Autocracy, Democracy and Trade Policy

Abstract

We study democratization, coups and trade policy determination in an environment marked by intra-elite conflict over trade policy by taking a simple general equilibrium model of an open economy and combining it with the Acemoglu-Robinson model of democratization. Unlike the approaches taken in the previous literature, we study the simultaneous determination of trade policy and the political regime. Introducing a politically determined trade policy not only affects the equilibrium trade policy but also in‡uences the nature of the political regime. The critical point is that trade policy opens the door to a type of political cleavage that differs from the rich-poor/elite-populace division. Indeed, though we stress the role of trade policy in this paper, our model is more general and it applies to any policy variable that could potentially divides the elites. In particular, we show that in the absence of intra-elite conflict, coups will open up the economy if the elite is pro-free-trade and will close the economy if the elite is protectionist, whereas, in the presence of with intra-elite conflict, coups may either open up the economy or close it. Moreover, we show that in the presence of intra-elite conflict, the elite may respond to popular revolts by reallocating political power within the elite rather than offering democratization. Finally, we use the model to brie‡y discuss the political and trade policy experience of Argentina in the twentieth century and the repeal of the Corn Laws in Great Britain.

Keywords: trade policy, democratization, coups, intra-elite conflict

JEL Classification: D72, D78