The research uses interdisciplinary methodology: the methodology of comparative studies; modern political economy; macroeconomics (including production function theory); new institutionalism in general. Mathematical simulation is used as an integrating method, based on current advances in system dynamics and differential equations theory. Game theory is used for a number of research problems. We use correlation analysis, regression models with individual (random and fixed) effects and dynamical panel regressions for empirical data analysis.
Empirical base of research:
The research uses secondary sources of data in the form of existing databases and indices.
Political variables used include:
- World Bank’s Worldwide Governance Indicators (WGI);
- Polity IV variables measuring political regime features;
- Freedom House media freedom index;
Social and economic variables include:
- Total factor productivity (TFP) estimates proposed by A. Isaksson for the UNIDO World Productivity Database
- Gini index of economic inequality
- World Bank’s Ease of Doing Business index
- UNDP Human Development Index
Results of research:
We have developed a formal theoretical model that analyzes economic dynamics and resource redistribution processes. The core of the model is a dynamical system based on Cobb-Douglas and Leontief production functions with public and private capital as production factors, as well as a number of equations describing public resource redistribution. Redistribution parameters in the form of tax rate, public capital investment rate and rent payments create the set of available policies that govern balanced economic growth and social group income.
The core model is expanded to include feedback mechanisms: retrospective voting in democratic regimes; ideal points for different elite groups in autocratic regimes; the effect of state propaganda on democratic feedback in hybrid regimes.
After analyzing the democratic feedback model with endogenous policy switching we’ve discovered the cyclically balanced growth paths phenomenon. We look into the conflict between long-term economic development goals and short-term electoral support using both production function analysis and quantitative experiments.
We have discovered total factor productivity to be a key factor governing relative economic advantages of democratic and autocratic regimes in terms of sustainable development. We show that at low TFP levels autocratic regimes are more likely to achieve economic growth, while at higher TFP levels the advantage goes to democratic regimes.
The research also shows for the first time that the distance between interest group ideal points in autocratic regimes is also dependent upon the TFP: higher TFP leads to both reduced distance between elites and between each elite group’s ideal point and the policy optimal for economic growth.
Using game-theoretic approach we have endogenized the social losses associated with elite group opportunistic behavior, thus creating the prospects of synthesizing game theory and system dynamics in future research.
The hypothesis about autocratic regime stability being dependent on TFP levels has been tested and proved empirically.
The simulations for propaganda effects have shown that while strong propaganda generally reduces the probability of economic growth, under certain conditions moderate propaganda might have a positive effect on development. The distortion of democratic feedback due to propaganda might hinder the switching of policies, but at strong propaganda levels might remove policy switching completely.
The robustness of simulation results has been thoroughly tested by using different production function specifications and different policy space dimensions.
Level of implementation, recommendations on implementation or outcomes of the implementation of the results
Research results may be used by the analytic departments of state institutions as well as expert and consulting organizations that support state programs and projects concerning institutional design, tax and budget policy design, economic regulation.