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Pampered Bureaucracy, Political Stability, and Trade Integration

  • Caleb Stroup

    ()

    (Department of Economics, Vanderbilt University)

  • Benjamin Zissimos

    ()

    (Department of Economics, Vanderbilt University)

This paper shows how, under threat of revolution, a nation's elite are able to maintain political stability and hence ownership of their wealth by creating or expanding a `pampered bureaucracy.' The elite thus divert part of an otherwise entrepreneurial middle class from more productive manufacturing activities, reducing economic efficiency. If the country has a comparative advantage in primary products, trade integration is potentially destabilizing since it raises the payoff to the lower classes of mounting a revolution and challenging the elite for their wealth. In that case trade integration mandates expansion of the pampered bureaucracy. Therefore, trade integration may actually reduce economic efficiency. The econometric results provide supportive evidence for our model.

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File URL: http://www.accessecon.com/pubs/VUECON/vu11-w05.pdf
File Function: First version, April 2010, revised June 2011
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Paper provided by Vanderbilt University Department of Economics in its series Vanderbilt University Department of Economics Working Papers with number 1105.

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Date of creation: Jun 2011
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Handle: RePEc:van:wpaper:1105
Contact details of provider: Web page: http://www.vanderbilt.edu/econ/wparchive/index.html

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  1. Richard Blundell & Steve Bond, 1995. "Initial conditions and moment restrictions in dynamic panel data models," IFS Working Papers W95/17, Institute for Fiscal Studies.
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  8. Do, Quy-Toan & Levchenko, Andrei A., 2006. "Trade, inequality, and the political economy of institutions," Policy Research Working Paper Series 3836, The World Bank.
  9. Andrei A. Levchenko, 2004. "Institutional Quality and International Trade," IMF Working Papers 04/231, International Monetary Fund.
  10. Nunn, Nathan, 2007. "Relationship-Specificity, Incomplete Contracts, and the Pattern of Trade," Scholarly Articles 4686801, Harvard University Department of Economics.
  11. M Arellano & O Bover, 1990. "Another Look at the Instrumental Variable Estimation of Error-Components Models," CEP Discussion Papers dp0007, Centre for Economic Performance, LSE.
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