What makes reforms happen, and what are their effects?

These are the twin themes of the IMF's Sixth Jacques Polak Annual Research Conference, being held in Washington, DC, yesterday and today. All the papers are available online, and are worth a look.

My favourite is Trade, Inequality, and the Political Economy of Institutions (PDF) by Quy-Toan Do of the World Bank and Andrei Levchenko from the IMF. Its modelling shows that greater trade openness may not always be positive for institutional quality. Here's the abstract:

We 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 us to analyze economies with heterogeneous firms, and argues that trade opening leads to a reallocation of production in which largest firms grow larger, while small firms become smaller or disappear.

Combining these two strands of literature, we build a model which 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. We show that trade opening can worsen institutions when it increases the political power of a small elite of large exporters, who 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.

Comments

[r4 revolution]

The big question is what reforms will eventually be passed. Making unlimited health care available to the millions without insurance, and paying for the reported billions of rejected insurance claims will cost a lot more than the CBO estimate.

Insurance companies will not operate at a loss and the lawyers will not go away. Both parties are strong believers in the profit motive and almost all legislators are lawyers.

If it turns into a Canadian style of health care who is going to produce all the new diagnostic equipment and new drugs.

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Insurance companies will not operate at a loss and the lawyers will not go away. Both parties are strong believers in the profit motive and almost all legislators are lawyers.

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This is a great idea, I would like to read this information every day

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It's a very interesting article, be worth of reading.