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Institutional Determinants of Bilateral Trade: An Analysis according to Product Type

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Author Info

  • Gert-Jan M. Linders

    ()
    (Faculty of Economics and Business Administration, Vrije Universiteit Amsterdam)

  • Henri L.F. de Groot

    ()
    (Faculty of Economics and Business Administration, Vrije Universiteit Amsterdam)

  • Piet Rietveld

    ()
    (Faculty of Economics and Business Administration, Vrije Universiteit Amsterdam)

Abstract

Formal trade barriers and transport costs explain only part of the resistance to international trade. Search costs on the international market and insecurity of property rights and contract enforcement have recently been emphasized as important intangible barriers to trade. This paper proposes that the impact of institutional quality on bilateral trade varies depending on the type of product that is being traded. Distinguishing between homogeneous and differentiated product groups, we estimate gravity equations to investigate how trade patterns are affected by variation in the quality of institutions across countries. The results show that institutions matter most for trade in differentiated goods. This variation in the importance of property security for trade underlines the relevance of search costs and other transaction-specific investments for understanding variation in bilateral trade patterns.

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Bibliographic Info

Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 05-023/3.

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Date of creation: 17 Feb 2005
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Handle: RePEc:dgr:uvatin:20050023

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Web page: http://www.tinbergen.nl

Related research

Keywords: bilateral trade; gravity model; institutions; trade costs; product type;

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References

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  1. Jeffrey A. Frankel, 1997. "Regional Trading Blocs in the World Economic System," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 72.
  2. Trefler, Daniel, 1995. "The Case of the Missing Trade and Other Mysteries," American Economic Review, American Economic Association, vol. 85(5), pages 1029-46, December.
  3. James E. Rauch & Vitor Trindade, 1999. "Ethnic Chinese Networks in International Trade," NBER Working Papers 7189, National Bureau of Economic Research, Inc.
  4. Henri L.F. De Groot & Gert-Jan Linders & Piet Rietveld & Uma Subramanian, 2003. "The Institutional Determinants of Bilateral Trade Patterns," ERSA conference papers ersa03p421, European Regional Science Association.
  5. James E. Rauch, 2001. "Business and Social Networks in International Trade," Journal of Economic Literature, American Economic Association, vol. 39(4), pages 1177-1203, December.
  6. James E. Rauch, 1996. "Networks versus Markets in International Trade," NBER Working Papers 5617, National Bureau of Economic Research, Inc.
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Cited by:
  1. Frank A.G. den Butter & Raphie Hayat, 0000. "Trade between China and the Netherlands: a Case Study of Globalization," Tinbergen Institute Discussion Papers 08-016/3, Tinbergen Institute.
  2. Frank A.G. den Butter & Raphie Hayat, 0000. "Trade between China and the Netherlands: a Case Study of Globalization," Tinbergen Institute Discussion Papers 08-016/3, Tinbergen Institute.
  3. Söderlund, Bengt & Gustavsson Tingvall, Patrik, 2012. "Dynamic Effects of Institutions on Firm-Level Exports," Ratio Working Papers 184, The Ratio Institute.
  4. repec:dgr:uvatin:0000016 is not listed on IDEAS

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