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

  • Nunn, Nathan

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.

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File URL: http://dash.harvard.edu/bitstream/handle/1/4686801/Nunn_Relationship-Specificity.pdf
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Paper provided by Harvard University Department of Economics in its series Scholarly Articles with number 4686801.

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Date of creation: 2007
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Publication status: Published in Quarterly Journal of Economics -Cambridge Massachusetts-
Handle: RePEc:hrv:faseco:4686801
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