Working Paper: NBER ID: w24052
Authors: Yang Jiao; Shangjin Wei
Abstract: Quality of public institutions has been recognized as a crucial determinant of macroeconomic outcomes. We propose that a country's intrinsic level of openness (due to population size, geography, or exogenous trade opportunities) affects its incentives in investing in better institutions. We present a simple theory and extensive empirical evidence validating the role of intrinsic openness in determining governance quality. This suggests an indirect but important channel for globalization to improve welfare by raising the quality of governance.
Keywords: Institutional Quality; Intrinsic Openness; Governance; Globalization
JEL Codes: F10; O10
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Intrinsic openness (O36) | Governance quality (H11) |
| Governance quality (H11) | Corruption (D73) |
| Intrinsic openness (O36) | Corruption (D73) |
| Intrinsic openness (O36) | Political risk (P26) |
| Bad institutions (P37) | International trade costs (F19) |
| Intrinsic openness (O36) | Institutional quality (I24) |
| Colonial history (F54) | Institutional quality (I24) |
| Natural resource abundance (Q33) | Institutional quality (I24) |