Public Sector Capital and the Transition from Dictatorship to Democracy


  • Christopher J. Ellis,

    1. University of Oregon
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  • John Fender

    1. University of Birmingham
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    • The paper was presented in a number of seminars and we would like to thank participants for their comments. We would also like to thank an anonymous referee for some very helpful comments, Charles Rahal for help with the empirical evidence discussed in Section 3.4 and Ralph Bailey for help with a proof.


A model where a dictator decides on both the level of public-sector capital and whether to democratize is constructed. Under dictatorship the labour market is monopsonistic; democratization involves instituting a competitive labour market. Workers sometimes have a credible threat of revolution and this may affect the dictator's investment decision; it may also induce democratization. The possibility of a ‘political development trap’, where the dictator stifles development to stay in power, emerges. The model is used, inter alia, to explain the effects of the 1832 Reform Act in the UK and the worldwide positive correlation between income and democracy.