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The Gravity of Institutions

Author

Listed:
  • Cindy Duc
  • Emmanuelle Lavallee
  • Jean-Marc Siroen

Abstract

Do good institutions foster trade? Many trade agreements, and notably those of the European Union, introduce institutional provisions in addition to strictly free-trade measures. In this article, we are interested in the influence of democracy and the fight against corruption on trade. We use a gravity model inspired and adapted from Anderson and van Wincoop (2003) but estimated with a Poisson Pseudo-Maximum Likelihood (PPML) method, which circumvents the heteroskedasticity bias encountered with the usual Ordinary Least Square (OLS) estimators. We analyze the effects of institutional similarities on bilateral trade, before regressing the country fixed-effects to test for the consequences of democracy and the fight against corruption on trade for all countries. Our results show that democratic countries are generally more open, but that two democratic nations do not necessarily trade more between each other. The reverse is true for corruption.

Suggested Citation

  • Cindy Duc & Emmanuelle Lavallee & Jean-Marc Siroen, 2008. "The Gravity of Institutions," Economie Internationale, CEPII research center, issue 113, pages 95-113.
  • Handle: RePEc:cii:cepiei:2008-1td
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    File URL: http://www.cepii.fr/IE/rev113/ei113d.htm
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    Citations

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    Cited by:

    1. Jean-Marc Siroën & Ayçil Yücer, 2014. "Trade Performance of Free Trade Zones," Working Papers DT/2014/09, DIAL (Développement, Institutions et Mondialisation).
    2. Zeynalov, Ayaz, 2014. "The Gravity of Institutions in Resource-Rich Country," MPRA Paper 60943, University Library of Munich, Germany.
    3. repec:dau:papers:123456789/10626 is not listed on IDEAS
    4. repec:bla:worlde:v:40:y:2017:i:5:p:1012-1038 is not listed on IDEAS
    5. Ayçıl Yücer & Jean-Marc Siroën, 2017. "Trade Performance of Export Processing Zones," The World Economy, Wiley Blackwell, vol. 40(5), pages 1012-1038, May.

    More about this item

    Keywords

    International trade; gravity models; governance; democracy; corruption;

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • F17 - International Economics - - Trade - - - Trade Forecasting and Simulation
    • P33 - Economic Systems - - Socialist Institutions and Their Transitions - - - International Trade, Finance, Investment, Relations, and Aid
    • P37 - Economic Systems - - Socialist Institutions and Their Transitions - - - Legal
    • P48 - Economic Systems - - Other Economic Systems - - - Political Economy; Legal Institutions; Property Rights; Natural Resources; Energy; Environment; Regional Studies

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