Romes without Empires: Primate Cities, Political Competition, and Economic Growth

Many developing economies are characterized by the dominance of a super metropolis. The coexistence of a primate city with a low level of economic development is not an accident, the former being symptomatic of the causes of the latter. Taking historical Rome as the archetype of a city that centralizes political power to extract resources from the rest of the country, we develop two models of rent-seeking and expropriation which illustrate different mech-anisms that relate political competition to economic outcomes. The voice model shows that rent-seeking by different interest groups (localized in differ-ent specialized cities/regions) will lead to low investment and growth when the number of these groups is low. Increased political competition in the form of more organized groups engaged in countervailing activity leads to more secure property rights and higher growth. The exit model allows political competi-tion among those with political power (to tax or expropriate from citizens) over a footloose tax base. It shows that when this power is centralized, tax rates would be higher and growth rates lower. When political power is decentralized across different self-interested rulers in diverse jurisdictions, the competition over the mobile resources leads to lower tax/expropriation rates, raising the long-run rate of growth of the economy. 1