Trade, Inequality, and the Political Economy of Institutions

Information about Western Hemisphere Hemisferio Occidental
Trade, Inequality, and the Political Economy of Institutions
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Volume/Issue:
2006/56
Series:
IMF Working Papers
Author(s):
Andrei Levchenko, and Quý Toàn Ðo
Publisher:
INTERNATIONAL MONETARY FUND
Published Date:
February 2006
DOI:
http://dx.doi.org/10.5089/9781451863161.001
ISBN:
9781451863161
ISSN:
1018-5941
Page:
54
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.
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Trade, Inequality, and the Political Economy of Institutions

Author(s):
Andrei Levchenko, and Quý Toàn Ðo
Published Date:
February 2006
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