Institutional Specialization

59 Pages Posted: 25 May 2021 Last revised: 13 Aug 2023

See all articles by Bernardo Guimaraes

Bernardo Guimaraes

Getulio Vargas Foundation (FGV) - Sao Paulo School of Economics

Kevin Daniel Sheedy

London School of Economics

Date Written: May 24, 2021


This paper presents a theory of institutional specialization in which some countries uphold the rule of law while others choose extractive institutions, even when countries are ex-ante identical. The driving force of specialization is that for incumbents in each country, the first steps to the rule of law have the greatest cost. Good institutions require sharing power and rents, but in places where power is already shared broadly, each power base or branch of government underpinning institutions is individually less important and thus receives lower rents. Countries with diametrically opposed institutions have a symbiotic relationship in the world equilibrium. The transition from sail to steam-powered vessels in 19th-century trade provides suggestive evidence supporting the theory.

Keywords: rule of law; power sharing; international trade; extractive institutions; resource curse; political economy

JEL Classification: F63; F68; O43; P48

Suggested Citation

Guimaraes, Bernardo and Sheedy, Kevin Daniel, Institutional Specialization (May 24, 2021). Available at SSRN: or

Bernardo Guimaraes (Contact Author)

Getulio Vargas Foundation (FGV) - Sao Paulo School of Economics ( email )

Rua Itapeva, 474
Sao Paulo

Kevin Daniel Sheedy

London School of Economics ( email )

Houghton Street
London WC2A 2AE
United Kingdom
+44 207 107 5022 (Phone)
+44 207 955 6592 (Fax)


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