Deep Economic Integration and State Capacity: A Mechanism for Avoiding the Middle-Income Trap?

33 Pages Posted: 11 Sep 2017 Last revised: 28 Sep 2017

See all articles by Laszlo Bruszt

Laszlo Bruszt

Central European University

Nauro F. Campos

Brunel University London - Economics and Finance; Centre for Economic Policy Research (CEPR); University of Michigan at Ann Arbor - The William Davidson Institute; IZA Institute of Labor Economics

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Date Written: September 8, 2017

Abstract

Getting out of middle income trap entails changes in state capacities that might be hard to attain in many countries around the world where powerful insiders and incumbents have high stakes in maintaining the status quo. It remains under-appreciated that deep economic integration (which goes beyond free trade agreements) can induce powerful actors to support increasing general state capacities. Here we ask: under what conditions can deep economic integration yield increases in state capacity? We measure institutional change in 17 Eastern and Central European former communist countries exposed to similar challenges of deep integration (EU membership candidates) and find large variation in the evolution of their state capacities. To understand this variation, we put forward a conceptual framework stressing three main areas (judiciary, bureaucracy, and competition policy) and supporting a set of hypotheses based on the ideas of Montesquieu, Weber and Smith, respectively. From testing these hypotheses, we empirically identify key relationships and specific reform implementation sequences. Our main result is the centrality of an intricate relationship between bureaucratic independence and judiciary capacity as a main driver of institutional change. Change in these two institutional fields, we find, is a precondition for increasing internal and external competition, which are key factors for successfully escaping the middle income trap.

Suggested Citation

Bruszt, Laszlo and Campos, Nauro F., Deep Economic Integration and State Capacity: A Mechanism for Avoiding the Middle-Income Trap? (September 8, 2017). Available at SSRN: https://ssrn.com/abstract=3034278 or http://dx.doi.org/10.2139/ssrn.3034278

Laszlo Bruszt (Contact Author)

Central European University ( email )

Nador u 9
Budapest, 1022
Hungary

Nauro F. Campos

Brunel University London - Economics and Finance ( email )

Uxbridge UB8 3PH
United Kingdom

Centre for Economic Policy Research (CEPR)

London
United Kingdom

University of Michigan at Ann Arbor - The William Davidson Institute

724 E. University Ave.
Wyly Hall
Ann Arbor, MI 48109-1234
United States

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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