Abstract

Abstract: This paper shows how a nation's elite maintain ownership of their wealth by creating a 'pampered bureaucracy.' The elite thus divert part of an otherwise entrepreneurial middle class from more productive manufacturing activities, reducing economic efficiency. If the country has a comparative advantage in primary products, trade liberalization is potentially destabilizing since it lowers the opportunity cost to the lower classes of challenging the elite for their wealth. If trade liberalization does take place, it may mandate expansion of the pampered bureaucracy. Therefore, trade liberalization may actually reduce economic efficiency. The econometric results provide supportive evidence for our model.