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On Trade Openness, Institutional Change and Economic Growth

  • Antonio Navas-Ruiz

    ()

    (Universidad Carlos III Madrid - Universidad Carlos III Madrid, GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - Université de la Méditerranée - Aix-Marseille II - Université Paul Cézanne - Aix-Marseille III - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - CNRS : UMR6579)

This 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 wherethere are three social groups, each one owns a speci c production factor. An ellite (landowners) controlling the political power x 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.We calibrate the model according to Western European experience on the XVIth century deriving that: First: Economies opened to trade will experiment higher growth and faster institutionalchange. Second: Economies specializing in manufacturing products tend to grow more and rise the institutional change earlier. These results are very robust to change in parameter values and it seems to t quite well with historical experience.

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Paper provided by HAL in its series Working Papers with number halshs-00326394.

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Date of creation: 02 Oct 2008
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Handle: RePEc:hal:wpaper:halshs-00326394
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  1. Oded Galor & Omer Moav & Dietrich Vollrath, 2005. "Land Inequality and the Emergence of Human Capital Promoting Institutions," Development and Comp Systems 0502018, EconWPA.
  2. Rubén Segura-Cayuela, 2006. "Inefficient policies, inefficient institutions and trade," Banco de Espa�a Working Papers 0633, Banco de Espa�a.
  3. Luis A. Rivera-Batiz & Paul M. Romer, 1990. "Economic Integration and Endogenous Growth," NBER Working Papers 3528, National Bureau of Economic Research, Inc.
  4. Matthias Doepke & Fabrizio Zilibotti, 2005. "Social Class and the Spirit of Capitalism," Journal of the European Economic Association, MIT Press, vol. 3(2-3), pages 516-524, 04/05.
  5. Gonzalez, Francisco M., 2007. "Effective property rights, conflict and growth," Journal of Economic Theory, Elsevier, vol. 137(1), pages 127-139, November.
  6. Stephen L. Parente & Edward C. Prescott, 1997. "Monopoly rights: a barrier to riches," Staff Report 236, Federal Reserve Bank of Minneapolis.
  7. Edward L. Glaeser & Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer, 2004. "Do Institutions Cause Growth?," Journal of Economic Growth, Springer, vol. 9(3), pages 271-303, 09.
  8. Josef Falkinger & Volker Grossmann, 2005. "Institutions and Development: The Interaction Between Trade Regime and Political System," Journal of Economic Growth, Springer, vol. 10(3), pages 231-272, 09.
  9. Robert E. Hall & Charles I. Jones, 1999. "Why Do Some Countries Produce So Much More Output per Worker than Others?," NBER Working Papers 6564, National Bureau of Economic Research, Inc.
  10. Kevin H. O'Rourke & Jeffrey G. Williamson, 2000. "When Did Globalization Begin?," NBER Working Papers 7632, National Bureau of Economic Research, Inc.
  11. Keefer, Philip & Knack, Stephen, 1997. "Why Don't Poor Countries Catch Up? A Cross-National Test of Institutional Explanation," Economic Inquiry, Western Economic Association International, vol. 35(3), pages 590-602, July.
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