Institutions and Development: The Interaction between Trade Regime and Political System
Josef Falkinger and
Volker Grossmann ()
No 1242, IZA Discussion Papers from Institute of Labor Economics (IZA)
This paper argues that openness to goods trade in combination with an unequal distribution of political power has been a major determinant of the comparatively slow development of resource- or land-abundant regions like South America and the Caribbean in the nineteenth century. We develop a two-sector general equilibrium model with a tax-financed public sector, and show that in a feudal society (dominated by landed elites) productivity-enhancing public investments like the provision of schooling are typically lower in an open than in a closed economy. Moreover, we find that, under openness to trade, development is faster in a democratic system. We also endogenize the trade regime and demonstrate that, in political equilibrium, a land-abundant and landowner dominated economy supports openness to trade. Finally, we discuss empirical evidence which strongly supports our basic hypotheses.
Keywords: public education; economic development; institutions; political system; trade (search for similar items in EconPapers)
JEL-codes: O10 N10 N16 F43 H50 (search for similar items in EconPapers)
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Published in: Journal of Economic Growth, 2005, 10 (3), 229-270
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Journal Article: Institutions and Development: The Interaction Between Trade Regime and Political System (2005)
Working Paper: Institutions and Development: The Interaction between Trade Regime and Political System (2004)
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