International influence on regime change and democratization. Roberto Bonfatti March 2006. 1a - Motivations. No formal theory of the economic motivations underlying international influence on regime change and democratization in developing countries.
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Domestic determinants of international relations:
Nationalization and international relations:
Agents, income and domestic policy
Two domestic agents, R and P, and one foreign agent, F. There are two sources of redistributable income in the economy: a tax on foreign direct investments ( ), and foreign aid ( ). Domestic policy sets the shares of income for R and P:
There is a binary alliance decision ( ): “ally” ( ) or “ennemy” ( ) of F. The ruling domestic agent and F can bargain over and only if .
The payoffs of the three agents are:
where the are exogenous payoffs to the agents from their allignment decision, and is the geopolitical value of the alliance for F.
Given assumption 1 and 3, it always in the interest of the two parties to agree on the foreign policy:
(I am also assuming that F has all the bargaining power in the negotiations).
At the beginning of the game, R is in power (state N). P can size power at a cost .
The timing of the game is:
If R is in power, he can reset domestic policy with probability 1 – p: in this case, he sets:
If P is in power he negotiates and with F. This leads to:
If P is in power, he stages a revolution iff:
that is, the level of cost above which there is no revolutionary threat.
Depending on the value of , we have four different cases:
R in power