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The Gravity of Institutions

  • Cindy Duc
  • Emmanuelle Lavallee
  • Jean-Marc Siroen

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.

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Article provided by CEPII research center in its journal Economie Internationale.

Volume (Year): (2008)
Issue (Month): 113 ()
Pages: 95-113

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Handle: RePEc:cii:cepiei:2008-1td
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