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Application of Gravity Model to the Analysis of Cross-Country Differences in the Levels of Institutional Development


  • Dashkeev, Vladimir
  • Freinkman, Lev


This paper presents an econometric model intended to explain fundamental cross-country differences in the quality of national economic institutions by using the set of economic, geographical, cultural and historical factors. Our key research hypothesis claims that bilateral trade may be working as a critical channel for institutional evolution, including through import of institutions by less developed countries from their more institutionally advanced trade partners. We follow logic of the modified gravity model of foreign trade to justify the model specification. Econometric analysis was conducted on the performance data of more than 100 countries in 1996-2006. Our results support the hypothesis that many factors that drive international institutional differences are identical to those that define intensity of trade interactions in the traditional gravity model. As a result, global institutional progress has been showing particular historic and geographical patterns. We come to the conclusion that, after controlling for differences in the levels of per capita income, institutional cross-country differences are significantly influenced by countries’ location and geographic neighborhood, and with time countries tend to form homogeneous geographic clusters by the level of institutional development.

Suggested Citation

  • Dashkeev, Vladimir & Freinkman, Lev, 2011. "Application of Gravity Model to the Analysis of Cross-Country Differences in the Levels of Institutional Development," MPRA Paper 55427, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:55427

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    References listed on IDEAS

    1. John F. Helliwell & Robert D. Putnam, 1995. "Economic Growth and Social Capital in Italy," Eastern Economic Journal, Eastern Economic Association, vol. 21(3), pages 295-307, Summer.
    2. Wurgler, Jeffrey, 2000. "Financial markets and the allocation of capital," Journal of Financial Economics, Elsevier, vol. 58(1-2), pages 187-214.
    3. Rafael La Porta & Florencio Lopez-de-Silanes & Cristian Pop-Eleches & Andrei Shleifer, 2004. "Judicial Checks and Balances," Journal of Political Economy, University of Chicago Press, vol. 112(2), pages 445-470, April.
    4. Robert J. Barro, 1998. "Determinants of Economic Growth: A Cross-Country Empirical Study," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262522543, January.
    5. Jeffrey A. Frankel, 1997. "Regional Trading Blocs in the World Economic System," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 72.
    6. Mayer, Thierry & Zignago, Soledad, 2006. "Notes on CEPII’s distances measures," MPRA Paper 26469, University Library of Munich, Germany.
    7. Ricardo Hausmann & Lant Pritchett & Dani Rodrik, 2005. "Growth Accelerations," Journal of Economic Growth, Springer, vol. 10(4), pages 303-329, December.
    8. Jeffrey D. Sachs, 2003. "Institutions Don't Rule: Direct Effects of Geography on Per Capita Income," NBER Working Papers 9490, National Bureau of Economic Research, Inc.
    9. Daron Acemoglu & Simon Johnson & James A. Robinson, 2001. "The Colonial Origins of Comparative Development: An Empirical Investigation," American Economic Review, American Economic Association, vol. 91(5), pages 1369-1401, December.
    10. Philip R. Lane & Aaron Tornell, 1999. "The Voracity Effect," American Economic Review, American Economic Association, vol. 89(1), pages 22-46, March.
    11. Paolo Mauro, 1995. "Corruption and Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 110(3), pages 681-712.
    12. Anderson, James E, 1979. "A Theoretical Foundation for the Gravity Equation," American Economic Review, American Economic Association, vol. 69(1), pages 106-116, March.
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    More about this item


    institutional developments; gravity model; drivers of institutional progress; cross-country differences; institutional indicators; role of international trade;

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O19 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations
    • P51 - Economic Systems - - Comparative Economic Systems - - - Comparative Analysis of Economic Systems


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