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Trade and harmonization : if your institutions are good, does it matter if they are different ?

  • Islam, Roumeen
  • Reshef, Ariell

Good institutional quality (function) and similar institutional design (form) can promote international trade by reducing transactions costs. The authors evaluate the relative importance of function versus form in a gravity model, using an indicator of different legal systems as a proxy for differences in form, together with indicators of overall institutional quality. They find that good institutions promote trade much more than similar legal systems and have much more explanatory power. This effect is economically large-up to 10 times the effect of different legal systems. Moreover, better infrastructure matters as much as good institutions.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 3907.

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Date of creation: 01 May 2006
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Handle: RePEc:wbk:wbrwps:3907
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  1. Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 1998. "Law and Finance," Journal of Political Economy, University of Chicago Press, vol. 106(6), pages 1113-1155, December.
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