Legal Framework as a Trade Barrier - Evidence from Transition Countries: Hungarian, Romanian and Slovene Examples

José De Sousa () and Anne-Célia Disdier

No 26300, Discussion Paper Series from Hamburg Institute of International Economics

Abstract: Using the border effect approach, our paper examines the influence of the legal framework quality of the Central and Eastern European countries on international trade. This approach offers an evaluation of the borders' impact on trade. A market is fragmented when actual trade differs from the trade that would be expected in an economy without border-related barriers. Recent findings have emphasized informal trade barriers as obstacles to trade flows (Anderson and Marcouiller, 2002; Anderson and Young, 2000; Rauch, 2001). We introduce different measures of the legal framework quality, which appears as a significant informal trade barrier. Actually, in case of conflict between two trade partners, it proves to be difficult for a given partner to get damages. Therefore, incentives to trade could be reduced. We adopt and refine the theoretical monopolistic competition model of trade developed by Head and Mayer (2000) and estimate it focusing on imports of Hungary, Romania, and Slovenia from European Union (EU) and Central European Free Trade Agreement (CEFTA) countries. We find that legal framework quality appears as a strong determinant of export decisions of EU producers. In the opposite, the CEFTA producers seem to be less or not affected by this quality in their decisions of trade.

Keywords: International; Relations/Trade (search for similar items in EconPapers)
Pages: 32
Date: 2002
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Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:ags:hwwadp:26300

DOI: 10.22004/ag.econ.26300

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