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Legal framework as a trade barrier - evidence from transition countries : Hungarian, Romanian and Slovene examples

  • de Sausa, José
  • Disdier, Anne-Célia

Using the border effect approach, our paper examines the influence of the legal framework quality of the Central and Eastern European countries on international trade. This approach offers an evaluation of the borders? impact on trade. A market is fragmented when actual trade differs from the trade that would be expected in an economy without border-related barriers. Recent findings have emphasized informal trade barriers as obstacles to trade flows (Anderson and Marcouiller, 2002; Anderson and Young, 2000; Rauch, 2001). We introduce different measures of the legal framework quality, which appears as a significant informal trade barrier. Actually, in case of conflict between two trade partners, it proves to be difficult for a given partner to get damages. Therefore, incentives to trade could be reduced. We adopt and refine the theoretical monopolistic competition model of trade developed by Head and Mayer (2000) and estimate it focusing on imports of Hungary, Romania, and Slovenia from European Union (EU) and Central European Free Trade Agreement (CEFTA) countries. We find that legal framework quality appears as a strong determinant of export decisions of EU producers. In the opposite, the CEFTA producers seem to be less or not affected by this quality in their decisions of trade.

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Paper provided by Hamburg Institute of International Economics (HWWA) in its series HWWA Discussion Papers with number 201.

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Date of creation: 2002
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Handle: RePEc:zbw:hwwadp:26300
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  1. John F. Helliwell, 1995. "Do National Borders Matter for Quebec's Trade?," NBER Working Papers 5215, National Bureau of Economic Research, Inc.
  2. Roberts, Mark J & Tybout, James R, 1997. "The Decision to Export in Colombia: An Empirical Model of Entry with Sunk Costs," American Economic Review, American Economic Association, vol. 87(4), pages 545-64, September.
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  9. Alessandro Turrini & Tanguy Van Ypersele, 2002. "Traders, Courts, and the Home Bias Puzzle," Working Papers (-2012) 0205, University of Bergamo, Department of Economics.
  10. Dani Rodrik, 2000. "How Far Will International Economic Integration Go?," Journal of Economic Perspectives, American Economic Association, vol. 14(1), pages 177-186, Winter.
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  12. Volker Nitsch, 2000. "National borders and international trade: evidence from the European Union," Canadian Journal of Economics, Canadian Economics Association, vol. 33(4), pages 1091-1105, November.
  13. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, June.
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