Trade, inequality, and the political economy of institutions

The authors analyze the relationship between international trade and the quality of economic institutions such as contract enforcement, rule of law, or property rights. The literature on institutions has argued, both empirically and theoretically, that larger firms care less about good institutions and that higher inequality leads to worse institutions. Recent literature on international trade enables the authors to analyze economies with heterogeneous firms, and argue that trade opening leads to a reallocation of production in which large firms grow larger, while small firms become smaller or disappear. Combining these two strands of literature, the authors build a model that has two key features. First, preferences over institutional quality differ across firms and depend on firm size. Second, institutional quality is endogenously determined in a political economy framework. They show that trade opening can worsen institutions when it increases the political power of a small elite of large exporters that prefer to maintain bad institutions. The detrimental effect of trade on institutions is most likely to occur when a small country captures a sufficiently large share of world exports in sectors characterized by economic profits.Economic Theory&Research,Free Trade,Trade Law,Trade Policy,Trade and Services

Inequality, Political Systems and Public Spending

Political regimes and institutions di®er across countries. Such char- acteristics in°uence public spending within each country. The aim of this paper is to check for the existence of a link between political institu- tions, income inequality and public spending. We develop an empirical investigation, based on panel data analysis, on the determinants of pub- lic spending focusing on political, economic, demographic and social variables in large sample of developed and developing countries from 1970 to 2005. In particular, we focus on the e®ects of electoral rules on government consumption ¯nding that in countries with proportional electoral rule an increase in the heterogeneity of the government in- creases government consumption, while in countries with majoriratian electoral rule, a shift from presidential to parliamentary system leads to an increase in government consumption. We ¯nd that the link between income distribution, measured by the Gini index, and public spending depends upon institutional characteristics. Moreover, we ¯nd empiri- cal support for the argument that government spending is a policy tool used by governments to insurance the domestic economy from external shocks stemming from international trade.

Challenges associated with the BRI: A review of recent economics literature

Economic trade theory suggests that the Belt Road Initiative (BRI) can lead to more trade and increases in welfare. However, this can also lead to various challenges. In this paper, we use recent literature in economics to identify three such challenges. The first is that there is increasing evidence of malinvestment in previous Chinese infrastructure investments, rising corporate debt and corruption. If the BRI worsens this phenomena, the consequent financial and economic crisis in China is likely to have serious contagion effects with global ramifications. Second, trade brings about winners and losers within a country and unless there is adequate redistribution of the gains within an economy it can lead to increased inequality, poverty and structural unemployment. Finally, there are negative consequences to the environment that trade expansion may bring about unless effective legal, political and economic institutions are in place addressing the issue

Challenges associated with the BRI: a review of recent economics literature

Economic trade theory suggests that the Belt Road Initiative (BRI) can lead to more trade and increases in welfare. However, this can also lead to various challenges. In this paper, we use recent literature in economics to identify three such challenges. The first is that there is increasing evidence of malinvestment in previous Chinese infrastructure investments, rising corporate debt and corruption. If the BRI worsens this phenomena, the consequent financial and economic crisis in China is likely to have serious contagion effects with global ramifications. Second, trade brings about winners and losers within a country and unless there is adequate redistribution of the gains within an economy it can lead to increased inequality, poverty and structural unemployment. Finally, there are negative consequences to the environment that trade expansion may bring about unless effective legal, political and economic institutions are in place addressing the issue

The causes of government and the consequences for growth and well-being

Using a large cross-country data set, the authors examine the factors that cause governments to grow, and analyze how the size of government affects growth, whether measured as income growth or other measures of well-being, such as infant mortality and life expectancy. They find no robust link between government size and per capita income. The factors they find to be important in explaining government size are relative prices, the age-dependency ratio, how long a country has been independent, relative political freedom, and openness in trade. Their results also partially support the view that governments use consumption to buffer external risk, especially in low-income countries. As for how government size affects growth, they find a robust and significant negative relationship between growth and government size, as measured by consumption. Policy distortions, predictably, also have a negative effect on growth. But the positive effects of well-functioning institutions and high quality in government bureaucracies can offset the negative influence of large government size alone. Finally, they find that social-sector spending can exert a positive influence by reducing infant mortality and raising life expectancy. Better income distribution, higher per capita income, higher per capita income growth, and more political freedom have the same positive effect on those two measures of well-being.Environmental Economics&Policies,Economic Theory&Research,National Governance,Payment Systems&Infrastructure,Knowledge Economy,Knowledge Economy,Environmental Economics&Policies,National Governance,Economic Theory&Research,Inequality

Globalisation, trade liberalisation and economic development in the developing countries: An overview

Abstract. This article examines globalisation in the historical context and also its implications for development, especially in the developing countries. Economic globalisation means where all countries are developing their economies according to homogeneous rules and regulations formulated by international organisations such as the WTO, IMF and the World Bank. Globalisation refers to the opening of national markets and integration of production and increased operations of MNCs. It simply means nation-states are not able to influence exports and imports of goods and capital. And trade liberalisation is seen as a crucial policy towards globalisation. This paper will critically analyse the theoretical justification for the policy of free trade. There seems to be no doubt that globalisation has opened up a number of beneficial avenues for those countries conducive to innovation and entrepreneurship. Yet in the developing countries the fundamental problem of unemployment, income inequality and poverty persists and a more integrated economy under current globalisation has not been successful in resolving the challenges and problems facing the people in developing countries. This study concludes that the political economy of globalisation seems to be another addition to the power of global capital over national capitalist development, which reflects crisis in capitalism due to the accumulation crisis.Keywords. Globalisation, WTO, Free trade, Institutions, Developing countries.JEL. F10, F13, F60

Income Inequality in Advanced Capitalism : How Protective Institutions can Promote Egalitarian Societies

Peer reviewedPostprin

Political Economy of Agricultural Trade Interventions in Africa

This paper uses new data on agricultural policy interventions to examine the political economy of agricultural trade policies in Sub-Saharan Africa. Historically, African governments have discriminated against agricultural producers in general (relative to producers in non-agricultural sectors), and against producers of export agriculture in particular. While more moderate in recent years, these patterns of discrimination persist. They do so even though farmers comprise a political majority. Rather than claiming the existence of a single best approach to the analysis of policy choice, we explore the impact of three factors: institutions, regional inequality, and tax revenue generation. We find that agricultural taxation increases with the rural population share in the absence of electoral party competition; yet, the existence of party competition turns the lobbying disadvantage of the rural majority into political advantage. We also find that privileged cash crop regions are particular targets for redistributive taxation, unless the country's president comes from that region. In addition, governments of resource-rich countries, while continuing to tax export producers, reduce their taxation of food consumers.African and African American Studie