Trade Patterns and Endogenous Institutions: Global Evidence

Richard Frensch (), Roman Horvath and Stephan Huber
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Richard Frensch: IOS Regensburg

No 358, Working Papers from Leibniz Institut für Ost- und Südosteuropaforschung (Institute for East and Southeast European Studies)

Abstract: We proposeanovel way to measure the rule of law intensity of exports at the goods level based on nearly 100 million disaggregated bilateral trade flows around the globe. We categorise goods into three groups: fragmented, primary and other. The theoretical literature on hold-up problems connected to incomplete or incompletely enforceable contracts or property rights predicts that goods resulting from fragmented production processes should be the most rule of law intensive. However, we find that the rule of law intensity of other goods is, on average, only slightly lower than that of fragmented goods. We examine how exogenous variation in countries’ trade patterns influences the quality of institutions. Our regressions show that trade flows generated by fragmented and other processes of production improve rule of law, while trade flows generated by primary production do not.

Keywords: trade patterns; rule of law (search for similar items in EconPapers)
JEL-codes: C83 D91 E21 (search for similar items in EconPapers)
Pages: 31
Date: 2016-07
New Economics Papers: this item is included in nep-cta, nep-int and nep-mac
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Citations: View citations in EconPapers (2)

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Chapter: Trade Patterns and Endogenous Institutions: Global Evidence (2018)
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