Institutional Affiliation: Fudan University
NBER Working Papers and Publications
|November 2017||Intrinsic Openness and Endogenous Institutional Quality|
with Shang-Jin Wei: w24052
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.