Working Paper: NBER ID: w13170
Authors: James E. Rauch
Abstract: Several studies suggest that production of high-quality output is a precondition for firms in less developed countries to participate in the export market. Institutional deficiencies that raise the costs of entry into high-quality production therefore limit the positive impact that trade liberalization can have on income or growth. Institutional reform that reduces the costs of entry into high-quality production and trade reform therefore have synergistic effects on income and, possibly, growth. In contrast, institutional reform that reduces the costs of entry into low-quality production (e.g., reforms targeted at small businesses) interferes with the impact of trade reform. The model that yields these results is also used to analyze impacts of foreign direct investment and of subsidies to entrepreneurship in the presence of unemployment.
Keywords: No keywords provided
JEL Codes: F43; O24; O43
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Institutional reform (lowering costs of entry into high-quality production) (L59) | Increased capacity for firms to produce export-quality goods (D25) |
| Trade liberalization (reducing barriers to exports) (F13) | Increased market access for high-quality producers (Q13) |
| Institutional deficiencies (raising costs of entry into high-quality production) (L15) | Limit positive impacts of trade liberalization on income and growth (F69) |
| Institutional reform targeted at high-quality production (D29) | Greater income effects than either reform alone (H31) |
| Institutional reform (reducing entry costs for low-quality production) (L59) | Interfere with positive impacts of trade reform (F69) |