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Exiting the middle-income trap entails costly improvements in state capacity. That deep economic integration induces powerful actors to support increasing state capacities remain underresearched. Here we ask: Under what conditions can deep economic integration yield increases in state capacity? We measure institutional change in 17 European former communist countries exposed to similar challenges of deep integration (European Union membership candidates), and find large variation in the evolution of their state capacities. To understand this variation, we put forward a conceptual framework and supporting hypotheses. From testing these, 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.

We investigate whether and how economic integration increases state capacity. This important relationship has not been studied in detail so far. We put together a conceptual framework to guide our analysis that highlights what we call the Montesquieu, Weber and Smith channels. Each of these correspond to a series of mechanisms in three distinct institutional arenas: judiciary, bureaucracy, and competition policy. To test our framework, we introduce a new panel of institutional reform measures which allow us to investigate how changes in these three arenas interact with each other and what sequence of changes yields increase in state capacity. The yearly data set covers all the 17 countries that became candidates to join the European Union (EU) after the 1995 enlargement. Our main finding is that the relationship between bureaucratic independence and judiciary capacity seems to be the key engine of the process of state capacity building engendered by the prospect of EU membership. Deep integration, we find, can induce broad institutional change by providing incentives for simultaneous change in core state institutions. Yet early and abrupt removal of external anchors might generate significant backsliding, or reversals, in domestic institutional change.

AbstractAlthough firms use various strategies to try to influence government policy, with lobbying and corruption chiefly among them, and political institutions play an important role in determining policy choices, very little research has been devoted to these topics. This paper tries to fill this gap. Using cross-country enterprise-level data, it investigates (1) the effect of a key political institution, namely electoral rules, on the probability that a firm engages in lobbying activities and (2) the impact of lobbying on influence, accounting for corruption and political institutions. The main conclusion is that lobbying is a significantly more effective way of generating political influence than corruption, and that electoral rules are a key mediating political institution. Our baseline estimate is that the probability of influencing government policy is 16% higher for firms that are members of lobbying groups than for those firms that are not.

This paper presents a dissonant view on post-war British economic performance. A defining feature is the decline of the UK relative to the six founding members of the European Union after 1945. However, this relative decline stopped. The conventional view is that a turning point occurs in the mid-1980s when Mrs Thatcher implements far-reaching structural reforms. This paper asks whether econometric evidence supports this conventional view and finds it does not. We then examine an alternative hypothesis: this turning point occurs around 1970 when the UK joined the European Community. We find strong econometric support for this view. The intuition we offer is that EU membership signalled the prominence of business groups that chose to compete at the high-tech end of the common European market against those business groups that preferred comparative advantage-driven Commonwealth markets (mostly former colonies). Those pro-Europe business groups later become the constituency that provides support for Mrs Thatcher's reforms. Without this vital support, we argue Mrs Thatcher's structural reforms would not have been nearly as effective, if proposed and implemented at all.

Although firms use various strategies to try to influence government policy, with lobbying and corruption chiefly among them, and political institutions play an important role in determining policy choices, very little research has been devoted to these topics. This paper tries to fill this gap. Using cross-country enterprise-level data, it investigates (1) the effect of a key political institution, namely electoral rules, on the probability that a firm engages in lobbying activities and (2) the impact of lobbying on influence, accounting for corruption and political institutions. The main conclusion is that lobbying is a significantly more effective way of generating political influence than corruption, and that electoral rules are a key mediating political institution. Our baseline estimate is that the probability of influencing government policy is 16% higher for firms that are members of lobbying groups than for those firms that are not. ; ISSN:1744-1374 ; ISSN:1744-1382

We study whether and how economic integration increases state capacity. Despite the recent surge in economist's interest in state capacity, there remains a lack of theory-based detailed empirical measures. This paper introduces a new panel of institutional reform measures. We present a political economy framework highlighting the Montesquieu, Weber and Smith channels and yielding hypotheses about the judiciary, bureaucracy, and competition policy. Our main finding is that the relationship between bureaucratic independence and judiciary capacity seems to be the main engine of the process of state capacity building engendered by the prospect of European Union membership.

What are the main causes of international terrorism? Despite the meticulous examination of various candidate explanations, existing estimates still diverge in sign, size, and significance. This article puts forward a novel explanation and supporting evidence. We argue that domestic political instability provides the learning environment needed to successfully execute international terror attacks. Using a yearly panel of 123 countries over 1973–2003, we find that the occurrence of civil wars increases fatalities and the number of international terrorist acts by 45%. These results hold for alternative indicators of political instability, estimators, subsamples, subperiods, and accounting for competing explanations.