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Legal Framework as a Trade Barrier - Evidence from Transition Countries: Hungarian, Romanian and Slovene Examples

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  • de Sousa, Jose
  • Disdier, Anne-Celia

Abstract

Using the border effect approach, our paper examines the influence of the legal framework quality of the Central and Eastern European countries on international trade. This approach offers an evaluation of the borders' impact on trade. A market is fragmented when actual trade differs from the trade that would be expected in an economy without border-related barriers. Recent findings have emphasized informal trade barriers as obstacles to trade flows (Anderson and Marcouiller, 2002; Anderson and Young, 2000; Rauch, 2001). We introduce different measures of the legal framework quality, which appears as a significant informal trade barrier. Actually, in case of conflict between two trade partners, it proves to be difficult for a given partner to get damages. Therefore, incentives to trade could be reduced. We adopt and refine the theoretical monopolistic competition model of trade developed by Head and Mayer (2000) and estimate it focusing on imports of Hungary, Romania, and Slovenia from European Union (EU) and Central European Free Trade Agreement (CEFTA) countries. We find that legal framework quality appears as a strong determinant of export decisions of EU producers. In the opposite, the CEFTA producers seem to be less or not affected by this quality in their decisions of trade.

Suggested Citation

  • de Sousa, Jose & Disdier, Anne-Celia, 2002. "Legal Framework as a Trade Barrier - Evidence from Transition Countries: Hungarian, Romanian and Slovene Examples," Discussion Paper Series 26300, Hamburg Institute of International Economics.
    • Handle: RePEc:ags:hwwadp:26300
    DOI: 10.22004/ag.econ.26300
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    Keywords

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    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • P20 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies - - - General

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