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On Trade Openness, Institutional Change and Economic Growth

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  • Antonio Navas-Ruiz

    () (Universidad Carlos III de Madrid [Madrid], GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - ECM - Ecole Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique - AMU - Aix Marseille Université - EHESS - École des hautes études en sciences sociales)

Abstract

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.

Suggested Citation

  • Antonio Navas-Ruiz, 2008. "On Trade Openness, Institutional Change and Economic Growth," Working Papers halshs-00326394, HAL.
  • Handle: RePEc:hal:wpaper:halshs-00326394
    Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-00326394
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    References listed on IDEAS

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    1. 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, September.
    2. O Rourke, Kevin H. & Williamson, Jeffrey G., 2002. "When did globalisation begin?," European Review of Economic History, Cambridge University Press, vol. 6(01), pages 23-50, April.
    3. Edward C. Prescott & Stephen L. Parente, 1999. "Monopoly Rights: A Barrier to Riches," American Economic Review, American Economic Association, vol. 89(5), pages 1216-1233, December.
    4. 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, September.
    5. 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.
    6. Ruben Segura-Cayuela, 2006. "Inefficient Policies, Inefficient Institutions and Trade," 2006 Meeting Papers 502, Society for Economic Dynamics.
    7. Gonzalez, Francisco M., 2007. "Effective property rights, conflict and growth," Journal of Economic Theory, Elsevier, vol. 137(1), pages 127-139, November.
    8. Luis A. Rivera-Batiz & Paul M. Romer, 1991. "Economic Integration and Endogenous Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 106(2), pages 531-555.
    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. 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.
    11. Oded Galor & Omer Moav & Dietrich Vollrath, 2005. "Land Inequality and the Emergence of Human Capital Promoting Institutions," Development and Comp Systems 0502018, EconWPA.
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    Keywords

    endogenous growth; institutional change; liberalization of capital;

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