicies),it is a reflectionof eitheran interruptionin the supplyof trans-
fers or otherchangessuchas increasesor decreasesin the amountof transfers
availablewhichrequirea re-negotiationof the sharingformula.Alternatively,
increasesin the bargainingpowerof one group(for exampledue to growthin
sizerelativeto othergroups)mayresultin instabilityas the groupseeksa better
positionin the marketfor rents.Oncea newsharingformulais accepted,a new
rent-seekingequilibriumis achievedand stabilityis attainedagain.1
This suggeststhat the persistenceof inefficientgovernmentsis not surpris-
ing. Militarytakeoverscould be consideredas evidenceof problemswith the
sharingformulawhich reflects a rent-seekingdisequilibrium.A government
that remainsin power for many years thereforeneed not be efficient in the
adoptionof economicpolicies.In fact, adoptionof efficienteconomicpolicies
- to the extentthat they may requirereducingavailablerents,may lead to in-
stability.2Economicregulationof the various sectors of the economy, even
whensuchregulationsreduceeconomicefficiency,maybe an efficientmethod
of establishingcontinuityin the supplyof rents.As statedby Bates, "economic
inefficienciesafford governmentsmeans of retainingpower" (Bates, 1983:
128). Tullock (1967), Krueger(1974) and Posner (1975) consider the rents
generatedby governmentinterventionas social costs.3 However,it is impor-
tantto note thattheserents"also representpoliticalresources-resources which
canbe usedto organizepoliticalsupportandto perpetuategovernment pow- in
er" (Bates, 1983: 129; see also Anderson, 1988).
The foregoingdiscussionalso suggeststhat deregulation- or changingeco-
nomic policies - particularlyif such changesresultin an interruptionof the
flow and amountof rents- may resultin instability.Consequently,durability
of "bad" regulationsmaybe associatedwithstableinstitutions.Likewise,eco-
nomicgrowth,to the extentthat suchgrowthleadsto increasedrents - which
may call for a changein the sharingformula- may resultin instability.4Eco-
nomic downturnsare even morelikelyto resultin institutionalstability- not
becausethe rent-seekinggroupswant to improvethe efficiencyof the govern-
mentbut ratherbecausesuchdownturnsleadsto chaosas aggregaterentshares
declineand eachgroupattemptsto increaseits relativeshareof the rents.Such
competitionfor availablerents,whichis likelyto involveviolence,necessarily
leads to instability.As will be seen, the timingof instabilitycan be fairly ac-
curately explained by occurrence of shocks that disturb the rent seeking
equilibrium.
Rents that originate from abroad - such as foreign aid and loans can con-

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387

tribute both to the stabilityof instabilityof institutions.The availabilityof


funds from outside the countrymay generatenew competitionor could lead
to cheatingin the sharingformulaby thosewithmoreinformation- for exam-
ple the politicianswho negotiatefor foreignloans and aid. This may lead the
militaryto interveneto force a changein the allocationof rents. On the other
hand, however,availabilityof externalfundscould lead to stabilityas govern-
mentsuse such funds to supplementrentsobtainedfrom the weakergroupsin
the country.Loans and other forms of foreignaid may be particularlyimpor-
tant to stabilityduringperiodsof economicdownturns.
Section2 discussesthe roleof interestgroupsin developingcountriesand the
nature of the rent-seekingequilibrium.Section 3 outlines some empirical
models of institutionalstabilitybased on the rent-seekingequilibriummodel
and Section4 containsconcludingremarks.

2. Interestgroupsand rent-seekingequilibrium

For institutionalstabilityto be largelydependenton the supplyof rents from


the weakergroupsto the more powerfulgroups,it must be the case that such
institutionsrelyheavilyon policiesthat assurethe supplyof rents.A common
feature of economic policies in developingcountriesis the high degree of
governmentinterventionin the economy. In these countries,restructuringof
property rights allows regulatorsto transfer benefits from one group to
another.5Regulationstend to be concentratedon those sectorsthat generate
most rentsand also those in whichthe losing groupsare poorlyorganizedand
thus are unableto effectivelyinfluencepublicpolicyoutcomes.We arguethat
the availabilityof rentsfrom the weakergroupsis criticalto the maintenance
of a harmoniousrent-seekingequilibrium.This equilibriumtranslatesinto po-
litical stability.
In virtuallyall developingcountries, three clearly defined groups can be
identified.The first of these are the farmerswho comprisethe largestgroup
andin most casescontributethe largestshareof nationaloutput.Nevertheless,
this group is by and largepoorly organizedand lacks the resourcesnecessary
to effectivelyinfluencepublic policy. The second group comprisesof urban
dwellers(includingcivil servants)who are employedin retail and wholesale
trade, servicesectorssuch as banking,governmentand publicagencies,trans-
port, and a small numberwho are employedin the industrialsector (usually
light manufacturing,food processingand packaging).Althoughtheir contri-
butionto the nationalincomeis relativelysmall,urbandwellersarebetteredu-
cated than their rural counterparts, are well organized to influence public poli-
cy, and most important, are potentially volatile and can easily destablilize the
government. The last group includes the military and other internal security

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388

forces. We considerpoliticiansas brokersof wealthtransfersbetweenthe vari-


ous interestgroups.In orderfor politiciansto maximizetheirlengthof tenure
in office, they must balancethe allocation of transfersbetweenthe various
groupsin accordancewith the relativestrengthsof these groups.
In most developingcountries,the weakestgroup is the one comprisedof
farmers.Althoughthis group is often more populous,it is not well equipped
to influencepublicpolicy. Often, the farmersarewidelydispersedin the coun-
try each engagedin small scale production.While there are some countries
wherethere are large-scalefarmersand who may be well organized,in most
of the developingcountriesthe majorityare subsistencefarmersor individuals
who grow commoditiesin small-scalefarms. Whileall farmerswould benefit
from opposing unfavorable farm policies, the possibility of free riding
minimizesthe potentialfor individualfarmersto initiatesuchopposition.The
poor organizationof farmersprovidesa good sourcefor the extractionof rents
that are redistributedto the other groups. This is accomplishedby numerous
forms of regulationsuch as price controls of food crops that benefit urban
dwellers,prohibitionof directexports(exportbusinessis conductedby govern-
ment marketingenterprises),and taxes on farm earningsto finance urban
projectsandto providefor militaryand civil servantsalaries.All thesepolicies
reducethe earningsof the farmerswho are often not able to do much to stop
the coerciveactions of the state.
Stabilityin the rent-seekingequilibriumrequiresa consistentflow of rents.
To accomplish this, governmentsimpose numerous taxes on agricultural
produce.A commonapproachis for the governmentto undertakethe market-
ing of all agriculturalproducts.Productsare usuallypurchasedfrom farmers
at below world marketprices by special governmentagenciesor marketing
boardsfor export.Becausefarmershaveverylittleknowledgeof the prevailing
internationalprices for their products, they are rarely even aware of the
proportionof theirearningsthatis extractedin the process.This, togetherwith
the farmers'inability to develop effective rent-seekinggroups, reducesthe
probabilitythat farmerswill undertakeactivitiesto protecttheirwealthfrom
redistributionby the government.The largerthe shareof agriculturaloutput
to nationalproduct,whichmeansa largesupplyof easilyextractablerents,the
more likely that the flow of rents will be stable. This stabilityin the flow of
rentsis expectedto translateinto more stable institutions.
Otherwaysthat rentsaretransferredfrom farmersinvolvesthe adoptionof
price controls for food products. These control programsestablish below-
equilibrium (or ceiling) prices for foodstuffs to benefit the politically-
influentialurban dwellers.While very unpopularamong the farmers,price
controlsareverypopularwiththe urbanpopulationwho wouldpay far higher
pricesfor the productsin the absenceof such controls.Some of the majorin-
stitutionalinstabilitiesin developingcountrieshave resultedbecause of at-

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389

temptsby governmentsto removesuchpricecontrolsin the hope of increasing


production.
Of coursesettingpricesthat are below the marketclearinglevels translates
into low productionlevels. Sucha resultwouldleadto food shortagesparticu-
larly in urbanareas which is likely to result in politicalunrest. Yet allowing
marketprices to prevail would be met with opposition by the same urban
dwellers.Thusgovernmentshaveto promoteproductionand at the sametime
maintainbelow marketprices. For this reason, many governmentssubsidize
the priceof inputsused in the productionof agriculturalproducts.The use of
such subsidiesgeneratespolitical supportand assuresstabilityin the flow of
rents. As is clear, the main beneficiariesof these agriculturalpolicies are the
urbandwellers.It is in this area - the subsidizationof agriculturalinputs -
that foreignloans and creditshave had a majorimpacton stability.It should
be notedthatthe statedgoal of the donorsis to improvethe standardsof living
of the farmers.To the extentthat outputpricesare controlled,agriculturalin-
put pricesare actuallysubsidiesto the urbanpopulation.
It is necessaryto emphasizethe importanceof the shareof agriculturalout-
putto nationaloutputin the establishmentof the rent-seekingequilibrium.We
do not implythat predominantlyagriculturalcommunitieswill alwaysbe sta-
ble. Ourargumentis that, in those countrieswherea largeshareof the output
originates from nonagriculturalsectors, it is much more likely that the
producersin those sectorswillbe ableto moreeffectivelyopposegovernments'
attemptsto redistributetheirearnings.In the firstplace, industrialworkersare
far more well organizedand also have a better idea of the price of their
products.Theyare also bettereducated,live closerto each other(unlikefarm-
ers most of whom are geographicallydispersed),and as a resultare likely to
suffer lower organizationalcosts for strikesthan farmers.Industrialsources
of income may thereforenot be a reliablesourceof rents. To the extentthat
the industrialworkerscandestabilizethe government,thereis likelyto be a ten-
dency to avoid rent extractionfrom nonagriculturalsectors.
The supplyof wealthtransfersby farmersprovidesleast complicationto the
brokersof wealthtransfersgiventhe inabilityof farmersto oppose suchtrans-
fers. On the demandside, however,two majorrecipientgroups, the civil ser-
vants and urbandwellerson the one hand, and the militaryon the other, pro-
vide a delicatebalance.The politiciansmust distributethe transfersextracted
from the farmersbetween these two groups. Because all these groups can
destabilizethe government,a stablepoliticalequilibriummust be one wherea
sharingformulais acceptedby both the civil servants,urbandwellersand the
military.In essence, the politiciansare employeesof these groups, employed
to enforce the "accepted sharing formula." This does not imply that the
groups will have an equal impact or that they will share rents equally. The rela-
tive strength of these two groups determines how the rents are distributed.

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390

Whatis importantis not how the rentsare sharedbut ratherwhetherthe shar-


ing formulais acceptedby both groups.In as muchas the formulais enforced
as percontract(byandlargean implicitcontract),a stablepoliticalequilibrium
is likely to persist.This is essentiallya rent-seekingequilibrium.
The stable equilibriumis, as mentionedabove, a delicateone. In the first
place, the politiciansmay decideto allocatemoreto themselveswhichreduces
the shareof rentsgoingto othergroups.Second,andmoreimportant,the poli-
ticiansmay favor one groupover another- say, transfermorebenefitsto the
militaryrelativeto the civil servants,or reducethe servicesnormallyprovided
to urbandwellers,or viceversa.In this case, instabilitywill result- whichmay
take the form of riots and protestsby urbandwellers.Suchprotestsoften lead
to instabilitythatterminatesthe life of a regime.On the otherhand,if the rents
going to the militaryarereduced,suchactioncouldtriggeran attemptto over-
throwthe governmentby use of violence, flow of rentsto the militarywould
be expectedto play a major role in maintainingstability.
If the interestgroups(military,ruralpopulation,urbandwellers)were the
only competitorsfor rents, it would be easierto achieveand maintainstable
institutions.In fact, with such few groups, a stable Cournot-likeequilibrium
would emerge- and would tend to persistuntil shocksthat requirechanging
the rent shares (analogousto changingmarket shares in oligopoly) occur.
There are, however,severalother interestgroupsthat complicatethe attain-
mentof the rent-seekingequilibriumandwhichcontributeto instability.In our
analysis,we considertribaland religiousinterestgroupsas the moreimportant
ones in relationto political stability.
Mostdevelopingcountries(moreso for the Africancountries)arecomprised
of numeroustribalgroupseachwith its own language,customs,and practices.
Differenttribalgroupsare concernedwithincreasingthe amountsof transfers
that go to membersof theirgroup. We would expectthat the more ethnically
diversea country'spopulationis, the moreintensethe rivalrybetweengroups,
and hence the higherthe incidenceof instabilityas each group attemptsto
takeoverthe instrumentsof wealthtransfers.To be able to competein rent-
seeking, the groups need to be of a particularminimalsize. Becausemany
tribesareverysmall,theyarenot ableto effectivelyinfluencepublicpolicyand
hence are not effective rent-seekersand may be consideredas noncompeting
groups. However,in some countries,tribalor ethnicgroupsare largeenough
to effectivelyinfluencepublicpolicyandcompetewitheachotherin the pursuit
of rents.The presenceof manyrent-seekinggroupswouldbe expectedto lead
to instability(see, for example,Kimenyi, 1989).
Religioushomogeneitycould influencerent-seekingbehaviorby reducing
heterogeneityin ethnicallyheterogenouspopulations.In otherwords,religion
may increasestabilityin those ethnicallydiversepopulations.On the other

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391

hand, religious heterogeneitymay create new marginsof competitiverent-


seekingin otherwisehomogeneouspopulations.

3. Institutionalstability:Some tentativeevidence

We proposeto investigatethe role of interestgroupsin explainingstabilityby


followingthreeapproaches.Firstwe use the lengthof uninterruptedleadership
as a measureof stabilityand use a modelof lifetimedatato investigatethe de-
terminantsof the durationof regimes.Second,by takinginto accountprevious
coups and attemptedcoups, we calculatean indexof relativestabilityand esti-
mate a simpleordinaryleast squaresregressionmodel for the determinantsof
stabilityusingthe calculatedindex. Finally,giventhat our model predictsthat
shocks that distortthe rent-seekingequilibriumlead to instability,we inves-
tigate the timing of destabilizingeventsin relationto such disturbances.Our
analysisfocuseson Africannationsfor the post independenceperiod(see Ap-
pendix 1).

3.1. Rent-seekingand durationof regimes

None of the countriesincludedin the studyhas a constitutionalprovisionlimit-


ing the lengthof time (or maximumnumberof terms)that a leaderremainsin
power.Thus, the tenureof leadersis eitherterminatedby militarycoupsor by
death. In a few cases (Tanzania, for example), leaders have voluntarily
resigned,but suchresignationsareextremelyrare.In the analysisthat follows,
we use the durationof regimesas a measureof stability.That is, the longera
regimeremainsin power, the more stable are the politicalinstitutionswhich
accordingto our theoreticalanalysisreflectsexistenceof uninterruptedrent-
seekingequilibrium.If circumstancesare such that the rent-seekingequilibri-
um is disruptedoften then regimeswill have shorterdurations.
To estimate the determinantsof the duration of regimes, we follow the
method of lifetime models as discussed by Elandt-Johnsonand Johnson
(1980),Kiefer(1988),Lawless(1982),Miller(1981),amongothers.Estimating
lifetimemodels for variousregimesprovidesinformationof the probabilities
of failure(terminationof the life of a regime)or survival(continuationof the
life of a regime)givenparticularfactorsin the variouscountriesthat affect the
durationof regimessuch as the type and relativestrengthsof the variousin-
terestgroupsin the country.We focus on the determinantsof the life length
of regimeswhichis the time from the momentthat a regimecomes to power
to the time that the regime is terminated, say because of a military coup.6
Let T denote the life length of a regime with a distribution function F(t),
where

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392

FT = Pr(T < = t). (1)

shows that the probabilitythat the regimewill terminateat or before time t.


The probabilitythat the life lengthof the regimeis greaterthan t is given by

ST(t) = 1 - FT(t) = Pr(T > t) (2)

with a probabilitydistributionfunction fT(t), where

fT(t) = dFT(t)/6t = 6ST(t)/6t (3)

From (2) and (3), the failurerate of regimesis obtainedas follows:

XT(t)= FT(t)/ST(t)= 6logST(t)/6t (4)

and the failurerate function can be expressedas

AT(t) = [IT(u)b~U] = (5)


-logST(t)
0
affect the probability
Ourinterestis to investigatehow differentcharacteristics
of a regimecontinuingbeyonda giventimet. Thuswe obtainthe survivalfunc-
tion ST(t)as shown below;

ST(t) = EXP[- = EXP[-AT(t)] (6)


ty(u)bu]
0
In the estimationprocedure,we assume that the risk of a regime failing is
constant.7
To estimatethe survivalfunctionof regimesin variouscountries,we estimat-
ed the following parametricfailuremodel:

DURATION = f(RELHOM, ETHNHOM, URBAN, URBANG


PGAGRI, MISPY, SOCIV, POP, DENSITY, PY,
GNPG SCG, BYCOUP),

where

DURATION = duration of regimes in months;


RELHOM = index of religious homogeneity;
ETHNHOM = index of ethnic homogeneity;

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393

URBAN = percentof total populationliving in urbanareas;


URBANG = annualgrowthrate of the urbanpopulation;
PGAGRI = percent of gross national product originating from
agriculture;
MISPY = ratioof militaryspendingper soldierto per capitaincome;
POP = total population('000's);
SOCIV = civiliansper soldier;
DENSITY = populationdensityper squarekilometer;
PY = per capita income in U.S. dollars;
GNPG = annualgrowthrate in gross nationalproduct;
SCG = percentof income originatingfrom the public sector;and
BYCOUP = 1 leadercame to powerby way of a militarycoup, other-
wise = 0.

Religioushomogeneity(RELHOM)reducesthe numberof competinggroups


andwouldthereforebe expectedto contributeto stability- thusincreasingthe
durationof regimes.As has been the case in some countriessuch as Nigeria,
instabilitydoes not only occurbecauseof tribalcompetitionbut also because
of religiousdiversity.Thuswe expectcountrieswhosepopulationsaremorere-
ligiouslyhomogeneousto be more stable. Ethnichomogeneity(ETHNHOM)
is expectedto reducethe degreeof tribalrivalryandhenceincreaseinstitutional
stability.
We expectthe degreeof urbanization(URBAN)to be associatedwith more
politicalinstability.The more people there are in urbanareas, the higherthe
probabilityof destabilizingurbanriots. The abilityto destabilizethe govern-
mentis assumedto increaseas the size of the interestgroupincreases.Likewise
the rate of growthof urbanpopulation(URBANG)by reducingsuppliersof
rents and increasingthe numberof those receivingthe rents creates a dis-
equilibriumin the marketfor rents which may resultin instabilityas the per
capita sharesof the urbanpopulationdeclines.8
PGAGRImeasuresthe shareof gross nationalproductthat originatesfrom
the agriculturalsector.Ourbasicassumptionis that the largerthe shareof na-
tional output originatingfrom this sector, the more reliableis the supply of
rents. This is becausethe rentsare easilyextracted,and in case of potentialin-
stability- say if militaryis not pleasedwith the size of its share, the brokers
of wealth transferscan easily extractmore rents from the farmers.Further-
more,by use of policiessuchas subsidizedinputs,the policymakerscan assure
an adequatesupplyof food for the urbanpopulation.Thus agriculturalout-
puts act as major sourcesof rents to purchasestability.9
In most cases, the military must be "bribed" continuously so that it does not
use violence. Thus the level of military spending per soldier relative to the per
capita income (MISPY) measures the rents that flow to the military relative to

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394

the restof the population.The higherthis number,the less likelythat the mili-
tary will attemptto changethe rent shares.Neverthelessthis may also lead to
internalcompetitionwithinthe militarywhich would resultin instability.
SOCIVmeasuresthe size of the militaryin termsof civilianspersoldier.The
smallerthe value of SOCIV,the largerthe size of the militaryrelativeto the
civilianpopulation.On the one hand, a largemilitarywouldbe expectedto be
associatedwith stabilitybecauseof the abilityof the largemilitaryto suppress
possibleriotsby the urbanpopulation.On the otherhand,a largemilitarymay
be more difficult to control and is more likely to be associatedwith internal
strugglefor power. We thereforeare not able to predictthe effect of the size
of the militarya priori.
We have includedother possibleexplanatoryvariablessuch as the popula-
tion (POP), populationdensity(DENSITY),income(PY), growthrate of the
gross nationalproduct(GNPG), shareof incomeoriginatingfrom the public
sector(SCG),and a controlvariablefor whetherthe leadercameto powerby
means of a militarycoup (BYCOUP).Populationdensityand the aggregate
populationare includedto control for the cost of organizinginterestgroups.
The per capita income is used to control for differencesin instabilitydue to
differencesin the level of economicdevelopment.We would expectmore ad-
vancedcountriesto be more stable. Likewise,the rate of growthof gross na-
tional productis expectedto inceasethe survivalprobabilitiesof regimes.Sim-
ply, economic declines would be expectedto create instabilityas different
groupsin the populationattemptto maintaintheirshareof rentsduringtimes
of declining rents. To the extent that the bureaucracycan destabilizethe
government,the largerthe shareof nationalproductoriginatingfromthe pub-
lic sector, the more the rents flowing to this group and hence the lower the
probabilitythat instabilitywill originatefrom the bureaucracy.10 Finally, we
expectregimes that come to powerby way of a militarycoup to be more unsta-
ble. This is primarilybecausethere is often more competitionfor leadership
within the military.
The Appendixdetailsthe calculationof some of the variablesand the data
sources.Althoughthereare44 countriesin the sample,the studyincludesa to-
tal of 102regimesfor whichrelevantinformationon the variousvariablesare
availableor can be computedwith a fair degreeof confidence.Thus although
some countrieshave had severaldifferentregimes,some of those regimesare
not includedin the studyif data correspondingto the durationof a regimeare
not available.11Thus the variablesused in the estimationreferto specificre-
gimesand varieseven in the samecountrydependingon the regime.However,
variablessuch as religioushomogeneity(RELHOM)(whichmay changeover
time but only slowly), and ethnic homogeneity (ETHNHOM) (which remains
fairly constant over time) are held constant for all regimes in the same country.
The urban population (URBAN), percentage of gross national product ori-

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395

ginatingfrom agriculture(PGAGRI),population(POP), populationdensity


(DENSITY),per capitaincome(PY), and the annualgrowthrate in gross na-
tional product(GNPG)are calculatedas averagesfor the durationof each re-
gime. Somevariablessuchas growthratein the urbanpopulation(URBANG),
ratio of militaryspendingper soldierto per capitaincome(MISPY),civilians
persoldier(SOCIV),andthe percentof incomeoriginatingfromthe publicsec-
tor (SCG)areonly availablein a limitednumberof years.In this case, we have
used averagesover some of the regimes.12
Table 1 reportsthe maximumlikelihoodestimatesof the parametricsurvival
model. The interest group variables RELHOM, ETHNHOM, PGAGRI,
MISPY all have the expectedsigns. The coefficient on RELHOMis positive
and statisticallysignificantto the 1 percent.This indicatesthat, the higherthe
degreeof religioushomogeneity,the more stable institutionsare likelyto be.
The coefficienton the index for ethnichomogeneityis positive. As expected,
ethnichomogeneityincreasesstabilitybecausecompetitionfor rentsamongst
tribalgroupsis lowerin more homogeneouspopulations.Likewise,the larger
the availabilityof easilyextractablerents- as measuredby PGAGRI,the more
stable are the institutions.One of the most importantvariableappearsto be
the MISPY - the measureof the rentsto the military.The largerthe relative
share of rents that go to the military,the more the stabilityof institutions.
However, the mere size of the military(SOCIV)is not an importantdeter-
minantof stability.
The coefficienton the percentageof populationthat is urban(URBAN) is
positiveand statisticallysignificant.Thisresult,whichis contraryto ourexpec-
tations, indicates that more urbanizedcountries have more stable govern-
ments.Onepossibleexplanationfor this resultis that a largeurbanpopulation
effectively constraintsthe militaryfrom overthrowingcivilian regimes. The
variablefor the growth in urbanpopulation(URBANG)has a negativeand
statisticallysignificantcoefficient.This suggeststhat increasein the numberof
rent recipientsrelativeto suppliersof rents may create disequilibriumand
henceinstability.Regimeswhichcome to powerby way of a militarycoup are
moreunstable.Populationsize, populationdensity,shareof incomefrompub-
lic sector,the per capitaincome, and the rate of economicgrowthare not im-
portantdeterminantsof stability.

3.2. Rent-seekingand stability

Our second approachto investigatinginstitutionalstabilityin relationshipto


rent-seekingis to estimatean ordinaryleast squaresmodelof the determinants
of stability.We use an index of stabilityas our dependentvariablewhich not
only takesinto accountthe coups and attemptedcoups, but also factorsin the

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396

Table1. Durationof regimes-survivalanalysis(102 regimes)

1 2 3

Intercept -3.246 - 6.214 - 4.987


RELHOLM 0.871*** 0.924*** 0.881***
(0.232) (0.278) (0.2345)
ETHNHOM 0.039*** 0.0239*** 0.0089***
(0.0078) (0.0098) (0.0029)
URBAN 0.0246*** 0.0212*** 0.0234**
(0.00781) (0.00678) (0.0093)
URBANG - 0.0239*** - 0.0345***
(0.0016) (0.0014)
PGAGRI 0.0341*** 0.0452*** 0.0349***
(0.0091) (0.0089) (0.0089)
MISPY 0.0391*** 0.0462*** 0.0394***
(0.00945) (0.00784) (0.00873)
SOCIV 0.0438 0.0566
(0.106) (0.144)
POP -0.000081
(0.000064)
DENSITY 0.0010
0.0012
SCG 0.0201 0.0296
(0.019) (0.0181)
PY 0.0112 0.00326 0.0421
(0.0125) (0.0045) (0.0323)
GNPG 0.00041
(0.00034)
BYCOUP - 0.886*** - 0.758*** - 0.928***
(0.202) (0.215) (0.200)
Log-likelihood - 184.72 - 172.46 - 148.32

Notes. Assumesconstantrisk of failure. Standarderrorsin parentheses.Asterisksdenote sig-


nificanceat the 1 percent(***), 5 percent(**), and 10 percent(*).

age of nationssinceindependence.In otherwords, one coup in a countrythat


has been independentsince 1960is differentfrom one coup in a countrythat
has beenindependentonly since 1980.The Appendix,section(2), outlineshow
the index was calculated.
We estimatedthe following model using ordinaryleast squaresregression:

STABILITY= f(RELHOM,ETHNHOM,URBAN, URBANG, PGAGRI,


MISPY, SOCIV, POP, SOCIV, PY, DENSITY, SCG,
BYCOUP);

wherestabilityis the index of institutionalstability.All othervariablesare as


discussedpreviously.However, the variablesfor this estimationare for the

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397

Table2. Regressionresultsof the determinantsof stability

1 2

Intercept - 192.61 - 234.67


RELHOLM 35.24* 36.48**
(2.173) (2.45)
ETHNHOM - 1.349.07 - 1.348.07
(0.245) (0.398)
URBAN 1.810** 1.891**
(2.42) (2.43)
URBANG 0.591
(1.50)
PGAGRI 1.82*** 1.678***
(2.621) (2.845)
MISPY 0.0423 0.0578
(1.61) (1.58)
SOCIV 0.235
(0.981)
POP 0.00015
(0.788)
DENSITY - 0.2460**
(- 2.50) (- 2.470)
SCG 0.0851
(0.670)
PY 0.2709*** 0.0256***
(2.734) (2.879)
GNPG 0.00076*** 0.00089***
(3.456) (3.024)
BYCOUP 0.0034 0.0035
(-1.60) (-1.57)
R2 0.272 0.267

Notes. t-statisticsin parentheses.Asterisksdenote significanceat the 1 percent(***), 5 percent


(**), and 10 percent (*).

entirepost independentperiodfor each countryratherthan for individualre-


gimes. Table 2 providessome regressionresultsof the above model.
While the resultsare largelyconsistentto those obtainedfrom the failure
modeldiscussedpreviouslytherearesomeimportantdifferences.For example,
the coefficients for ethnic homogeneity(ETHNHOM),growth in the urban
population(URBANG),and militaryspendingper capita (MISPY)have the
expectedsignsbut are not significant.The coefficientsfor the growthof gross
nationalproduct(GNPG)andpercapitaincome(PY), arepositiveand statisti-
cally significant,while the coefficient for populationdensity (DENSITY)is
negativeand statisticallysignificant.

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398

3.3. Rent-seekingdisequilibriumand the timingof instability

It has been determinedthat once the governmentchanges the structureof


propertyrightsand establishesa frameworkthat resultsin an equilibriumin
which some groups receivesignificanttransfersor benefit at the expenseof
others, it is very difficult to deregulatethe system. Since deregulationor the
introductionof competitivemarkets(or unrestrictedaccess)would invariably
result in the loss of transfersby some groups, those who expecttheir wealth
position to be affected adverselyby the intendedchangeswill fight to insure
that such changesare not made. The existenceof artificially-contrived trans-
fers in an economy,thus, becomean obstacleto policy reformsthat may lead
to greaterefficiencyand economicgrowth. The largerthe rent streamof the
politically-dominantinterestgroup, the greaterthe intensityof oppositionto
reforms(Crandall,1986).
Any attempts,to eitherchangethe formulafor the distributionof rents, or
wipeout the transfersthroughderegulationwill resultin disequilibriumas cur-
rentrecipientswillamounta fightto preventthe loss of theirfavoredpositions.
One implicationof the wealth transfermodel is that policy reforms will be
more successfulin those areasof the economyin whichrecipientsare not well
organizedinterestgroups.In addition,if transfersare well dispersedthrough-
out the economy, the governmentwill encountersignificantlyless opposition
when it attemptspolicy changes.
As discussedearlier,policymakersin developingcountrieshaveconsistently
enactedlawsthathaveresultedin the transferof wealthfromthe predominant-
ly agriculturalrural sector to the politically-dominanturban sector and the
military.Thisimplicittaxationof agriculturehasresultedin increasedrural-to-
urban migration,decreasesin investmentsin the agriculturalsector, and a
general reduction in the agriculture'scontributionto the gross national
product.In orderto improveagriculturalproductivity,somedevelopingcoun-
tries have attemptedto implementpolicy reformsdesignedto allow the price
of agriculturalproductsto riseto competitivelevels.The resultof this attempt
at deregulationhas been increasedinstitutionalinstabilityas urbanites,led by
students and civil servants,fight against rising foodstuff prices initiatedby
reforms.
For example,in earlyOctober1988,whenthe governmentof ChadliBend-
jedid in Algeriaattemptedto implementreformsdesignedto arrestdeteriorat-
ing economicconditions,mass riots eruptedin the urbanareas. The govern-
ment had to call out the armyas thousandsof riotersclashedwith the police
and securiyofficers over rising food prices.The Algerianpresident'sreform
programincludedattemptsto abolishpricecontrolson foodstuffs in orderto
increaseproduction,eliminationof other state subsidies,the cancellationof
annualbonusespaid to workersat a state owned automobileassemblyplant,

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399

reductionin the size of the publicsector,and the decentralizationof authority


in state enterprisesto improveproductivity.Bendjedidintendedto implement
politicalreformsdesignedto provideAlgerianswithgreateraccessto political,
as well as economicmarkets.AlthoughmanyAlgerianscriticizedthe president
on this reformsand accusedhim of betrayingthe socialistmandatethat he had
inherited,it is evidentthatthe primaryimpetusfor riotsthatengulfedthe coun-
try in 1988 was the change in the reductionin transfersto certain interest
groups in the country, and the complete loss, by some groups, of their
government-created benefits. The reform programsignificantlyeased many
governmentsubsidiesleadingto higherprices for many staples. In addition,
many unprofitablestate enterpriseswere liquidated,a large numberof civil
serviceworkerswere fired, and constructionof new subsidizedhousing was
halted.As the wealthtransfermodelwouldpredict,most of the oppositionto
the reformscame from groupsthat stood to lose their positionsof privilege:
bureaucrats,the army,and urbandwellers.As discussedearlier,the riots and
protests- which are evidenceof politicalinstability,and which can actually
resultin the overthrowalof a regime- area resultof disequilibriumin the rent-
seekingequilibrium.
Therearea numberof othergood examplesof instabilityresultingfrom dis-
ruptionin the rent-seekingequilibrium.Recently,removalof pricecontrolsin
Poland, SovietUnion and otherEasternblock countrieshaveresultedin riots.
In Zambia,after the governmentremovedfood price controls, riots erupted
in the urbanareasleavinga largenumberof peopledead.The governmenthad
to reverseits policy on food pricingwhich the InternationalMonetaryFund
had recommended.The Busia regime in Ghana was overthrownafter the
governmentadoptedpoliciesthat greatlyincreasedfood prices.This was simi-
lar to the eventsthat led to the assassinationof presidentTolbertof Liberia
(see Bates, 1983:123-124). All these examplessupportthe evidenceprovided
in the paperto the effect that instabilityreflectsa rent-seekingdisequilibrium.

4. Conclusion

Thepresentpaperhaspresentedsometentativeevidenceto the effect thatpolit-


ical stabilityin developingcountriesis reallyevidenceof the existenceof a rent-
seekingequilibrium.Thereis no constitutionalbasis for such stability.Some
countrieswill tend to be moreunstabledependingon the natureof the interest
groups- demandersand suppliersof rents- in thesecountries.We arguethat
instabilityresultswhenthe rent-seekingequilibriumis disrupted.Ouranalysis
also confirms the idea that adoption of inefficient economic policies may be
associated with stability. Such policies are necessary to assure the supply of
rents to the potentially destabilizing groups. It should, however, be noted that

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400

measurementof some of the variablesused in the studyposes seriousconcern


which could also explainsome of the discrepanciesin the results.
Somelessonsmaybe learnedfromthe foregoinganalysis.Whilethe changes
takingplacein EasternEuropeand SovietUnion wouldbe expectedto lead to
higherratesof economicgrowth,they arelikelyto be met withoppositionpar-
ticularlyby the military. This is because such changes necessarilyentails a
reductionin the flow of rentsto this and otherinterestgroups.Likewise,issues
of ethnic rivalryin those countriesmay significantlydestabilizethe institu-
tions. Moreimportant,our studyprovidessome insightsas to the problemof
economicreformsin developingcountriesparticularlyin those countrieswhere
there are well organizedrent-seekinggroups.
As a suggestionfor futureresearch,it appearsthat the survivalmodel could
be used to obtain predictionof whetherpoliticiansin democraticinstitutions
will be re-elected.In particular,a majorconcernin the UnitedStateshas been
the tendencyfor incumbentsto be re-electedeasily. This suggeststhat dura-
tions in electedpositionsare characterizedwith decreasingrisk of failuresuch
that the longerelectedofficials remainin office the less likely they will loose
election mainly becausethey consolidatesupportfrom rent-seekinggroups.
Usingthe failuremodelsandspecifyingtheappropriatenatureof riskof failure
may thereforeprovidemore meaningfulestimatesof the determinantsof the
tenureof electedofficials.

Notes

1. Mbakuand Paul(1989)havefocusedon the determinantsof politicalinstabilityin Africa. In


theirstudy,Mbakuand Paul test threecompetingtheoriesof instabilityusinga sampleof 29
Africancountries.The presentpaperconcentrateson the determinantsof stabilityfocusing
primarilyon the availabilityof rents and the distributionof these rents betweendifferent
groups.Thusthe presentpaperis concernedwith the natureof rent-seekingequilibriumthat
resultsin politicalstability.
2. Broughand Kimenyi(1986)providea similaranalysisrelatingto the inefficiencyof dictators
by focusingon the extractionof rents.In theiranalysis,BroughandKimenyidemonstratethat
stabilitycan only be purchasedat the expenseof efficiencyand hencedictatorstendto adopt
inefficientpoliciesto assurethat they remainin power.
3. For an excellentreviewof some of the majorstudieson rent seeking,see Tollison(1982).
4. This wouldbe the case if for examplethe shareof nationalincomethat goes to some group
increasestherebyimprovingthe positionof thatgrouprelativeto that of othergroups.When
economicgrowthleadsto changesin the well-beingof one grouprelativeto another,therewill
be attemptsby therelativelyworseoff groupsto demandmoretransfers- whichhasthepoten-
tial of leadingto politicalinstability.
5. Thisis similarto the interpretationof mercantilism suggestedby EkelundandTollison(1981).
6. Noticethat in all 44 countries,the life lengthof the last regime(currentregime)is not known
becausethat regimeis still in power. In the estimationprocedure,suchregimesare specified
as right censored.See Lawless(1982) on detailsof how to estimatemodels with censored
durations.

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401

7. The riskof a regimefailingcouldbe increasingor decreasingwith durationof the regime.If


for examplethe riskof failureincreases(decreases),this wouldmeanthat the probabilityof
a successfulcoup occurringwouldincrease(decrease)overtime. We haveno reasonto expect
thattheriskof failureof regimesshouldbe increasingor decreasing.Accordingto ourtheoreti-
cal analysis,changesin the rent-seekingequilibriumwouldbe expectedto lead to instability
independentof the age of thatregime.Thusthe assumptionof constantriskappearsadequate
for modelingthe durationof regimes.
8. For most of the countriesconsideredhere, the majorsourceof urbanpopulationgrowthis
ruralto urbanmigration.Thus, by migrating,most peoplechangetheirstatusfrom suppliers
of rentsto recipientsof rents.This changeis likelyto disturbthe rent-seekingequilibrium.
9. This suggeststhat the agriculturalsectorprovidesa fairlyelasticsupplyof rents.
10. The variable SCG only measuresaggregateshare of national income attributedto the
bureaucracy.Unfortunately,this variabledoes not tell us the percapitasharesbecausewe do
not have measuresof the size of the bureaucracy.
11. In othercases,someregimesareveryshort(saylessthanone year)andwe haveexcludedthem
from the study.
12. Thiscouldpose a seriousproblemparticularly if a regimefailsbecauseof low spendingon the
militarybut a new regime,determinedto remainfor a longerduration,spendsfar moreon
the military.In this case, averagingthe spendingon the militaryover the two regimeswill
minimizethe importanceof this variablein determiningthe durationof the regimes.

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Appendix
A. Samplecountriesused in the study

1. Algeria 16. Gambia 31. Rwanda


2. Angola 17. Ghana 32. Senegal
3. Benin 18. Guinea 33. Sychelles
4. Botswana 19. Kenya 34. Sierraleone
5. BurkinaFaso 20. Lesotho 35. Somali
6. Burundi 21. Liberia 36. Sudan
7. Cameroon 22. Libya 37. Swaziland
8. CentralAfricanRepublic 23. Madagascar 38. Tanzania
9. Chad 24. Malawi 39. Togo
10. Congo 25. Mali 40. Tunisia
11. IvoryCoast 26. Mauritius 41. Uganda
12. Egypt 27. Morocco 42. Zaire
13. EquatorialGuinea 28. Mozambique 43. Zambia
14. Ethiopia 29. Niger 44. Zimbabwe
15. Gabon 30. Nigeria

B. Data sources

Data for this studyare from:


1. WorldmarkPress 4. InternationalMonetaryFund
2. Kurian(1987) 5. U.S. ArmsControland DisarmamentAgency
3. Kurian(1984)

C. Variables

(1) Calculationof the religioushomogeneity


In most Africancountries,thereare typicallythreemainreligiousgroups:Christians,Muslims,
andthosewhopracticetraditionalAfricanreligions.In calculatingreligioushomogeneity,it is im-
portantto keep in mindthat it is the relativesizesof the groupsthat is importantin measuring
the extentof the degreeof groupcompetition.We calculatethe indexof religioushomogeneity
as follows:

RELHOM = [(L - S) * C/100]

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403

where

L = size (07%)
of the largestreligiousgroup;
S = size (%1o)
of the secondlargestreligiousgroup;
C = L + S (% of the two largestgroups).

We simplytakethe differencebetweenthe two largestgroupsandmultiplythe resultby the com-


binedsharesof thesegroupsand dividethe resultby 100whichnormalizesthe indexso that the
highestvalueis 100.Thebiggerthe differencebetweenthetwo largestgroups,the higherthedegree
of religioushomogeneity.Likewise,the higherthe combinedshareof the two largestgroups,the
more the degreeof religioushomogeneity.As an example,considerthe followingfive countries
with differentmix of the threereligiousgroups.

Country Largest Second Smallest RELHOM

A 100 0 0 100
B 40 30 30 7
C 60 20 20 32
D 60 30 10 27
E 90 5 5 70.75

Thehighestpossiblevalueis 100whichis a perfectlyhomogeneouspopulationin termsof religion.


Essentially,the procedureused hereplaceslargeweightson the largegroupsbut also takes into
accounttheirrelativesizes. For example,in comparingC and D, we noticethat whilethe largest
groupsarethesamesize,the secondgroupin D is largerthanthesecondgroupin C whichincreases
the strengthof that groupand hencethe potentialcompetition.Likewise,in B wherethe groups
are almostequalsize, the degreeof competitionis likelyto be higherwhichresultin a low index
of homogenity.Theindexis lowestwhenthetwo largestgroupsareof equalsize. Thisis consistent
to the observedoutcomesthatwhenthe largestgroupsareof equalsize, the degreeof competition
tend to be moreintense,and thusour methodyieldsa low indexof homogeneity.It is important
to notethatwe havecombinedcatholicsandprotestantsintoone group- christians.In somecoun-
triessuchas Ireland,suchdifferencesshouldbe takeninto accountbecausethosetwo groupscom-
petewith eachothervigorously.For the countriesincludedin this study,no suchmajorcompeti-
tion betweencatholicsand protestantsis evident.The measureusedhereis fairlyeasy to use and
interpretandappearsto offerpredictionsof religiousrivalrythatareconsistentto whatis observed
in the samplecountries.

(2) Calculationof the measureof ethnichomogeneity


Calculationof ethnichomogeneityis a littlemorecomplicatedby the fact thatin manyof the sam-
ple countries,therearenumeroustribalgroupsandin mostcasessomeof thosegroupsareso small
that they do not appearto have any role in the competitionfor rents- these are the groupswe
refer to as the noncompetinggroups. At the same time, when thereare few large groups- of
almostequalsize,we expectmoreintenserivalrybetweenthosegroups.Thusourmeasureof ethnic
homogeneitynot only considersthe sizes of the main groups,but also theirrelativesizes.
We utilizea measureof ethnichomogeneitythat is analogousto the Hirshman-Herfindal index.
We simplysquarethe shareof the largestfour groupsand add themtogetherand then divideby
100 so that the most homogeneouscountryhas an indexof 100. That is:

ETHNHOM = [L2 + S2 + T2 + F2]/100

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404

where

L = size (%) of the largestethnicgroup;


S = size (%) of the secondlargestethnicgroup;
T = size (%) of the thirdlargestethnicgroup;and
F = size (%) of the fourthlargestethnicgroup.

However,we eliminatefromourcalculationthe noncompetinggroupswhichfor our purposesare


consideredto be thosegroupsthatarelessthanone quarterof thelargestgroup.Unlessthesesmall
groupsuniteagainstthe largerones, it is unlikelythatindividuallytheywouldsignificantlybe able
to influencepolicyor evento destabilizethe government.Althoughtheremaybe few caseswhere
smalltribalgroupsunite againstlargergroups,these casesare fewerand such coalitiontend to
be short lived.
As an example,considerthe followingcountrieswith the followingsharesof ethnicgroups:

Country L S T F ETHNHOM

A 100 0 0 0 100
B 50 50 0 0 25
C 80 20 0 0 68
D 50 30 20 0 38
E 30 30 30 5 27
F 20 10 10 2 6

Notice that in E and F, the smallestgroupsare not includedin the calculationbecausethey are
consideredas noncompetinggroups.

(3) Calculationof indexof institutionalstability


The indexof institutionalstability(STABILITY)used in this studywas calculatedas follows:

STABILITY = [(AGE)2 - COUP * 5 - ACOUP * 3]

where

AGE = numberof yearssince the nationbecameindependent;


COUP = numberof successfulcoups since independence;
ACOUP= numberof attemptedcoups sinceindependence.

FollowingMcGowanand Johnson(1984),and Mbakuand Paul (1989),eachcoup is assigneda


weightof 5 pointsandeachattemptedcoupis assigneda weightof 3 points.Wehaveomittedplots
becausesuchdataappearto be quiteinaccurateand not availablefor mostcountries.Noticethat
we aretakinginto accountthe ageof the nationwhichimpliesthatevenif countrieshavehadsame
numberof coups,the indexof stabilitywillbe differentif theyhavebeenindependentfor different
years. Likewise,veryyoungnationswhichmayhave not experiencedany coup will havea lower
index of stability just because they have not existed long enough to face the tests of maintaining
stability faced by older countries. Below we provide some examples of how the index varies across
countries.

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405

Country AGE COUP ACOUP STABILITY

A 12 0 0 144
B 12 2 1 131
C 10 2 4 78
D 2 0 0 4

Becauseof complicationsarisingfrom the age of Ethiopia,this countrywas excludedin the OLS


regression.

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