The Impact Of International Trade On Institutional Change

Institution is an important source of comparative advantage in the international trade. There have been many discussions about the topic of International Trade and Institutional Quality in the recent years. As institution was treated exogenous variable, some consistent conclusions were reached in the topic of how institution impact on international trade. However, There were few research focused on the problem that how international trade influence on institution as institution was regard as endogenous variable, especially for the China research. The state-owned sector has different motivation from the private sector in pushing forward the institution change under the international trade, because of the different political influence power between the two sectors.This dissertation studies the effect of international trade on the regional institution quality in China, Which is comprehensive by using the theoretical and empirical methods.This paper constructs a theoretical model to address the endogenous mechanism of the regional institutions in China, Which has seldom discussed in researches of China. By extending the proposed model by introducing subsides and heterogeneous interest groups, the influence of international trade on the institutional change is analyzed. As a result, given moderate technological differences among all the interest groups, the one with lower productivity but stronger lobbying power intents to lobby for subsidies to decrease the price of institutionally intensity goods in autarky, so that it can improve comparative advantage to specialize in the rent-bearing institutionally intensity sector. But the resulting regional institutions quality is worse. In the case of trade openness, because of the trade competition, the institution quality of the region with lower productivity improves to some extent, compared with that in the autarky economy, although it must combine with the limited level of subsides so as to reverse the comparative advantage, However, it still can’t achieve the deserved level for the distortion of reduced subsidies. Therefore, this paper reveals that, although the regional institutions could be forced to improve under trade, which is the same as what the original model suggested, the distorted market mechanism retards the process of institution improvement.Based on the fundamental of theoretical research, We constructs the predicted institutional intensity of exports via gravity model, using the disaggregated trade data of Harmonized System (HS) code in China between 2000～2006. It is employed as an exogenous variable to empirically analyze the impact of institutional intensity of exports on the institution quality. In what follows, we also investigate the influences of the institution-intensive exports under different ownerships on the institutional quality. In terms of the empirical evidences, it can be concluded that provinces with higher institutional intensity of exports sectors exhibit significantly higher institutional quality than those with lower intensity. Due to the pressure of international competition, the private-owned sector is motivated to push forward the development of the institutions in comparison with the state-owned sector. Therefore, the institutional intensity of exports of private-owned sectors significantly improves the local institutional quality. In addition, the paper shows that openness is also an important factor which effects on the improvement of institutional quality. In addition, in the part of expansion research, we explore the mechanism of export effect on institution change. On the one hand, the state-owned sector "depletes" the regional institution quality by lower the efficiency of resource allocation; on the other hand, the state-owned sector impacts on the private sector negatively through monopolize the upstream sectors and control lot of resources, so that "depletes" the regional institution quality again.This research work has some probably helpful suggestions. Firstly, it is benefical to private enterprises through construct a healthful market with efficiency of resource allocation and factors flowing freely, which could improve the institution by the competition effect of international trade. Secondly, the improvement of resource allocation efficiency also reinforces to the advantage of factor endowment, and promotes the competition capability of enterprise and comparative advantage of related sectors. Thirdly, the private sector should hold the dominant position in the competitive manufacture sectors, which substitute for the stated-owned sector, Meanwhile, the private sector should also entry into the monopoly sectors which were predominated by the stated-owned sector, so that force the stated-owned sector to carry out the change of institution forced. Lastly, it should constrain the administrative behavior and power rights of government so as to guarantee the operation of market mechanism, Also the government can adopt some positive measures to push forward institutional change, so as to boost the capability of efficient enterprises.