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Law, trade, and development

Author

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  • Moenius, Johannes
  • Berkowitz, Daniel

Abstract

This paper uses a Ricardian model to generate predictions about the influence of institutions on trade in differentiated (complex) and commoditized (simple) products and then uses a rich international trade data set for empirical tests. The model draws the distinction between the role of international transaction costs and domestic production costs in the trade of complex and simple products. The effects of institutions predicted by the model are identified with a three-step estimation procedure. We find that when countries have low quality institutions, institutional reform primarily influences production costs and has little influence on the volume of trade. Institutional reform, however, increases the diversity of exports in complex goods markets. Conversely, in countries with more developed institutions, institutional reform primarily influences transaction costs and is associated with gains in the volume and the diversity of complex exports.

Suggested Citation

  • Moenius, Johannes & Berkowitz, Daniel, 2011. "Law, trade, and development," Journal of Development Economics, Elsevier, vol. 96(2), pages 451-460, November.
  • Handle: RePEc:eee:deveco:v:96:y:2011:i:2:p:451-460
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Miaojie Yu & Guangliang Ye & Baozhi Qu, 2013. "Trade Liberalisation, Product Complexity and Productivity Improvement: Evidence from Chinese Firms," The World Economy, Wiley Blackwell, vol. 36(7), pages 912-934, July.
    2. Wang, Xiaozu & Xu, Lixin Colin & Zhu, Tian, 2011. "Foreign direct investment under weak rule of law : theory and evidence from China," Policy Research Working Paper Series 5790, The World Bank.
    3. Ari Van Assche & Galina A. Schwartz, 2013. "Contracting Institutions and Ownership Structure in International Joint Ventures," CIRANO Working Papers 2013s-04, CIRANO.
    4. repec:kap:jincot:v:18:y:2018:i:1:d:10.1007_s10842-017-0252-5 is not listed on IDEAS
    5. Van Assche, Ari & Schwartz, Galina A., 2013. "Contracting institutions and ownership structure in international joint ventures," Journal of Development Economics, Elsevier, vol. 103(C), pages 124-132.
    6. Gani, Azmat & Scrimgeour, Frank, 2016. "New Zealand's trade with Asia and the role of good governance," International Review of Economics & Finance, Elsevier, vol. 42(C), pages 36-53.
    7. Stephan Haggard & Marcus Noland, 2012. "The Microeconomics of North--South Korean Cross-border Integration," International Economic Journal, Taylor & Francis Journals, vol. 26(3), pages 407-430, September.
    8. Marcus Noland & Stephan Haggard, 2012. "Networks, Trust, and Trade: The Microeconomics of China–North Korea Integration," Working Paper Series WP12-8, Peterson Institute for International Economics.

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