NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Intrinsic Openness and Endogenous Institutional Quality

Yang Jiao, Shang-Jin Wei

NBER Working Paper No. 24052
Issued in November 2017
NBER Program(s):The Development Economics Program, The International Trade and Investment Program, The Political Economy Program

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.

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Document Object Identifier (DOI): 10.3386/w24052

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