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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. Laurent Didier, 2019. "Soft power and exporters behavior in international trade," Economics Bulletin, AccessEcon, vol. 39(4), pages 2595-2614.
    3. Zeynalov, Ayaz, 2014. "The Gravity of Institutions in Resource-Rich Country," MPRA Paper 60943, University Library of Munich, Germany.
    4. repec:dau:papers:123456789/10626 is not listed on IDEAS
    5. Ayçil Yücer, 2012. "Brazilian states’ domestic-foreign export capacities and market orientations in the 1990s," Working Papers DT/2012/08, DIAL (Développement, Institutions et Mondialisation).
    6. Ayçıl Yücer & Jean-Marc Siroën, 2017. "Trade Performance of Export Processing Zones," The World Economy, Wiley Blackwell, vol. 40(5), pages 1012-1038, May.
    7. Emmanuelle Lavallée & Julie Lochard, 2022. "International trade and face-to-face diplomacy," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 158(4), pages 987-1010, November.
    8. Daumal, Marie, 2008. "Federalism, separatism and international trade," European Journal of Political Economy, Elsevier, vol. 24(3), pages 675-687, September.
    9. Esmat Mostafa Kamel, 2021. "The MENA region's need for more democracy and less bureaucracy: A gravity model controlling for aspects of governance and trade freedom in MENA," The World Economy, Wiley Blackwell, vol. 44(6), pages 1885-1912, June.
    10. Jessie Lin & Insa Flachsbarth & Stephan von Cramon‐Taubadel, 2020. "The role of institutional quality on the performance in the export of coconut products," Agricultural Economics, International Association of Agricultural Economists, vol. 51(2), pages 237-258, March.
    11. Ayaz Zeynalov, 2017. "The gravity of institutions in a resource-rich country: the case of Azerbaijan," International Economics and Economic Policy, Springer, vol. 14(2), pages 239-261, April.

    More about this item

    Keywords

    International trade; gravity models; governance; democracy; corruption;
    All these keywords.

    JEL classification:

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

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