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Does Governance Matter for Enhancing Trade? Empirical Evidence from Asia

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  • Prabir De

    (Research and Information System for Developing Countries)

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    Abstract

    The primary objective of this paper is to find whether or not the governance and institutions matter for enhancing Asias trade. In this study, we have performed a comprehensive empirical analysis of the linkages between governance and trade at the Asian subregional level. Our results indicate that all individual governance indicators except regulatory quality have significant impact on trade in Asia, of which government effectiveness is the most crucial for Asias trade promotion. One of the conclusions of this paper is that soft infrastructure such as the institutions and governance are important for enhancing Asias trade. In other words, good governance and institutions help unlock trade potential of a region (or a nation). Improved governance, particularly at the sectoral level, can carry huge payoffs at a time when Asia is planning to pursue a free trade for the entire region. Ignoring governance weaknesses can stultify economic returns to free trade. Therefore, more effective policy approaches toward improved governance are needed to complement the regional trade policy in Asia and beyond.

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    Bibliographic Info

    Paper provided by East Asian Bureau of Economic Research in its series Governance Working Papers with number 22792.

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    Date of creation: Jan 2010
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    Handle: RePEc:eab:govern:22792

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    Related research

    Keywords: Governance; institutions; trade; Asia;

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    1. Laura Alfaro & Sebnem Kalemli-Ozcan, 2004. "Why does not capital frlow from rich to poor countries? An Empirical investigation," Econometric Society 2004 North American Summer Meetings, Econometric Society 416, Econometric Society.
    2. Chong, Alberto & Gradstein, Mark, 2004. "Inequality and Institutions," CEPR Discussion Papers, C.E.P.R. Discussion Papers 4739, C.E.P.R. Discussion Papers.
    3. Joseph Francois & Miriam Manchin, 2007. "Institutions, Infrastructure, and Trade," IIDE Discussion Papers, Institue for International and Development Economics 20070401, Institue for International and Development Economics.
    4. Epstein, Gil S. & Gang, Ira N., 2009. "Good governance and good aid allocation," Journal of Development Economics, Elsevier, Elsevier, vol. 89(1), pages 12-18, May.
    5. Andrei A. Levchenko, 2007. "Institutional Quality and International Trade," Review of Economic Studies, Oxford University Press, Oxford University Press, vol. 74(3), pages 791-819.
    6. Laura Alfaro & Sebnem Kalemli-Ozcan, 2004. "Why doesn't capital flow from rich to poor countries? An empirical investigation," 2004 Meeting Papers, Society for Economic Dynamics 53, Society for Economic Dynamics.
    7. Matthias Helble & Ben Shepherd & John S. Wilson, 2009. "Transparency and Regional Integration in the Asia Pacific," The World Economy, Wiley Blackwell, Wiley Blackwell, vol. 32(3), pages 479-508, 03.
    8. Beck, T.H.L. & Clarke, G. & Groff, A. & Keefer , P. & Walsh, P., 2001. "New tools in comparative political economy: The database of political institutions," Open Access publications from Tilburg University, Tilburg University urn:nbn:nl:ui:12-3125517, Tilburg University.
    9. Kolstad, Ivar & Wiig, Arne, 2009. "Is Transparency the Key to Reducing Corruption in Resource-Rich Countries?," World Development, Elsevier, Elsevier, vol. 37(3), pages 521-532, March.
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