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Trade and Institutions: Evidence from Regional Studies

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  • Ojeaga, Paul
  • Ogundipe, Adeyemi

Abstract

This paper studies the relationship between trade and institutions in regions for the period 1980 to 2010 using the generalized method of moments estimation technique and other instrumental variable estimation technique such as two stage least square and two stage generalized least square in order to ensure validity of our GMM estimates. The study finds that, consistent with past literature, institutions do have a significant effect on trade. Different measures that capture domestic and international institutions were used. It was found that domestic institutions had a more significant effect on trade than international institutions. Domestic institutions were also found to be more inward looking and protectionist in nature and were probably increasing average tariffs in order to protect domestic trade, while international institutions were probably more concerned about regional integration, tariff reduction and trade facilitation in general. Using different measures of economic policy, we find from our results that institutions that affect trade do not differ significantly from one another. The effectiveness of domestic institutions in promoting trade was examined through interacting domestic institutions with access to local and foreign markets (market access), market potential (market size) as well as regional average tariffs, the result was that domestic institutions increase cost of international trade through increasing tariffs but decrease transportation to markets and were not developing regional specific market potential, the results for international institutions were a reduction of all three factors i.e. tariffs, cost of transportation to market and market size.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 50628.

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Date of creation: 12 Oct 2013
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Handle: RePEc:pra:mprapa:50628

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Keywords: Exports; international trade; institutions; market size and transaction cost;

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  1. Robert E. Hall & Charles I. Jones, 1999. "Why Do Some Countries Produce So Much More Output per Worker than Others?," NBER Working Papers 6564, National Bureau of Economic Research, Inc.
  2. Craig A. Depken, II & Robert J. Sonora, 2005. "Asymmetric Effects of Economic Freedom on International Trade Flows," International Journal of Business and Economics, College of Business, and College of Finance, Feng Chia University, Taichung, Taiwan, vol. 4(2), pages 141-155, August.
  3. Araujo, Luis & Mion, Giordano & Ornelas, Emanuel, 2012. "Institutions and Export Dynamics," CEPR Discussion Papers 8809, C.E.P.R. Discussion Papers.
  4. Romain Wacziarg & Karen Horn Welch, 2003. "Trade Liberalization and Growth: New Evidence," NBER Working Papers 10152, National Bureau of Economic Research, Inc.
  5. Dani Rodrik & Arvind Subramanian & Francesco Trebbi, 2002. "Institutions Rule: The Primacy of Institutions over Geography and Integration in Economic Development," NBER Working Papers 9305, National Bureau of Economic Research, Inc.
  6. Stephen Knack & Philip Keefer, 1995. "Institutions And Economic Performance: Cross-Country Tests Using Alternative Institutional Measures," Economics and Politics, Wiley Blackwell, vol. 7(3), pages 207-227, November.
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