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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
  • Zofío, José L.

Abstract

This article examines the extent to which national institutional quality affects 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 framework, we derive a sectoral gravity equation, including novel variables corresponding to the exporter’s labour competitiveness levels, along with importer’s price indices and sectoral incomes, and analyse industry specific bilateral trade flows of 186 countries for the period 1996-2012. We address potential endogeneity and econometric drawbacks by means of Poisson Pseudo-Maximum Likelihood estimation methods. The results indicate that both the institutional conditions at destination and the institutional distance between exporting and importing countries are relevant factors for bilateral trade. Moreover, the effect associated to institutional conditions at destination moderately increases over time. This is a robust outcome across economic sectors, with higher values for agriculture and raw materials than for manufacturing and services.

Suggested Citation

  • Álvarez, Inmaculada C. & Barbero, Javier & Rodríguez-Pose, Andrés & Zofío, José L., 2018. "Does institutional quality matter for trade? Institutional conditions in a sectoral trade framework," LSE Research Online Documents on Economics 85637, London School of Economics and Political Science, LSE Library.
  • Handle: RePEc:ehl:lserod:85637
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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. repec:gam:jsusta:v:10:y:2018:i:11:p:4173-:d:182419 is not listed on IDEAS
    5. Fiankor, D.-D. & Martinez-Zarzoso, I. & Brummer, B., 2018. "Exports and Governance: the Role of Private Voluntary Certification," 2018 Conference, July 28-August 2, 2018, Vancouver, British Columbia 277113, International Association of Agricultural Economists.
    6. 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.
    7. repec:eee:ecolet:v:170:y:2018:i:c:p:10-13 is not listed on IDEAS
    8. repec:gam:jsusta:v:10:y:2018:i:5:p:1348-:d:143358 is not listed on IDEAS
    9. Lin, J., 2018. "The role of institutions in international coconut trade: a gravity model approach," 2018 Conference, July 28-August 2, 2018, Vancouver, British Columbia 277012, International Association of Agricultural Economists.
    10. repec:eee:eneeco:v:75:y:2018:i:c:p:410-422 is not listed on IDEAS

    More about this item

    Keywords

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

    JEL classification:

    • R14 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Land Use Patterns
    • J01 - Labor and Demographic Economics - - General - - - Labor Economics: General

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