Institutional endowment, curse, and the impact of external political shock: The case of Macao

Abstract

This study investigates the influence of external political shock under a special institutional endowment brought by a high degree of autonomy, taking Macao as an example. Macao monopolizes the gambling industry in China under the arrangement of “one country, two systems” and depends heavily on tourists from mainland China. To illustrate the problem under such an institutional endowment, this study estimates the impact of the decline in casino revenues caused by the 2014 anti‐corruption campaign in mainland China, by employing the difference‐in‐differences and synthetic control approaches. The results indicate that Macao experienced approximately 3 years of decline in the revenue growth of the gambling industry, which is nearly 231 billion MOP, under the political shock. Thus, an economy with institutional endowment may also face uncertainties caused by exogenous political shock. This paper contributes to the extension of the concept related to the tourism‐induced Dutch disease.