Pampered Bureaucracy, Political Stability, and Trade Integration

41 Pages Posted: 4 Oct 2011 Last revised: 7 Mar 2017

See all articles by Caleb Stroup

Caleb Stroup

Davidson College

Ben Zissimos

Vanderbilt University - College of Arts and Science - Department of Economics

Multiple version iconThere are 3 versions of this paper

Date Written: September 18, 2016

Abstract

This paper examines the effect of trade integration and comparative advantage on one of a country's institutions, which in turn influences its economic efficiency. The environment we explore is one in which a country's lower classes may revolt and appropriate wealth owned by a ruling elite. The elite can avert revolution by incentivizing a potentially productive middle class to sink their human capital into a relatively unproductive bureaucracy. Thus, the bureaucracy serves as an institution through which the elite can credibly commit to make transfers to the rest of society, but in the process this reduces economic efficiency. Trade integration alters the relative value of the elite's wealth. This alters the lower classes incentive to revolt on the one hand and the elite's incentive to subsidize participation in the inefficient bureaucracy on the other. Therefore, the interaction between a country's comparative advantage and an inefficient economic institution determines whether trade integration increases or reduces economic efficiency. The econometric findings support the model's main prediction.

Keywords: Efficiency, Inefficient Institutions, Property Rights, Social Conflict, Trade Integration

JEL Classification: D30, D74, F10, O12, P14

Suggested Citation

Stroup, Caleb and Zissimos, Ben, Pampered Bureaucracy, Political Stability, and Trade Integration (September 18, 2016). Available at SSRN: https://ssrn.com/abstract=1937970 or http://dx.doi.org/10.2139/ssrn.1937970

Ben Zissimos

Vanderbilt University - College of Arts and Science - Department of Economics ( email )

Box 1819 Station B
Nashville, TN 37235
United States

HOME PAGE: http://www.vanderbilt.edu/econ/cv/ZissimosCV.pdf

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