What explains trade costs? Institutional quality and other determinants

Yulin Hou, Yun Wang and Wenjun Xue

Review of Development Economics, 2021, vol. 25, issue 1, 478-499

Abstract: This paper investigates the impact of institutional quality on trade costs across 133 countries during 1995–2014. The results show that good institutional quality significantly reduces the three types of trade costs, that is, total trade costs, trade costs of agricultural goods, and trade costs of manufactured goods. Furthermore, the effect of institutional quality is significant in reducing trade costs with regard to the different trading country pairs, the different subperiods, the components of institutional quality, and the endogeneity issue. This paper contributes to the literature by confirming a significant and negative relationship between institutional quality and trade costs from a global perspective.

Date: 2021
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