An economic theory of foreign interventions and regime change

Working paper

I construct a theory of foreign interventions in which the political preferences of the foreign country are determined by its different economic ties with alternative local groups. Stronger economic ties make a group more influenceable from the outside, and thus more willing to grant economic and geopolitical concessions to the foreign country. In the model, foreign interventions in favor of the most influenceable group are counterweighted by a natural tendency of the home country's political system to bring to power the least influenceable group. While the foreign country can use its economic power to influence the geopolitical alignment of the home country, the outcome of this endeavor may be compromised by regime change. In particular, when concessions to the foreign country cannot be renegotiated efficiently (possibly because of reputational concerns in the foreign country), regime change may lead to a loss of geopolitical alignment, even if all groups are ex-ante identical in terms of their geopolitical preferences. These results may help interpret the pattern of Western interventions in the 20th century, as well as the role of economic nationalism in the political economy of regime change. In particular, they may help understand the role of the Cold War in strengthening the West's preference for the status quo in many countries. I provide historical evidence in favor of my arguments.

Authors: Bonfatti, R

• Publication status: Published
• Publisher: University of Oxford
• Series: Department of Economics Discussion Paper Series
• Publication date: 2011-04-01
• Paper number: 549
• Keywords: Latin America; regime change; economic power; foreign interventions; Cold War; economic nationalism