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The Impact of Financial Integration on Institutions in Autocracies

Author

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  • Dadasov, Ramin
  • Harms, Philipp
  • Lorz, Jens Oliver

Abstract

It is often argued that a saticfactory institutional quality is prerequi- site for successfull financial integration. This paper analyzes the influence of financial integration on institutional quality. We construct a dynamic politico-economic model in which the ruling elite uses its political power to expropriate the entrepreneurial class. Although financial integration reduces capital costs for the entrepreneurs and therefore increases their gross profits, the elite counteracts this effect by raising the level of expropriation. Consequently, the net income of entrepreneurs may rise or decline depending on the respective magnitude of the countervailing effects. Since political power is linked to economic resources, financial integration also has consequences for the concentration of power in the hands of the elite and for the rise of the entrepreneurial class.

Suggested Citation

  • 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.
    • Handle: RePEc:zbw:gdec09:4
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    References listed on IDEAS

    as
    1. Ruben Segura-Cayuela, 2006. "Inefficient Policies, Inefficient Institutions and Trade," 2006 Meeting Papers 502, Society for Economic Dynamics.
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    More about this item

    Keywords

    Institutions; Capital Mobility; Political Economy;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • P48 - Political Economy and Comparative Economic Systems - - Other Economic Systems - - - Legal Institutions; Property Rights; Natural Resources; Energy; Environment; Regional Studies

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