Scorched Earth Politics and Venezuela’s Collapse

Between 2012 and 2020, Venezuela’s per capita income declined by 71%, the largest peacetime economic contraction documented in the Common Era. I estimate that the severing of the country’s links to global trade and financial markets explains 56% of this contraction. I propose an explanation of Venezuela’s economic collapse as a consequence of the incentives of political actors to adopt strategies that generate severe negative economic externalities. In the absence of politically-induced restrictions on access to global markets, Venezuela would have experienced a contraction of 32% in per capita income, in line with those of other policy-induced growth collapses