TY  - RPRT
        AU  - Falkinger, Josef
AU  - Grossmann, Volker
        TI  - Institutions and Development: The Interaction between Trade Regime and Political System
        PY  - 2004/Aug/
        PB  - Institute of Labor Economics (IZA)
        CY  - Bonn
        T2  - IZA Discussion Paper
        IS  - 1242
        UR  - https://www.iza.org/index.php/publications/dp1242
        AB  - 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.
        KW  - public education
KW  - economic development
KW  - institutions
KW  - political system
KW  - trade
        ER  -