International Trade and Institutional Change

Andrei Levchenko

No 17675, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper analyzes the impact of international trade on the quality of institutions, such as contract enforcement, property rights, or investor protection. It presents a model in which imperfect institutions create rents for some parties within the economy, and are a source of comparative advantage in trade. Institutional quality is determined as an equilibrium of a political economy game. When countries share the same technology, there is a "race to the top'' in institutional quality: irrespective of country characteristics, both trade partners are forced to improve institutions after opening. On the other hand, domestic institutions will not improve in either country when one of the countries has a strong enough technological comparative advantage in the institutionally intensive good. We provide empirical evidence for a related cross-sectional prediction of the model. Countries whose exogenous geographical characteristics predispose them to exporting in institutionally intensive sectors exhibit significantly higher institutional quality.

JEL-codes: F15 P45 P48 (search for similar items in EconPapers)
Date: 2011-12
New Economics Papers: this item is included in nep-int
Note: IFM ITI
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Citations: View citations in EconPapers (9)

Published as Andrei A. Levchenko, 2013. "International Trade and Institutional Change," Journal of Law, Economics and Organization, Oxford University Press, vol. 29(5), pages 1145-1181, October.

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Related works:
Journal Article: International Trade and Institutional Change (2013)
Working Paper: International Trade and Institutional Change (2008)
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