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Inefficient policies, inefficient institutions and trade

Author

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  • Rubén Segura-Cayuela

    () (Banco de España)

Abstract

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.

Suggested Citation

  • Rubén Segura-Cayuela, 2006. "Inefficient policies, inefficient institutions and trade," Working Papers 0633, Banco de España;Working Papers Homepage.
  • Handle: RePEc:bde:wpaper:0633
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Andrei A. Levchenko, 2013. "International Trade and Institutional Change," Journal of Law, Economics, and Organization, Oxford University Press, vol. 29(5), pages 1145-1181, October.
    2. Raphael A. Auer, 2013. "Geography, institutions, and the making of comparative development," Journal of Economic Growth, Springer, vol. 18(2), pages 179-215, June.
    3. Caleb Stroup & Ben Zissimos, 2017. "Pampered Bureaucracy, Political Stability and Trade Integration," Review of Development Economics, Wiley Blackwell, vol. 21(3), pages 425-450, August.
    4. repec:kap:jecgro:v:23:y:2018:i:2:d:10.1007_s10887-018-9155-5 is not listed on IDEAS
    5. Christodoulos Stefanadis, 2010. "Appropriation, Property Rights Institutions, and International Trade," American Economic Journal: Economic Policy, American Economic Association, vol. 2(4), pages 148-172, November.
    6. Daron Acemoglu, 2006. "Modeling Inefficient Institutions," NBER Working Papers 11940, National Bureau of Economic Research, Inc.
    7. Matteo Cervellati & Alireza Naghavi & Farid Toubal, 2018. "Trade liberalization, democratization, and technology adoption," Journal of Economic Growth, Springer, vol. 23(2), pages 145-173, June.
    8. Chakraborty, Pavel, 2016. "Judicial quality and regional firm performance: The case of Indian states," Journal of Comparative Economics, Elsevier, vol. 44(4), pages 902-918.
    9. de Gorter, Harry, 2008. "Explaining Inefficient Policy Instruments," Agricultural Distortions Working Paper Series 48638, World Bank.
    10. Antonio Navas-Ruiz, 2008. "On Trade Openness, Institutional Change and Economic Growth," Working Papers halshs-00326394, HAL.
    11. Dawood Mamoon, 2012. "Economic security, well functioning courts and a good government," International Journal of Social Economics, Emerald Group Publishing, vol. 39(8), pages 587-611, June.
    12. Do, Quy-Toan & Levchenko, Andrei A. & Raddatz, Claudio, 2011. "Engendering trade," Policy Research Working Paper Series 5777, The World Bank.
    13. Navas, Antonio, 2009. "Trade Openness, Institutional Change and Economic Growth," Working Papers in Economic Theory 2009/05, Universidad Autónoma de Madrid (Spain), Department of Economic Analysis (Economic Theory and Economic History).
    14. Verdier, Thierry, 2010. "Ouverture, conflits et capacité étatique : une perspective d’économie politique," L'Actualité Economique, Société Canadienne de Science Economique, vol. 86(4), pages 415-449, décembre.
    15. Dawood Mamoon, 2006. "Which Institutions Are More Relevant Than Others in Inequality Mitigation?," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 45(4), pages 893-912.

    More about this item

    Keywords

    institutions; political economy; expropriation; property rights; international trade;

    JEL classification:

    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General
    • P16 - Economic Systems - - Capitalist Systems - - - Political Economy of Capitalism
    • F10 - International Economics - - Trade - - - General

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