IDEAS home Printed from https://ideas.repec.org/p/nva/unnvaa/wp01-2018.html
   My bibliography  Save this paper

Relationship-specificity, incomplete contracts, and the pattern of trade: a comment on the role of natural resources

Author

Listed:
  • Raúl Bajo-Buenestado

Abstract

In his seminal paper, (2007) finds that countries with good contract enforcement have a comparative advantage and, therefore, specialize in exporting goods for which relationship- specific investments are most important. We argue that this result cannot be extrapolated to all industries: there is substantial heterogeneity regarding the effect of contract enforcement on exports. In particular, we empirically demonstrate that there is a disconnection between judicial quality and exporting in relationship-specific natural resource related industries. Due to the lack of input factor mobility, for such industries, the quality of contract enforcement cannot explain the pattern of trade, but rather other factors that are widely discussed in the literature. We discuss some relevant implications of this disconnection between judicial quality and relationship-specific industries in terms of the natural resource curse and the impact of natural resources trade on economic development.

Suggested Citation

  • Raúl Bajo-Buenestado, 2018. "Relationship-specificity, incomplete contracts, and the pattern of trade: a comment on the role of natural resources," NCID Working Papers 01/2018, Navarra Center for International Development, University of Navarra.
    • Handle: RePEc:nva:unnvaa:wp01-2018
    as

    Download full text from publisher

    File URL: http://ncid.unav.edu/en/research/working-papers/wp012018
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Hart, Oliver & Moore, John, 1990. "Property Rights and the Nature of the Firm," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1119-1158, December.
    2. Werner Antweiler & Daniel Trefler, 2002. "Increasing Returns and All That: A View from Trade," American Economic Review, American Economic Association, vol. 92(1), pages 93-119, March.
    3. Nathan Nunn, 2007. "Relationship-Specificity, Incomplete Contracts, and the Pattern of Trade," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 122(2), pages 569-600.
    4. Jonathan Isham & Michael Woolcock & Lant Pritchett & Gwen Busby, 2005. "The Varieties of Resource Experience: Natural Resource Export Structures and the Political Economy of Economic Growth," The World Bank Economic Review, World Bank, vol. 19(2), pages 141-174.
    5. Bahar, Dany & Santos, Miguel A., 2018. "One more resource curse: Dutch disease and export concentration," Journal of Development Economics, Elsevier, vol. 132(C), pages 102-114.
    6. Williamson, Oliver E, 1979. "Transaction-Cost Economics: The Governance of Contractural Relations," Journal of Law and Economics, University of Chicago Press, vol. 22(2), pages 233-261, October.
    7. Álvarez, Inmaculada C. & Barbero, Javier & Rodríguez-Pose, Andrés & Zofío, José L., 2018. "Does Institutional Quality Matter for Trade? Institutional Conditions in a Sectoral Trade Framework," World Development, Elsevier, vol. 103(C), pages 72-87.
    8. Dong-Hyeon Kim & Shu-Chin Lin, 2017. "Natural Resources and Economic Development: New Panel Evidence," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 66(2), pages 363-391, February.
    9. Arezki, Rabah & Fetzer, Thiemo & Pisch, Frank, 2017. "On the comparative advantage of U.S. manufacturing: Evidence from the shale gas revolution," Journal of International Economics, Elsevier, vol. 107(C), pages 34-59.
    10. Nunn, Nathan & Trefler, Daniel, 2014. "Domestic Institutions as a Source of Comparative Advantage," Handbook of International Economics, in: Gopinath, G. & Helpman, . & Rogoff, K. (ed.), Handbook of International Economics, edition 1, volume 4, chapter 0, pages 263-315, Elsevier.
    11. Grossman, Sanford J & Hart, Oliver D, 1986. "The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 691-719, August.
    12. Mathieu Couttenier, 2008. "Relationship Between Natural Resources and Institutions," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00332490, HAL.
    13. Andrei A. Levchenko, 2007. "Institutional Quality and International Trade," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 74(3), pages 791-819.
    14. Ding, Haoyuan & Kim, Hyung-Gun & Park, Sung Y., 2016. "Crude oil and stock markets: Causal relationships in tails?," Energy Economics, Elsevier, vol. 59(C), pages 58-69.
    15. Daniel Kaufmann & Aart Kraay & Massimo Mastruzzi, 2003. "Governance Matters III: Governance Indicators for 1996-2002," Macroeconomics 0308006, University Library of Munich, Germany.
    16. Keith Head & John Ries & Barbara J. Spencer, 2004. "Vertical Networks and US Auto Parts Exports: Is Japan Different?," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 13(1), pages 37-67, March.
    17. Peter Debaere, 2014. "The Global Economics of Water: Is Water a Source of Comparative Advantage?," American Economic Journal: Applied Economics, American Economic Association, vol. 6(2), pages 32-48, April.
    18. Nordal, Kjell B., 2001. "Country risk, country risk indices and valuation of FDI: a real options approach," Emerging Markets Review, Elsevier, vol. 2(3), pages 197-217, September.
    19. Mary Amiti & Amit K. Khandelwal, 2013. "Import Competition and Quality Upgrading," The Review of Economics and Statistics, MIT Press, vol. 95(2), pages 476-490, May.
    20. Hartley, Peter & Medlock III, Kenneth B., 2008. "A model of the operation and development of a National Oil Company," Energy Economics, Elsevier, vol. 30(5), pages 2459-2485, September.
    21. Grether, Jean-Marie & Hotz, Irina & Mathys, Nicole A., 2014. "Industry location in Chinese provinces: Does energy abundance matter?," Energy Economics, Elsevier, vol. 44(C), pages 383-391.
    22. Mette Anthonsen & Åsa Löfgren & Klas Nilsson & Joakim Westerlund, 2012. "Effects of rent dependency on quality of government," Economics of Governance, Springer, vol. 13(2), pages 145-168, June.
    23. Rauch, James E., 1999. "Networks versus markets in international trade," Journal of International Economics, Elsevier, vol. 48(1), pages 7-35, June.
    24. Zhu, Huiming & Guo, Yawei & You, Wanhai & Xu, Yaqin, 2016. "The heterogeneity dependence between crude oil price changes and industry stock market returns in China: Evidence from a quantile regression approach," Energy Economics, Elsevier, vol. 55(C), pages 30-41.
    25. Arezki, Rabah & Brückner, Markus, 2011. "Oil rents, corruption, and state stability: Evidence from panel data regressions," European Economic Review, Elsevier, vol. 55(7), pages 955-963.
    26. Kaufmann, Daniel & Kraay, Aart & Mastruzzi, Massimo, 2003. "Government matters III : governance indicators for 1996-2002," Policy Research Working Paper Series 3106, The World Bank.
    27. Reyer Gerlagh, Nicole A. Mathys and Thomas O. Michielsen, 2015. "Energy Abundance, Trade and Specialization," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3).
    28. Klein, Benjamin & Crawford, Robert G & Alchian, Armen A, 1978. "Vertical Integration, Appropriable Rents, and the Competitive Contracting Process," Journal of Law and Economics, University of Chicago Press, vol. 21(2), pages 297-326, October.
    29. Aydin, Hamit & Tilton, John E., 2000. "Mineral endowment, labor productivity, and comparative advantage in mining," Resource and Energy Economics, Elsevier, vol. 22(4), pages 281-293, October.
    30. Faruq, Hasan A., 2011. "How institutions affect export quality," Economic Systems, Elsevier, vol. 35(4), pages 586-606.
    31. Erik Marel & Iana Dreyer, 2014. "Beyond Dutch disease," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 22(2), pages 341-364, April.
    32. Sen, Kunal & Sinha, Chaitali, 2017. "The location choice of US foreign direct investment: how do institutions matter?," Journal of Institutional Economics, Cambridge University Press, vol. 13(2), pages 401-420, June.
    33. Thomas O. Michielsen, 2013. "The distribution of energy-intensive sectors in the USA," Journal of Economic Geography, Oxford University Press, vol. 13(5), pages 871-888, September.
    34. Robert C. Feenstra & John Romalis & Peter K. Schott, 2002. "U.S. Imports, Exports, and Tariff Data, 1989-2001," NBER Working Papers 9387, National Bureau of Economic Research, Inc.
    35. Thad Dunning, 2005. "Resource Dependence, Economic Performance, and Political Stability," Journal of Conflict Resolution, Peace Science Society (International), vol. 49(4), pages 451-482, August.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ferguson, Shon & Formai, Sara, 2013. "Institution-driven comparative advantage and organizational choice," Journal of International Economics, Elsevier, vol. 90(1), pages 193-200.
    2. Ma, Yue & Qu, Baozhi & Zhang, Yifan, 2010. "Judicial quality, contract intensity and trade: Firm-level evidence from developing and transition countries," Journal of Comparative Economics, Elsevier, vol. 38(2), pages 146-159, June.
    3. Elhanan Helpman, 2006. "Trade, FDI, and the Organization of Firms," Journal of Economic Literature, American Economic Association, vol. 44(3), pages 589-630, September.
    4. Martin Strieborny & Madina Kukenova, 2016. "Investment in Relationship-Specific Assets: Does Finance Matter?," Review of Finance, European Finance Association, vol. 20(4), pages 1487-1515.
    5. Bas, Maria & Carluccio, Juan, 2009. "Wage bargaining and the boundaries of the multinational firm," LSE Research Online Documents on Economics 28700, London School of Economics and Political Science, LSE Library.
    6. Juan Carluccio & Thibault Fally, 2012. "Global Sourcing under Imperfect Capital Markets," The Review of Economics and Statistics, MIT Press, vol. 94(3), pages 740-763, August.
    7. Gong, Robin Kaiji & Li, Yao Amber & Manova, Kalina & Teng Sun, Stephen, 2023. "Tickets to the global market: first US patent awards and Chinese firm exports," LSE Research Online Documents on Economics 121375, London School of Economics and Political Science, LSE Library.
    8. Seitz, Michael & Watzinger, Martin, 2017. "Contract enforcement and R&D investment," Research Policy, Elsevier, vol. 46(1), pages 182-195.
    9. Nathan Nunn, 2007. "Relationship-Specificity, Incomplete Contracts, and the Pattern of Trade," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 122(2), pages 569-600.
    10. Castellares, Renzo & Salas, Jorge, 2019. "Contractual imperfections and the impact of crises on trade: Evidence from industry-level data," Journal of International Economics, Elsevier, vol. 116(C), pages 33-49.
    11. Essaji, Azim & Fujiwara, Kinya, 2012. "Contracting institutions and product quality," Journal of Comparative Economics, Elsevier, vol. 40(2), pages 269-278.
    12. Amrit Amirapu, 2021. "Justice Delayed Is Growth Denied: The Effect of Slow Courts on Relationship-Specific Industries in India," Economic Development and Cultural Change, University of Chicago Press, vol. 70(1), pages 415-451.
    13. Shadrack Muthami Mwatu, 2022. "Institutions and export performance: firm level evidence from Kenya," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 69(4), pages 487-506, December.
    14. Carluccio, Juan & Bas, Maria, 2015. "The impact of worker bargaining power on the organization of global firms," Journal of International Economics, Elsevier, vol. 96(1), pages 162-181.
    15. Gamberoni, Elisa & Lanz, Rainer & Piermartini, Roberta, 2010. "Timeliness and contract enforceability in intermediate goods trade," WTO Staff Working Papers ERSD-2010-14, World Trade Organization (WTO), Economic Research and Statistics Division.
    16. Eppinger, Peter S. & Kukharskyy, Bohdan, 2017. "Contracting institutions and firm boundaries," University of Tübingen Working Papers in Business and Economics 100, University of Tuebingen, Faculty of Economics and Social Sciences, School of Business and Economics.
    17. Bah, Mamadou & Atangana Ondoa, Henri & Kpognon, Koffi Délali, 2021. "Effects of governance quality on exports in Sub-Saharan Africa," International Economics, Elsevier, vol. 167(C), pages 1-14.
    18. Costello, Anna M., 2013. "Mitigating incentive conflicts in inter-firm relationships: Evidence from long-term supply contracts," Journal of Accounting and Economics, Elsevier, vol. 56(1), pages 19-39.
    19. He, Qing & Xue, Chang & Zhou, Shaojie, 2019. "Does contracting institution affect the patterns of industrial specialization in China?," China Economic Review, Elsevier, vol. 54(C), pages 191-203.
    20. Eppinger, Peter & Kukharskyy, Bohdan, 2021. "Contracting institutions and firm integration around the world," European Economic Review, Elsevier, vol. 137(C).

    More about this item

    Keywords

    Natural resources; International trade; Contract enforcement; Resource curse; Replication study;
    All these keywords.

    JEL classification:

    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • K12 - Law and Economics - - Basic Areas of Law - - - Contract Law
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • Q00 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - General

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nva:unnvaa:wp01-2018. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: http://ncid.unav.edu .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.