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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. Michelle R. Garfinkel & Stergios Skaperdas & Constantinos Syropoulos, 2006. "Globalization and Domestic Conflict," Working Papers 050601, University of California-Irvine, Department of Economics.
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  6. Daron Acemoglu & Davide Ticchi & Andrea Vindigni, 2006. "Emergence and Persistence of Inefficient States," Carlo Alberto Notebooks 34, Collegio Carlo Alberto.
  7. Andrei A. Levchenko, 2007. "Institutional Quality and International Trade," Review of Economic Studies, Oxford University Press, vol. 74(3), pages 791-819.
  8. Hijzen, Alexander & Görg, Holger & Manchin, Miriam, 2008. "Cross-border mergers and acquisitions and the role of trade costs," European Economic Review, Elsevier, vol. 52(5), pages 849-866, July.
  9. Nathan Nunn, 2005. "Relationship Specificity, Incomplete Contracts and the Pattern of Trade," International Trade 0512018, EconWPA.
  10. Rubén Segura-Cayuela, 2006. "Inefficient policies, inefficient institutions and trade," Banco de Espa�a Working Papers 0633, Banco de Espa�a.
  11. Do, Quy-Toan & Levchenko, Andrei A., 2009. "Trade, inequality, and the political economy of institutions," Journal of Economic Theory, Elsevier, vol. 144(4), pages 1489-1520, July.
  12. Arellano, Manuel & Bover, Olympia, 1995. "Another look at the instrumental variable estimation of error-components models," Journal of Econometrics, Elsevier, vol. 68(1), pages 29-51, July.
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