Institutional Quality and International Trade
47 Pages Posted: 9 Feb 2006
There are 2 versions of this paper
Institutional Quality and International Trade
Date Written: December 2004
Abstract
The quality of institutionsmeaning the quality of contract enforcement, property rights, shareholder protection, and the likehas received a great deal of attention in recent years. The purposes of this paper are twofold. First, it studies the consequences of trade when institutional differences are the source of comparative advantage among countries. Institutional differences are modeled within the Grossman-Hart-Moore framework of contract incompleteness. It is shown, among other things, that the less developed country may not gain from trade, and that factor prices may actually diverge as a result of trade. Second, the paper provides empirical evidence of "institutional content of trade:" institutional differences are shown to be important determinant of trade flows.
Keywords: Trade patterns, institutions, incomplete contracts
JEL Classification: F11, F14, F16
Suggested Citation: Suggested Citation
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