Trade, Trust and Institutions
AbstractTo investigate the relation between trust and formal institutions, we analyze bilateral trade patterns in a sample of 16 European countries between 1996-2009. Trust in trading partners has a significant positive effect on bilateral trade. However, our results suggest that trust and formal institutions are substitutes, as the positive effect of trust on trade is conditional on the quality of formal institutions. When the institutional quality of the importing country increases, the effect of trust on trade decreases, and eventually becomes insignificant. The decline in the effect of trust on trade is less when the exporting country’s institutional quality improves.
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Bibliographic InfoPaper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 3571.
Date of creation: 2011
Date of revision:
trust; international trade; institutional quality;
Find related papers by JEL classification:
- F10 - International Economics - - Trade - - - General
- Z10 - Other Special Topics - - Cultural Economics - - - General
- K40 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - General
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