Investment with insecure property rights: Capital outflow openness under dictatorship

Governments have two mechanisms through which to secure the rights of investors: protecting property rights and allowing capital mobility. This article develops a formal theoretic framework that demonstrates how dictators use capital outflow openness as a substitute for poor property rights protection to attract more investment. They do so for two related reasons. First, more capital outflow openness increases the pool of capital dictators can expropriate from. Second, more capital outflow openness increases domestic wages, preventing working class revolts. When the working class is not too strong, the dictator would be able to retain workers' support by relying on capital outflow openness alone. However, when the working class is strong, the dictator would be forced to improve property rights protection to prevent a working class revolt, constraining the dictator's ability to expropriate in the future.