Trade Openness, Institutional Change and Economic Growth
AbstractThis paper explores the relationship between trade openness and economic growth through a change in institutions. To do so, the paper creates a theory of endogenous institutional change where there are three social groups, each one owns a specific production factor. An ellite (landowners) controlling the political power fix higher taxes to extract rents from the other groups of the society (capitalists). This reduces investment in capital, the source for endogenous growth. Endogenous institutional change is done by allowing the rival group (capitalists) to invest in a military action which expels out the group in power. The model studies optimal taxation, growth and institutional change under two scenarios, autarky and free trade. The model is calibrated according to the Western European experience in the Modern Age. Generally, economies opened to trade will experiment higher growth and earlier institutional change although economies specializing in manufacturing products tend to grow more and rise the institutional change earlier. These results are qualitatively very robust to change in parameter values.
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Bibliographic InfoPaper provided by Universidad Autónoma de Madrid (Spain), Department of Economic Analysis (Economic Theory and Economic History) in its series Working Papers in Economic Theory with number 2009/05.
Length: 31 pages
Date of creation: Jun 2009
Date of revision:
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Web page: http://www.uam.es/departamentos/economicas/analecon/default.html
More information through EDIRC
Growth; Institutions; Trade Openness;
Other versions of this item:
- Antonio Navas, 2013. "Trade Openness, Institutional Change and Economic Growth," Working Papers 2013018, The University of Sheffield, Department of Economics.
- F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
- O41 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
- O43 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-06-17 (All new papers)
- NEP-DEV-2009-06-17 (Development)
- NEP-FDG-2009-06-17 (Financial Development & Growth)
- NEP-INT-2009-06-17 (International Trade)
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