Institutions and Development: The Interaction Between Trade Regime and Political System |
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Authors: | Josef Falkinger Volker Grossmann |
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Affiliation: | (1) CESifo, Munich Institute for the Study of Labor, Bonn Socioeconomic Institute, University of Zurich, Züurichbergstr. 14, CH-8032 Zürich, Switzerland |
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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. |
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Keywords: | economic development institutions political system public education trade |
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