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Trade, inequality, and the political economy of institutions Author info | Abstract | Publisher info | Download info | Related research | Statistics Do, Quy-Toan
Levchenko, Andrei A.
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The authors 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 the authors to analyze economies with heterogeneous firms, and argue that trade opening leads to a reallocation of production in which large firms grow larger, while small firms become smaller or disappear. Combining these two strands of literature, the authors build a model that 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. They show that trade opening can worsen institutions when it increases the political power of a small elite of large exporters that 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.
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Paper provided by The World Bank in its series Policy Research Working Paper Series with number
3836.
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Date of creation: 01 Feb 2006Date of revision:
Handle: RePEc:wbk:wbrwps:3836Contact details of provider: Postal: 1818 H Street, N.W., Washington, DC 20433 Email: Web page: http://www.worldbank.org/ More information through EDIRC
For technical questions regarding this item, or to correct its listing, contact: (Roula I. Yazigi).
Keywords: Economic Theory&Research Free Trade Trade Law Trade Policy Trade and Services Other versions of this item:
This paper has been announced in the following NEP Reports :
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile , click on "citations" and make appropriate adjustments.: Roland Benabou, 2000.
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Acemoglu, Daron & Johnson, Simon & Robinson, James A, 2003.
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Simeon Djankov & Rafael La Porta & Florencio LopezdeSilanes & Andrei Shleifer, 2000.
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[Downloadable!] (restricted) Thorsten Beck & Asli Demirgüç-Kunt & Vojislav Maksimovic, 2005.
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Journal of Finance ,
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Marc J. Melitz, 2003.
"The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity ,"
Econometrica ,
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Other versions: Roberto Rigobon & Dani Rodrik, 2004.
"Rule of Law, Democracy, Openness, and Income: Estimating the Interrelationships ,"
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"The Political Economy of the Rent-Seeking Society ,"
American Economic Review ,
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Elhanan Helpman & Marc J. Melitz & Stephen R. Yeaple, 2004.
"Export versus FDI with Heterogeneous Firms ,"
American Economic Review ,
American Economic Association, vol. 94(1), pages 300-316, March.
[Downloadable!] (restricted)
repec:rus:hseeco:122439 is not listed on IDEAS
Dani Rodrik & Arvind Subramanian & Francesco Trebbi, 2004.
"Institutions Rule: The Primacy of Institutions Over Geography and Integration in Economic Development ,"
Journal of Economic Growth ,
Springer, vol. 9(2), pages 131-165, 06.
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Other versions:
Rodrik, Dani & Subramanian, Arvind & Trebbi, Francesco, 2002.
"Institutions Rule: The Primacy of Institutions Over Geography and Integration in Economic Development ,"
CEPR Discussion Papers
3643, C.E.P.R. Discussion Papers.
[Downloadable!] (restricted) Dani Rodrik & Arvind Subramanian & Francesco Trebbi, 2002.
"Institutions Rule: The Primacy of Institutions over Geography and Integration in Economic Development ,"
NBER Working Papers
9305, National Bureau of Economic Research, Inc.
[Downloadable!] (restricted)
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