Pampered bureaucracy, political stability, and trade integration
Review of Development Economics
Reason for embargo
This paper examines the e§ect of trade integration and comparative advantage on one of a countryís institutions, which in turn ináuences its economic ef- Öciency. The environment we explore is one in which a countryís 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 e¢ ciency. Trade integration alters the relative value of the eliteís wealth. This alters the lower classesíincentive to revolt on the one hand and the eliteís incentive to subsidize participation in the ine¢ cient bureaucracy on the other. Therefore, the interaction between a countryís comparative advantage and an ine¢ cient economic institution determines whether trade integration increases or reduces economic e¢ ciency. The econometric Öndings support the modelís main prediction
Center for the Americas at Vanderbilt University
This is the author accepted manuscript. The final version is available from Wiley via the DOI in this record.
First published: 29 March 2017