Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/155613
Authors: 
Stroup, Caleb
Zissimos, Benjamin
Year of Publication: 
2017
Series/Report no.: 
CESifo Working Paper 6371
Abstract: 
This paper examines the effect of trade integration and comparative advantage on one of a country’s institutions, which in turn inuences 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.
Subjects: 
efficiency
institutions
property rights
social unrest
trade integration
JEL: 
D30
D74
F10
O12
P14
Document Type: 
Working Paper

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.