Trade, Inequality, and the Political Economy of Institutions by Quy-Toan Do and Andrei Levchenko -- Reforms: IMF Sixth Jacques Polak Annual Research Conference, November 3-4, 2005
نویسندگان
چکیده
We analyze the relationship between international trade and the quality of economic institutions, such as contract enforcement, rule of law, or property rights. The literature on institutions has argued, both empirically and theoretically, that larger firms care less about good institutions and that higher inequality leads to worse institutions. Recent literature on international trade enables us to analyze economies with heterogeneous firms, and argues that trade opening leads to a reallocation of production in which largest firms grow larger, while small firms become smaller or disappear. Combining these two strands of literature, we build a model which has two key features. First, preferences over institutional quality differ across firms and depend on firm size. Second, institutional quality is endogenously determined in a political economy framework. We show that trade opening can worsen institutions when it increases the political power of a small elite of large exporters, who prefer to maintain bad institutions. The detrimental effect of trade on institutions is most likely to occur when a small country captures a sufficiently large share of world exports in sectors characterized by economic profits. JEL Classification Codes: F12, P48.
منابع مشابه
Trade, inequality, and the political economy of institutions
This paper investigates the relationship between international trade and the quality of economic institutions. We model institutions as fixed costs of entry, in a framework that has two key features. First, preferences over entry costs differ across firms and depend on firm size. Larger firms prefer to set higher costs of entry, in order to reduce competition. Second, these costs are endogenous...
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