Institutional Quality and International Trade

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ID: 297361
2007
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Abstract
Institutions—quality of contract enforcement, property rights, shareholder protection, and the like—have received a great deal of attention in recent years. Yet trade theory has not considered the implications of institutional differences, beyond treating them simply as different technologies or taxes. The purpose of this paper is twofold. First, we propose a simple model of international trade in which institutional differences are modelled within the framework of incomplete contracts. We show that doing so reverses many of the conclusions obtained by equating institutions with productivity. Institutional differences as a source of comparative advantage imply, among other things, that the less developed country may not gain from trade and factor prices may actually diverge as a result of trade. Second, we test empirically whether institutions act as a source of trade, using data on U.S. imports disaggregated by country and industry. The empirical results provide evidence of "institutional content of trade": institutional differences are an important determinant of trade flows.
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openalex_W3123773675 Use this key to autocite in the manuscript while using SciMatic Manuscript Manager or Thesis Manager
Authors Andrei A. Levchenko
Journal The Review of Economic Studies
Year 2007
DOI
10.1111/j.1467-937x.2007.00435.x
URL
Keywords Keywords not found

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