Abstract
Getting out of middle income trap entails changes in state capacities that might be hard to attain in many countries around the world where powerful insiders and incumbents have high stakes in maintaining the status quo. It remains under-appreciated that deep economic integration (which goes beyond free trade agreements) can induce powerful actors to support increasing general state capacities. Here we ask: under what conditions can deep economic integration yield increases in state capacity? We measure institutional change in 17 Eastern and Central European former communist countries exposed to similar challenges of deep integration (EU membership candidates) and find large variation in the evolution of their state capacities. To understand this variation, we put forward a conceptual framework stressing three main areas (judiciary, bureaucracy, and competition policy) and supporting a set of hypotheses based on the ideas of Montesquieu, Weber and Smith, respectively. From testing these hypotheses, we empirically identify key relationships and specific reform implementation sequences. Our main result is the centrality of an intricate relationship between bureaucratic independence and judiciary capacity as a main driver of institutional change. Change in these two institutional fields, we find, is a precondition for increasing internal and external competition, which are key factors for successfully escaping the middle income trap.
Highlights
Getting out of middle-income trap entails changes in state capacities that might be hard to attain in many countries around the world where powerful insiders and incumbents have high stakes in maintaining the status quo
It remains underappreciated that deep economic integration, which goes beyond free trade agreements, can induce powerful actors to support increasing state capacity
External public actors might have strong incentives to press for domestic institutional change necessary to defend the integrity of the common markets (Bruszt and Langbein 2015)
Summary
Getting out of middle-income trap entails changes in state capacities that might be hard to attain in many countries around the world where powerful insiders and incumbents have high stakes in maintaining the status quo. It remains underappreciated that deep economic integration, which goes beyond free trade agreements, can induce powerful actors to support increasing state capacity.. We ask: Under what conditions can deep economic integration yield increases in state capacity?. A robust coalition of domestic and external actors might have common stakes in supporting encompassing institutional change necessary for participation in deep integration. Powerful external private actors might have strong interests in fighting for a “race to the top” at the level of state institutions that could guarantee even-handed enforcement of the rules of the integrated markets (Vogel and Kagan 2002). External public actors might have strong incentives to press for domestic institutional change necessary to defend the integrity of the common markets (Bruszt and Langbein 2015)
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