The Economic Foundations of Institutional Stagnation in Commodity-Exporting Countries
CIRPEE Working Paper 10-36
28 Pages Posted: 3 Oct 2010
Date Written: September 30, 2010
Many poor countries are plagued with growth-impeding institutions. We develop a three-sector general equilibrium model linking economic stagnation in these countries to poor export terms of trade. We examine the extent to which changes in the terms of trade affect private agents’ incentive to coalesce to oppose the adoption of growth-promoting institutions. We show that under certain conditions, below a threshold terms of trade level, private agents gain from coalescing to oppose the adoption of growth-promoting institutions. Above this threshold, gains from coalescing disappear, fostering institutional change.
Keywords: Terms of trade, primary commodities, institutions, general equilibrium
JEL Classification: E02, F11, L12, O33
Suggested Citation: Suggested Citation