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Relationship Specificity, Incomplete Contracts and the Pattern of Trade

Nathan Nunn ()

International Trade from EconWPA

Abstract: When relationship-specific investments are necessary for production, under-investment occurs if contracts cannot be enforced. The efficiency loss from under-investment will differ across industries depending on the importance of relationship-specific investments in the production process. As a consequence, a country's contracting environment may be an important determinant of comparative advantage. To test for this, I construct measures of the efficiency of contract enforcement across countries and the importance of relationship-specific investments across industries. I find that countries with better contract enforcement specialize in industries that rely heavily on relationshipspecific investments. This is true even after controlling for traditional determinants of comparative advantage such as endowments of capital and skilled labor.

Keywords: International trade; Comparative advantage; Relationship- specific investments; Contract enforcement. (search for similar items in EconPapers)
JEL-codes: O P (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cse and nep-int
Date: 2005-12-29
Note: Type of Document - pdf; pages: 49
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http://econwpa.repec.org/eps/it/papers/0512/0512018.pdf (application/pdf)

Related works:
Journal Article: Relationship-Specificity, Incomplete Contracts, and the Pattern of Trade (2007) Downloads
Working Paper: Relationship-Specificity, Incomplete Contracts, and the Pattern of Trade (2007) Downloads
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