Institutions and development : the interaction between trade regime and political system

Arbeitspapier

This paper argues that openness to goods trade in combination with an unequal distribution of political power has been a major determinant of the comparatively slow development of resource- or land-abundant regions like South America and the Caribbean in the nineteenth century. We develop a two-sector general equilibrium model with a tax-financed public sector, and show that in a feudal society (dominated by landed elites) productivity-enhancing public investments like the provision of schooling are typically lower in an open than in a closed economy. Moreover, we find that, under openness to trade, development is faster in a democratic system. We also endogenize the trade regime and demonstrate that, in political equilibrium, a land-abundant and landowner-dominated economy supports openness to trade. Finally, we discuss empirical evidence which strongly supports our basic hypotheses.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CESifo Working Paper ; No. 1279

Classification and Topics

• Classification: Wirtschaft ; Economic Development: General ; Economic History: Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations: Latin America; Caribbean ; Economic History: Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations: General, International, or Comparative ; Economic Growth of Open Economies ; National Government Expenditures and Related Policies: General
• Subject: economic development ; institutions ; political system ; public education ; trade ; Entwicklung ; Politik der offenen Tür ; Außenwirtschaftspolitik ; Politisches System ; Theorie ; Welt

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Falkinger, Josef ; Grossmann, Volker
• Event: Veröffentlichung
• (who): Center for Economic Studies and ifo Institute (CESifo)
• (where): Munich
• (when): 2004

Further information

• Handle: http://hdl.handle.net/10419/18917
• Last update: 10.03.2025, 11:41 AM CET