When voice fails: Potential exit as a constraint on government quality

Poorly governed (e.g., repressive) countries tend to be located near other poorly governed countries, and well governed countries near other well governed countries. Researchers, by identifying country characteristics (e.g., ethnic fractionalization) that may influence government quality, have provided one potential explanation: Neighboring countries tend to be similar with respect to those characteristics. In this paper, we draw on Hirschman's notion of “exit” as a disciplining device in order to provide a different, though complementary, explanation: The ability of a ruler to implement policy that displeases the country's populace is constrained by opportunities for residents to relocate to other countries nearby. To generate testable predictions about the effects of potential exit on government quality, we develop a simple theoretical model. We test the model's predictions using cross-sectional and panel data, controlling for other determinants of government quality. The evidence we present – which includes discussion of historical examples such as ancient Greece and the Soviet Bloc – supports the model's predictions.