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Relationship-Specificity, Incomplete Contracts, and the Pattern of Trade

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  • Nunn, Nathan

Abstract

Is a country's ability to enforce contracts an important determinant of comparative advantage? To answer this question, I construct a variable that measures, for each good, the proportion of its intermediate inputs that require relationship-specific investments. Combining this measure with data on trade flows and judicial quality, I find that countries with good contract enforcement specialize in the production of goods for which relationship-specific investments are most important. According to my estimates contract enforcement explains more of the pattern of trade than physical capital and skilled labor combined.

Suggested Citation

  • Nunn, Nathan, 2007. "Relationship-Specificity, Incomplete Contracts, and the Pattern of Trade," Scholarly Articles 4686801, Harvard University Department of Economics.
    • Handle: RePEc:hrv:faseco:4686801
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    • O - Economic Development, Innovation, Technological Change, and Growth
    • P - Political Economy and Comparative Economic Systems

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