N-S Trade with Weak Institutions

NBER Working Paper No. 24251

Issued in January 2018

NBER Program(s):Development Economics, International Trade and Investment



States with weak institutions (South) can lose from institutional response to trade with North. A Ricardian model of trade subject to predation characterizes the case. South labor earns equal returns in production and predation. Institutions are needed for security improvement because equilibrium predation is invariant to globalization and productivity rises, contrary to casual intuition. Enforcement reduces predation with terms of trade effects that typically imply opposing North-South interests. Trade also incentivizes institutional regime change to counter or control predation. North para-state institutions gain by promoting corrupt South institutions – Mafias or their state equivalents – over welfarist South states.

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Document Object Identifier (DOI): 10.3386/w24251

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