We argue that the quality of institutions that enforce contracts and protect property rights influences the costs of producing high-value added (complex) versus low-value added (simple) products. Since data is hardly available for domestic transactions, we generate predictions about the relationship between the quality of institutions and product composition with an international trade model and use a rich international trade data set for empirical tests. We find that improvements in institutional quality increase the share and volume of a country's complex product exports. However, the initial quality of institutions is important, since in countries with the least developed institutions, the share of complex products in exports is generally small and, institutional reform has almost no influence on simple product exports. These findings cast doubts on the efficacy of institutional reform in countries with underdeveloped institutions.
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Length: 37 pages Date of creation: 01 Feb 2004 Date of revision: Handle: RePEc:wdi:papers:2004-662
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Find related papers by JEL classification: F14 - International Economics - - Trade - - - Country and Industry Studies of Trade K33 - Law and Economics - - Other Substantive Areas of Law - - - International Law O24 - Economic Development, Technological Change, and Growth - - Development Planning and Policy - - - Trade Policy; Factor Movement; Foreign Exchange Policy P14 - Economic Systems - - Capitalist Systems - - - Property Rights
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References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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Rafael La Porta & Florencio Lopez-de-Silane & Andrei Shleifer & Robert W. Vishny, 1996.
"Law and Finance,"
NBER Working Papers
5661, National Bureau of Economic Research, Inc.
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