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Does institutional quality matter for trade? Institutional conditions in a sectoral trade framework

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  • Álvarez, Inmaculada C.
  • Barbero, Javier
  • Rodríguez-Pose, Andrés
  • Zofio, Jose L.

Abstract

This article examines the extent to which national institutional conditions affect bilateral sectoral trade flows, as well as whether the conditioning role of institutions for trade has been waxing or waning with time. Based on a new trade theory foundation that allows us to model bilateral trade flows at sectoral level, we derive the associated gravity equation and analyse bilateral trade flows of 186 countries for the period 1996-2012, with a total of 125,703 observations. The results indicate that both the institutional conditions at destination and the institutional distance between the countries involved in trade are relevant factors in determining the overall volume and composition of bilateral trade. They also show, however, that their sway on trade flows is only a fraction of that of other more traditional determinants of trade, notably geographical distance, with the exception of trade in the service sector, where institutional quality is of paramount importance. Finally and contrary to expectations, the magnitude of institutional quality for trade has not waxed over the last few years. If anything, it has waned and the resource boom of the 2000s is to be blamed for this evolution.

Suggested Citation

  • Álvarez, Inmaculada C. & Barbero, Javier & Rodríguez-Pose, Andrés & Zofio, Jose L., 2015. "Does institutional quality matter for trade? Institutional conditions in a sectoral trade framework," CEPR Discussion Papers 10876, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:10876
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    References listed on IDEAS

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    Cited by:

    1. Anderson, James E. & Borchert, Ingo & Mattoo, Aaditya & Yotov, Yoto V., 2018. "Dark costs, missing data: Shedding some light on services trade," European Economic Review, Elsevier, vol. 105(C), pages 193-214.
    2. Susanne A. Frick & Andrés Rodríguez-Pose & Michael Wong, 2018. "Towards economically dynamic Special Economic Zones in emerging countries," Papers in Evolutionary Economic Geography (PEEG) 1816, Utrecht University, Department of Human Geography and Spatial Planning, Group Economic Geography, revised Apr 2018.
    3. Cosimo Beverelli & Alexander Keck & Mario Larch & Yoto V. Yotov, 2018. "Institutions, Trade and Development: A Quantitative Analysis," CESifo Working Paper Series 6920, CESifo Group Munich.
    4. Fiankor, Dela-Dem Doe & Martinez-Zarzoso, Inmaculada & Brümmer, Bernhard, 2018. "Exports and governance: the role of private voluntary standards," GlobalFood Discussion Papers 275059, Georg-August-Universitaet Goettingen, GlobalFood, Department of Agricultural Economics and Rural Development.
    5. repec:gam:jsusta:v:10:y:2018:i:5:p:1348-:d:143358 is not listed on IDEAS

    More about this item

    Keywords

    gravity equation; institutional quality; international trade; public policy;

    JEL classification:

    • D02 - Microeconomics - - General - - - Institutions: Design, Formation, Operations, and Impact
    • F10 - International Economics - - Trade - - - General
    • K4 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior
    • Z18 - Other Special Topics - - Cultural Economics - - - Public Policy

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