Trade, Inequality, and the Political Economy of Institutions

54 Pages Posted: 23 Mar 2006

See all articles by Quy-Toan Do

Quy-Toan Do

World Bank - Development Research Group (DECRG)

Andrei A. Levchenko

University of Michigan - Department of Economics; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 3 versions of this paper

Date Written: February 2006

Abstract

We analyze the relationship between international trade and the quality of economic institutions, such as contract enforcement, rule of law, and property rights. In our model, firms differ in their preferences for institutional quality, which is determined endogenously in a political economy framework. We show that trade opening can worsen institutions when it increases the political power of a small elite of large exporters who prefer to maintain bad institutions. The detrimental effect of trade on institutions is most likely to occur when a small country captures a sufficiently large share of world exports in sectors characterized by economic profits.

Keywords: International trade, heterogeneous firms, political economy, institutions

JEL Classification: F12, P48

Suggested Citation

Do, Quy Toan and Levchenko, Andrei A., Trade, Inequality, and the Political Economy of Institutions (February 2006). IMF Working Paper, Vol. , pp. 1-54, 2006. Available at SSRN: https://ssrn.com/abstract=892947

Quy Toan Do (Contact Author)

World Bank - Development Research Group (DECRG) ( email )

1818 H. Street, N.W.
MSN3-311
Washington, DC 20433
United States

Andrei A. Levchenko

University of Michigan - Department of Economics ( email )

611 Tappan Street
Ann Arbor, MI 48109-1220
United States

HOME PAGE: http://alevchenko.com

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
167
Abstract Views
894
rank
80,315
PlumX Metrics