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On Trade Openness, Institutional Change and Economic Growth

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  • Antonio Navas-Ruiz

    (UC3M - Universidad Carlos III de Madrid [Madrid], GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique)

Abstract

This paper explores the relationship between trade openness and economic growth through a change in institutions. To do so, the paper creates a theory of endogenous institutional change wherethere are three social groups, each one owns a speci c production factor. An ellite (landowners) controlling the political power x higher taxes to extract rents from the other groups of the society(capitalists). This reduces investment in capital, the source for endogenous growth. Endogenous institutional change is done by allowing the rival group (capitalists) to invest in a military action which expels out the group in power. The model studies optimal taxation, growth and institutional change under two scenarios, autarky and free trade.We calibrate the model according to Western European experience on the XVIth century deriving that: First: Economies opened to trade will experiment higher growth and faster institutionalchange. Second: Economies specializing in manufacturing products tend to grow more and rise the institutional change earlier. These results are very robust to change in parameter values and it seems to t quite well with historical experience.

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  • Antonio Navas-Ruiz, 2008. "On Trade Openness, Institutional Change and Economic Growth," Working Papers halshs-00326394, HAL.
    • Handle: RePEc:hal:wpaper:halshs-00326394
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00326394
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    More about this item

    Keywords

    endogenous growth; institutional change; liberalization of capital;
    All these keywords.

    JEL classification:

    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth

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