The dual policy in the dual economy—The political economy of urban bias in dictatorial regimes

Abstract

In many developing countries, public resource allocation is often biased against the rural population. Since a vast majority of the poor live in rural areas, the bias is highlighted as one of the most important institutional factors contributing to poverty. This paper develops a political economy model of urban bias in a dictatorial regime. A novel result of the model is that urban bias can emerge in predominantly agrarian economies even if there is no bias in political power toward urban residents. The empirical evidence from a recently compiled country-level panel dataset on agricultural taxes/subsidies is consistent with the prediction of the model.