Download This PaperInstitutional Determinants of Bilateral Trade: An Analysis According to Product Type
Tinbergen Institute Discussion Paper No. TI 2005-023/3
34 Pages Posted: 29 Mar 2005
Date Written: February 2005
Abstract
Formal trade barriers and transport costs explain only part of the resistance to international trade. Search costs on the international market and insecurity of property rights and contract enforcement have recently been emphasized as important intangible barriers to trade. This paper proposes that the impact of institutional quality on bilateral trade varies depending on the type of product that is being traded. Distinguishing between homogeneous and differentiated product groups, we estimate gravity equations to investigate how trade patterns are affected by variation in the quality of institutions across countries. The results show that institutions matter most for trade in differentiated goods. This variation in the importance of property security for trade underlines the relevance of search costs and other transaction-specific investments for understanding variation in bilateral trade patterns.
Keywords: Bilateral trade, gravity model, institutions, trade costs, product type
JEL Classification: F14, F15
Suggested Citation: Suggested Citation
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