Institutional Quality and the Gains from Trade
AbstractWhile theoretical models suggest that trade is likely to increase productivity and income levels, the empirical evidence is rather mixed. For some countries, trade has a strong impact on growth, whereas for other countries there is no or even a negative linkage. We examine one likely prerequisite for a welfare increasing impact of trade, that is, the role of institutional quality. Using several model specifications, including an instrumental variable approach, we identify those aspects of institutional quality that matter most for the positive linkage between trade and growth. We find that, above all, labour market regulation is the key to reducing trade-related adjustment costs. Market entry regulations, the efficiency of the tax system, the rule of law and government effectiveness do play a role too. In essence, the results demonstrate that countries with low-quality institutions do not benefit from trade. Copyright 2006 Blackwell Publishing Ltd..
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Bibliographic InfoArticle provided by Wiley Blackwell in its journal Kyklos.
Volume (Year): 59 (2006)
Issue (Month): 3 (08)
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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0023-5962
Other versions of this item:
- P48 - Economic Systems - - Other Economic Systems - - - Political Economy; Legal Institutions; Property Rights; Natural Resources; Energy; Environment; Regional Studies
- L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
- F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
- O17 - Economic Development, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
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