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Inefficient Policies, Inefficient Institutions and Trade

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  • Ruben Segura-Cayuela

Abstract

Despite the general belief among economists on the growth-enhancing role of international trade and significant trade opening over the past 25 years, the growth performance of many developing economies, especially of those in Latin America and Africa, has been disappointing. While this poor growth performance has many potential causes, in this paper I argue that part of the reason may be related to the interaction between weak institutions and trade. In particular, I construct a model in which trade opening in societies with weak institutions (in particular autocratic and elite-controlled political systems) may lead to worse economic policies. The reason is that general equilibrium price effects of taxation and expropriation in closed economies also hurt the elites, and this puts a natural barrier against inefficient policies. Trade openness removes this barrier and enables groups with political power to exercise this power in more inefficient ways

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  • Ruben Segura-Cayuela, 2006. "Inefficient Policies, Inefficient Institutions and Trade," 2006 Meeting Papers 502, Society for Economic Dynamics.
    • Handle: RePEc:red:sed006:502
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    Cited by:

    1. Andrei A. Levchenko, 2013. "International Trade and Institutional Change," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 29(5), pages 1145-1181, October.
    2. Matteo Cervellati & Alireza Naghavi & Farid Toubal, 2018. "Trade liberalization, democratization, and technology adoption," Journal of Economic Growth, Springer, vol. 23(2), pages 145-173, June.
    3. Chakraborty, Pavel, 2016. "Judicial quality and regional firm performance: The case of Indian states," Journal of Comparative Economics, Elsevier, vol. 44(4), pages 902-918.
    4. de Gorter, Harry, 2008. "Explaining Inefficient Policy Instruments," Agricultural Distortions Working Paper Series 48638, World Bank.
    5. Dawood Mamoon, 2012. "Economic security, well functioning courts and a good government," International Journal of Social Economics, Emerald Group Publishing Limited, vol. 39(8), pages 587-611, June.
    6. Do, Quy-Toan & Levchenko, Andrei A., 2009. "Trade, inequality, and the political economy of institutions," Journal of Economic Theory, Elsevier, vol. 144(4), pages 1489-1520, July.
    7. Caleb Stroup & Ben Zissimos, 2017. "Pampered Bureaucracy, Political Stability and Trade Integration," Review of Development Economics, Wiley Blackwell, vol. 21(3), pages 425-450, August.
    8. Do, Quy-Toan & Levchenko, Andrei A. & Raddatz, Claudio, 2011. "Engendering trade," Policy Research Working Paper Series 5777, The World Bank.
    9. Raphael A. Auer, 2013. "Geography, institutions, and the making of comparative development," Journal of Economic Growth, Springer, vol. 18(2), pages 179-215, June.
    10. Sebil Olalekan Oshota & Bashir Adelowo Wahab, 2022. "Institutional Quality and Intra-Regional Trade Flows: Evidence from ECOWAS," Journal of African Trade, Springer, vol. 9(1), pages 73-106, December.
    11. Verdier, Thierry, 2010. "Ouverture, conflits et capacité étatique : une perspective d’économie politique," L'Actualité Economique, Société Canadienne de Science Economique, vol. 86(4), pages 415-449, décembre.
    12. Dawood Mamoon, 2006. "Which Institutions Are More Relevant Than Others in Inequality Mitigation?," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 45(4), pages 893-912.
    13. Christodoulos Stefanadis, 2010. "Appropriation, Property Rights Institutions, and International Trade," American Economic Journal: Economic Policy, American Economic Association, vol. 2(4), pages 148-172, November.
    14. Daron Acemoglu, 2006. "Modeling Inefficient Institutions," NBER Working Papers 11940, National Bureau of Economic Research, Inc.
    15. Antonio Navas-Ruiz, 2008. "On Trade Openness, Institutional Change and Economic Growth," Working Papers halshs-00326394, HAL.
    16. Dadasov, Ramin & Harms, Philipp & Lorz, Jens Oliver, 2009. "The Impact of Financial Integration on Institutions in Autocracies," Proceedings of the German Development Economics Conference, Frankfurt a.M. 2009 4, Verein für Socialpolitik, Research Committee Development Economics.
    17. Christian Volpe Martincus & Andrés Gallo, 2009. "Institutions and Export Specialization: Just Direct Effects?," Kyklos, Wiley Blackwell, vol. 62(1), pages 129-149, February.
    18. Fadiran, David & Oyenubi, Adeola, 2022. "Institutions and intra-sub-regional trade: the ECOWAS Case," Conference papers 333452, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    19. Saad, Ayhab F., 2021. "Institutional change in the global economy: How trade reform can be detrimental to welfare," Economic Modelling, Elsevier, vol. 95(C), pages 97-110.

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    More about this item

    Keywords

    Trade; Institutions; Expropriation;
    All these keywords.

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General

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