Autocracy, democracy and trade policy

Sebastian Galiani and Gustavo Torrens, Journal of International Economics 93(1), 173-193, May .


We study democratization, coups and trade policy determination in an environment marked by intra-elite conáict over trade policy by taking a simple general equilibrium model of an open economy and combining it with the Acemoglu-Robinson model of democratization. Unlike the approaches taken in the previous literature, we study the simultaneous determination of trade policy and the political regime. Introducing a politically determined trade policy not only a§ects the equilibrium trade policy but also ináuences the nature of the political regime. The critical point is that trade policy opens the door to a type of political cleavage that di§ers from the rich-poor/elite-populace division. Indeed, though we stress the role of trade policy in this paper, our model is more general and applies to any policy variable that could potentially divide the elites. In particular, we show that, in the absence of intra-elite conáict, coups will open up the economy if the elite is pro-free-trade and will close the economy if the elite is protectionist, whereas, in the presence of intra-elite conáict, coups may either open up the economy or close it. Moreover, we show that, in the presence of intra-elite conáict, the elite may respond to popular revolts by reallocating political power within the elite rather than o§ering democratization. Finally, we use the model to brieáy discuss the political and trade policy experience of Argentina in the twentieth century and the repeal of the Corn Laws in Great Britain.

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