Pampered Bureaucracy, Political Stability, and Trade Integration

Benjamin Zissimos and Caleb Stroup

No 16-03, Working Papers from Davidson College, Department of Economics

Abstract: This paper examines the effect of trade integration and comparative advantage on one of a country's institutions, which in turn influence its economic efficiency. The environment we explore is one in which a country's lower classes may revolt and appropriate wealth owned by a ruling elite. The elite can avert revolution by incentivizing a potentially productive middle class to sink their human capital into a relatively unproductive bureaucracy. Thus, the bureaucracy serves as an institution through which the elite can credibly commit to make transfers to the rest of society, but in the process this reduces economic efficiency. Trade integration alters the relative value of the elite's wealth. This alters the lower classes incentive to revolt on the one hand and the elite's incentive to subsidize participation in the inefficient bureaucracy on the other. Therefore, the interaction between a country's comparative advantage and an inefficient economic institution determines whether trade integration increases or reduces economic efficiency. The econometric findings support the model's main prediction.

Keywords: Efficiency; Inefficient Institutions; Property Rights; Social Conflict; Trade Integration (search for similar items in EconPapers)
JEL-codes: D30 D74 F10 O12 P14 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2016-09
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Related works:
Journal Article: Pampered Bureaucracy, Political Stability and Trade Integration (2017)
Working Paper: Pampered Bureaucracy, Political Stability, and Trade Integration (2017)
Working Paper: Pampered Bureaucracy, Political Stability, and Trade Integration (2011)
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