Does institutional quality matter for trade? Institutional conditions in a sectoral trade framework

Inmaculada Álvarez, Javier Barbero, Andrés Rodríguez-Pose and José Zofío

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: This article examines the extent to which national institutional quality affects bilateral sectoral trade flows, as well as whether the conditioning role of institutions for trade has been waxing or waning with time. Based on a new trade theory framework, we derive a sectoral gravity equation, including novel variables corresponding to the exporter’s labour competitiveness levels, along with importer’s price indices and sectoral incomes, and analyse industry specific bilateral trade flows of 186 countries for the period 1996-2012. We address potential endogeneity and econometric drawbacks by means of Poisson Pseudo-Maximum Likelihood estimation methods. The results indicate that both the institutional conditions at destination and the institutional distance between exporting and importing countries are relevant factors for bilateral trade. Moreover, the effect associated to institutional conditions at destination moderately increases over time. This is a robust outcome across economic sectors, with higher values for agriculture and raw materials than for manufacturing and services.

Keywords: international trade; gravity equation; institutional quality; public policy (search for similar items in EconPapers)
JEL-codes: J01 R14 (search for similar items in EconPapers)
Date: 2018-03-01
New Economics Papers: this item is included in nep-geo and nep-int
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Citations: View citations in EconPapers (55)

Published in World Development, 1, March, 2018, 103, pp. 72-87. ISSN: 0305-750X

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Related works:
Journal Article: Does Institutional Quality Matter for Trade? Institutional Conditions in a Sectoral Trade Framework (2018)
Working Paper: Does institutional quality matter for trade? Institutional conditions in a sectoral trade framework (2017)
Working Paper: Does institutional quality matter for trade? Institutional conditions in a sectoral trade framework (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:85637

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