Pampered Bureaucracy, Political Stability and Trade Integration

26 Pages Posted: 7 Jul 2017

See all articles by Caleb Stroup

Caleb Stroup

Davidson College

Benjamin Zissimos

University of Exeter Business School

Multiple version iconThere are 3 versions of this paper

Date Written: August 2017

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.

Suggested Citation

Stroup, Caleb and Zissimos, Benjamin, Pampered Bureaucracy, Political Stability and Trade Integration (August 2017). Review of Development Economics, Vol. 21, Issue 3, pp. 425-450, 2017, Available at SSRN: https://ssrn.com/abstract=2998423 or http://dx.doi.org/10.1111/rode.12315

Benjamin Zissimos

University of Exeter Business School ( email )

Streatham Court
Xfi Building, Rennes Dr.
Exeter, EX4 4JH
United Kingdom

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