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

Author

Listed:
  • Inmaculada C. Alvarez
  • Javier Barbero
  • Andres Rodriguez-Pose
  • Jose L. Zofio
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 exporterÕs labour competitiveness levels, along with importerÕs 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.

Suggested Citation

  • Inmaculada C. Alvarez & Javier Barbero & Andres Rodriguez-Pose & Jose L. Zofio, 2017. "Does institutional quality matter for trade? Institutional conditions in a sectoral trade framework," Papers in Evolutionary Economic Geography (PEEG) 1729, Utrecht University, Department of Human Geography and Spatial Planning, Group Economic Geography, revised Nov 2017.
    • Handle: RePEc:egu:wpaper:1729
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    References listed on IDEAS

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    More about this item

    Keywords

    Relatedness; international trade; gravity equation; institutional quality; public policy;
    All these keywords.

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • Z18 - Other Special Topics - - Cultural Economics - - - Public Policy
    • D02 - Microeconomics - - General - - - Institutions: Design, Formation, Operations, and Impact
    • K4 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior

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