Abstract
We examine the effect of international trade on expropriation in a setting where law enforcement is costly. We show that, in general equilibrium, trade liberalization can reduce expropriation activities and have a first-order effect on the gains from trade. One interpretation of our results is that unskilled-labor abundant countries facing popular militia or rebel groups will experience amplified gains from trade, as expropriation levels and cost of enforcement decline with trade liberalization. However, the model also admits the possibility that globalization causes an increase in crime, particularly for skilled-labor abundant countries.
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Ghosh and Robertson gratefully acknowledge financial support from the Australian Research Council.
We thank an anonymous referee for his constructive comments and suggestions. We also wish to thank Luis Corchón, Mukesh Eswaran, Niven Winchester for their helpful comments. We also acknowledge comments and discussions from participants at the following: The Australian Development Economics Workshop, Sydney, 2007; The Australian Conference of Economists at Adelaide, 2009; the International Trade Workshop, University of Otago, 2007, and the United Nations—WIDER Conference on Fragile States in Helsinki, 2007.
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Ghosh, A., Robertson, P.E. Trade and expropriation. Econ Theory 50, 169–191 (2012). https://doi.org/10.1007/s00199-010-0559-5
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DOI: https://doi.org/10.1007/s00199-010-0559-5