Institutional change and political conflict in a structuralist model

The article presents a theoretical model of political conflict and democratic stability in a small open developing economy, using as the basis a structuralist macroeconomic model. Political institutions are given in the medium run, but they vary in the long run as the result of political conflict between capitalists, formal workers, and informal workers excluded from the benefits of social protection conquered by the formal workers. The model suggests that a democratic breakdown is more likely the larger the informal sector, the lower the non-price competitiveness of the economy, and the weaker the country’s democratic traditions. Coups and democratization process can be both triggered by an external shock. The article claims that combining industrial and technological policies —which ease the balance-of-payments constraint— with the strengthening of social protection is key for the consolidation and stability of political democracy in developing economies.