Trade, Inequality, and the Political Economy of Institutions

February 1, 2006

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Format: Chicago

Andrei A Levchenko, and Quý Toàn Ðo. Trade, Inequality, and the Political Economy of Institutions, (USA: International Monetary Fund, 2006) accessed December 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

We analyze the relationship between international trade and the quality of economic institutions, such as contract enforcement, rule of law, and property rights. In our model, firms differ in their preferences for institutional quality, which is determined endogenously in a political economy framework. We show that trade opening can worsen institutions when it increases the political power of a small elite of large exporters who prefer to maintain bad institutions. The detrimental effect of trade on institutions is most likely to occur when a small country captures a sufficiently large share of world exports in sectors characterized by economic profits.

Subject: Agricultural commodities, Competition, Exports, Labor, Political economy

Keywords: Fixed cost, WP

Publication Details

Pages:

54
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2006/056
Stock No:

WPIEA2006056
ISBN:

9781451863161
ISSN:

1018-5941

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