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Institutions, Trade and Development: A Quantitative Analysis

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  • Beverelli, Cosimo

    () (World Trade Organization)

  • Keck, Alexander

    () (World Trade Organization)

  • Larch, Mario

    () (University of Bayreuth)

  • Yotov, Yoto

    () (Drexel University)

Abstract

We propose and apply methods to quantify the impact of national institutions on international trade and development. We are able to identify the direct impact of country-specific institutions on international trade within the structural gravity framework. Our approach naturally addresses the prominent issue of endogenous institutions. The empirical analysis offers robust evidence that stronger institutions promote trade. %Furthermore, we find that better institutions have a stronger impact on the imports of poor nations from rich countries than on their exports to rich countries. A series of sensitivity experiments confirm the robustness of our findings. A counterfactual analysis reveals that the changes in institutional quality in the poor countries in our sample between 1996 and 2006 have had, via their impact on imports from rich countries, significant and heterogeneous real GDP effects, varying between -5 and 5 percent. Our methods are readily applicable to identifying the impact of a wide range of country-specific variables on international trade.

Suggested Citation

  • Beverelli, Cosimo & Keck, Alexander & Larch, Mario & Yotov, Yoto, 2018. "Institutions, Trade and Development: A Quantitative Analysis," School of Economics Working Paper Series 2018-3, LeBow College of Business, Drexel University.
  • Handle: RePEc:ris:drxlwp:2018_003
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    Cited by:

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    4. Javier Barbero & Giovanni Mandras & Giovanni Mandras & Ernesto Rodriguez-Crespo & Andres Rodriguez-Pose, 2021. "Quality of government and regional trade: Evidence from European Union regions," Papers in Evolutionary Economic Geography (PEEG) 2102, Utrecht University, Department of Human Geography and Spatial Planning, Group Economic Geography, revised Jan 2021.
    5. Koffi Dumor & Li Yao, 2019. "Estimating China’s Trade with Its Partner Countries within the Belt and Road Initiative Using Neural Network Analysis," Sustainability, MDPI, Open Access Journal, vol. 11(5), pages 1-22, March.
    6. Heid, Benedikt & Vozzo, Isaac, 2020. "The international trade effects of bilateral investment treaties," Economics Letters, Elsevier, vol. 196(C).
    7. Lanz, Rainer & Lee, Woori & Stolzenburg, Victor, 2019. "Distance, formal and informal institutions in international trade," WTO Staff Working Papers ERSD-2019-03, World Trade Organization (WTO), Economic Research and Statistics Division.
    8. Steffen, Nico, 2020. "Economic preferences, trade and institutions," DICE Discussion Papers 354, University of Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    9. Silviano Esteve-Pérez & Salvador Gil-Pareja & Rafael Llorca-Vivero & Jordi Paniagua, 2021. "Has the Euro paid off? A study of the trade-induced welfare effects of the EMU," Working Papers 2103, Department of Applied Economics II, Universidad de Valencia.
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    11. 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.
    12. Jasmin Katrin Gröschl & Vincent Schippers & Thomas Steinwachs, 2020. "Borders, Roads and the Relocation of Economic Activity Due to Extreme Weather," CESifo Working Paper Series 8193, CESifo.
    13. Mario Larch & Aiko F. Schmeißer & Joschka Wanner, 2019. "A Tale of (Almost) 1001 Coefficients: Deep and Heterogeneous Effects of the EU-Turkey Customs Union," CESifo Working Paper Series 7498, CESifo.
    14. Feifei Wu & Xinyu Yan, 2018. "Institutional Quality and Sustainable Development of Industries’ Exports: Evidence from China," Sustainability, MDPI, Open Access Journal, vol. 10(11), pages 1-22, November.
    15. Cuadros, Ana & Martín-Montaner, Joan & Paniagua, Jordi, 2019. "Migration and FDI: The role of job skills," International Review of Economics & Finance, Elsevier, vol. 59(C), pages 318-332.
    16. Khalil, Umair & Oak, Mandar & Ponnusamy, Sundar, 2021. "Political favoritism by powerful politicians: Evidence from chief ministers in India," European Journal of Political Economy, Elsevier, vol. 66(C).
    17. Salvador Gil‐Pareja & Rafael Llorca‐Vivero & Jordi Paniagua, 2020. "Trade law and trade flows," The World Economy, Wiley Blackwell, vol. 43(3), pages 681-704, March.
    18. Larch, Mario & Wanner, Joschka & Yotov, Yoto V., 2018. "Bi- and Unilateral trade effects of joining the Euro," Economics Letters, Elsevier, vol. 171(C), pages 230-234.
    19. Federico Carril-Caccia & Juliette Milgram Baleix & Jordi Paniagua, 2019. "Does Terrorism Affect Foreign Direct Investment?," Working Papers 1913, Department of Applied Economics II, Universidad de Valencia.
    20. Ana Cuadros & Jordi Paniagua & Antonio Navas, 2019. "Moving ideas across borders: Migrant inventors, patents and FDI," Working Papers 1904, Department of Applied Economics II, Universidad de Valencia.
    21. Rodolphe Desbordes & Markus Eberhardt, 2019. "Gravity," Discussion Papers 2019-02, University of Nottingham, GEP.
    22. 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.
    23. Silviano Esteve‐Pérez & Salvador Gil‐Pareja & Rafael Llorca‐Vivero & José Antonio Martínez‐Serrano, 2020. "EMU and trade: A PPML re‐assessment with intra‐national trade flows," The World Economy, Wiley Blackwell, vol. 43(10), pages 2574-2599, October.
    24. Thomas Steinwachs, 2019. "Eine Frage der Geographie: Räumliche Dimensionen von Handel, Migration und Wachstum," ifo Beiträge zur Wirtschaftsforschung, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 81, November.

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    More about this item

    Keywords

    Institutional Quality; International Trade; Development; Structural Gravity;
    All these keywords.

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions

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