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Inefficient policies, inefficient institutions and trade

Ruben Segura-Cayuela ()

No 633, Working Papers from Banco de España

Abstract: Despite the general belief among economists on the growth-enhancing role of international trade and significant trade opening over the past 25 years, the growth performance of many developing economies, especially of those in Latin America and Africa, has been disappointing. While this poor growth performance has many potential causes, in this paper I argue that part of the reason may be related to the interaction between weak institutions and trade. In particular, I construct a model in which trade opening in societies with weak institutions (in particular autocratic and elite-controlled political systems) may lead to worse economic policies. The reason is that general equilibrium price effects of taxation and expropriation in closed economies also hurt the elites, and this puts a natural barrier against inefficient policies. Trade openness removes this barrier and enables groups with political power to exercise this power in more inefficient ways.

Keywords: institutions; political economy; expropriation; property rights; international trade (search for similar items in EconPapers)
JEL-codes: F10 O10 P16 (search for similar items in EconPapers)
Pages: 53 pages
Date: 2006-12
New Economics Papers: this item is included in nep-afr, nep-int and nep-pol
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (16)

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Persistent link: https://EconPapers.repec.org/RePEc:bde:wpaper:0633

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