International Trade and Institutional Change
41 Pages Posted: 17 Dec 2011 Last revised: 19 Apr 2023
Date Written: December 2011
Abstract
This paper analyzes the impact of international trade on the quality of institutions, such as contract enforcement, property rights, or investor protection. It presents a model in which imperfect institutions create rents for some parties within the economy, and are a source of comparative advantage in trade. Institutional quality is determined as an equilibrium of a political economy game. When countries share the same technology, there is a "race to the top'' in institutional quality: irrespective of country characteristics, both trade partners are forced to improve institutions after opening. On the other hand, domestic institutions will not improve in either country when one of the countries has a strong enough technological comparative advantage in the institutionally intensive good. We provide empirical evidence for a related cross-sectional prediction of the model. Countries whose exogenous geographical characteristics predispose them to exporting in institutionally intensive sectors exhibit significantly higher institutional quality.
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
The Colonial Origins of Comparative Development: An Empirical Investigation
By Daron Acemoglu, Simon Johnson, ...
-
The Colonial Origins of Comparative Development: An Empirical Investigation
By Daron Acemoglu, Simon Johnson, ...
-
The Colonial Origins of Comparative Development: An Empirical Investigation
By Daron Acemoglu, Simon Johnson, ...
-
By Daron Acemoglu, Simon Johnson, ...
-
By Daron Acemoglu, Simon Johnson, ...
-
By Dani Rodrik, Arvind Subramanian, ...
-
By Dani Rodrik, Arvind Subramanian, ...
-
By Dani Rodrik, Arvind Subramanian, ...
-
Geography and Economic Development
By John Luke Gallup, Jeffrey D. Sachs, ...