Trade, Inequality, and the Political Economy of Institutions

Author/Editor:

Andrei A Levchenko ; Quý Toàn Ðo

Publication Date:

February 1, 2006

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

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.

Series:

Working Paper No. 06/56

Subject:

English

Publication Date:

February 1, 2006

ISBN/ISSN:

9781451863161/1018-5941

Stock No:

WPIEA2006056

Format:

Paper

Pages:

54

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