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


Falkinger, Josef; Grossmann, Volker (2005). Institutions and development: the interaction between trade regime and political system. Journal of Economic Growth, 10(3):231-272.

Abstract

This paper argues that an unequal distribution of political power, biased to landed elites and owners of natural resources, in combination with openness to trade is a major obstacle to development of natural resource- or land-abundant economies. We develop a two-sector general equilibrium model and show that in an oligarchic society public investments conducive to industrialization - schooling for example - 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 a land-abundant economy the landed elite has an interest to support openness to trade. We present historical evidence for Southern economies in the Americas that is consistent with our theoretical results: resistance of landed elites to mass education, comparative advantages in primary goods production in the 19th century globalization wave, and low primary school enrollment and literacy rates.

This paper argues that an unequal distribution of political power, biased to landed elites and owners of natural resources, in combination with openness to trade is a major obstacle to development of natural resource- or land-abundant economies. We develop a two-sector general equilibrium model and show that in an oligarchic society public investments conducive to industrialization - schooling for example - 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 a land-abundant economy the landed elite has an interest to support openness to trade. We present historical evidence for Southern economies in the Americas that is consistent with our theoretical results: resistance of landed elites to mass education, comparative advantages in primary goods production in the 19th century globalization wave, and low primary school enrollment and literacy rates.

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11 citations in Web of Science®
13 citations in Scopus®
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Additional indexing

Item Type:Journal Article, refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Economics
Dewey Decimal Classification:330 Economics
Language:English
Date:2005
Deposited On:11 Feb 2008 12:21
Last Modified:05 Apr 2016 12:17
Publisher:Springer
ISSN:1381-4338
Additional Information:The original publication is available at www.springerlink.com
Publisher DOI:10.1007/s10887-005-3534-4
Permanent URL: http://doi.org/10.5167/uzh-1188

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