A Theory of Developmental Dictatorship

Abstract

This article studies the developmental motives of a dictator under the modernisation hypothesis. He faces a trade-off between pursuing higher future gains with growing threats from the rise of the middle class and accepting lower gains for a more stable regime. I show that his optimal strategy is to invest in an underdeveloped economy for higher future returns. As the economy matures, investment declines as the focus shifts toward maintaining the regime. Without this threat, the economy regresses or fully develops depending on the profitability of invest- ment and regime stability. My framework helps explain empirical puzzles about why some underdeveloped autocracies achieve faster economic growth. I also analyse how steady state varies by the length of future horizon under consideration. Contrary to Olson (1993)’s traditional theory that longer horizon concern makes high development, I find that a farsighted decision-making leads to a lower steady state.