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Inefficient policies, inefficient institutions and trade

  • Rubén Segura-Cayuela

    ()

    (Banco de España)

Despite the general belief among economists on the growth-enhancing role of international trade and significant trade opening over the past 25 years, the growth performance of many developing economies, especially of those in Latin America and Africa, has been disappointing. While this poor growth performance has many potential causes, in this paper I argue that part of the reason may be related to the interaction between weak institutions and trade. In particular, I construct a model in which trade opening in societies with weak institutions (in particular autocratic and elite-controlled political systems) may lead to worse economic policies. The reason is that general equilibrium price effects of taxation and expropriation in closed economies also hurt the elites, and this puts a natural barrier against inefficient policies. Trade openness removes this barrier and enables groups with political power to exercise this power in more inefficient ways.

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File URL: http://www.bde.es/f/webbde/SES/Secciones/Publicaciones/PublicacionesSeriadas/DocumentosTrabajo/06/Fic/dt0633e.pdf
File Function: First version, December 2006
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Paper provided by Banco de España & Working Papers Homepage in its series Working Papers with number 0633.

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Length: 53 pages
Date of creation: Dec 2006
Date of revision:
Handle: RePEc:bde:wpaper:0633
Contact details of provider: Web page: http://www.bde.es/

Web page: http://www.bde.es/bde/en/secciones/informes/Publicaciones_se/docs/
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  1. Romain Wacziarg & Karen Horn Welch, 2003. "Trade Liberalization and Growth: New Evidence," NBER Working Papers 10152, National Bureau of Economic Research, Inc.
  2. Rubén Segura-Cayuela, 2006. "Inefficient policies, inefficient institutions and trade," Working Papers 0633, Banco de España;Working Papers Homepage.
  3. François Bourguignon & Thierry Verdier, 2001. "The Political Economy of Education and Development in an Open Economy," DELTA Working Papers 2001-11, DELTA (Ecole normale supérieure).
  4. Paolo Epifani & Gino Gancia, 2008. "Openness, Government Size and the Terms of Trade," IEW - Working Papers 359, Institute for Empirical Research in Economics - University of Zurich.
  5. Do, Quy-Toan & Levchenko, Andrei A., 2006. "Trade, inequality, and the political economy of institutions," Policy Research Working Paper Series 3836, The World Bank.
  6. Daron Acemoglu & Simon Johnson & James A. Robinson, 2001. "Reversal of Fortune: Geography and Institutions in the Making of the Modern World Income Distribution," NBER Working Papers 8460, National Bureau of Economic Research, Inc.
  7. Jeffrey D. Sachs & Andrew Warner, 1995. "Economic Reform and the Process of Global Integration," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 26(1, 25th A), pages 1-118.
  8. Dani Rodrik, 1998. "Trade Policy and Economic Performance in Sub-Saharan Africa," NBER Working Papers 6562, National Bureau of Economic Research, Inc.
  9. Robert E. Hall & Charles I. Jones, 1999. "Why do Some Countries Produce So Much More Output Per Worker than Others?," The Quarterly Journal of Economics, Oxford University Press, vol. 114(1), pages 83-116.
  10. Bourguignon, F. & Verdier, T., 1999. "Is Financial Openness bad for Education? A Political Economy Perspective on Development," DELTA Working Papers 1999-20, DELTA (Ecole normale supérieure).
  11. Persson, Torsten & Tabellini, Guido, 1994. "Is Inequality Harmful for Growth?," American Economic Review, American Economic Association, vol. 84(3), pages 600-621, June.
  12. Oded_Galor & Andrew Mountford, 2006. "Trade and the Great Divergence: The Family Connection," Working Papers 2006-01, Brown University, Department of Economics.
  13. Andrei A. Levchenko, 2004. "Institutional Quality and International Trade," IMF Working Papers 04/231, International Monetary Fund.
  14. William Easterly & Ross Levine, 1997. "Africa's Growth Tragedy: Policies and Ethnic Divisions," The Quarterly Journal of Economics, Oxford University Press, vol. 112(4), pages 1203-1250.
  15. Paolo Epifani & Gino Gancia, 2005. "On Globalization and the Growth of Governments," Working Papers 267, Barcelona Graduate School of Economics.
  16. Pol Antràs, 2003. "Firms, Contracts, and Trade Structure," The Quarterly Journal of Economics, Oxford University Press, vol. 118(4), pages 1375-1418.
  17. Daron Acemoglu & Simon Johnson & James A. Robinson, 2000. "The Colonial Origins of Comparative Development: An Empirical Investigation," NBER Working Papers 7771, National Bureau of Economic Research, Inc.
  18. Verdier, Thierry, 2004. "Socially Responsible Trade Integration: A Political Economy Perspective," CEPR Discussion Papers 4699, C.E.P.R. Discussion Papers.
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