Trade, Trust and Institutions

Shu Yu, Jakob de Haan, Sjoerd Beugelsdijk () and Jakob de Haan
Authors registered in the RePEc Author Service: Jakob de Haan

No 3571, CESifo Working Paper Series from CESifo

Abstract: To investigate the relation between trust and formal institutions, we analyze bilateral trade patterns in a sample of 16 European countries between 1996-2009. Trust in trading partners has a significant positive effect on bilateral trade. However, our results suggest that trust and formal institutions are substitutes, as the positive effect of trust on trade is conditional on the quality of formal institutions. When the institutional quality of the importing country increases, the effect of trust on trade decreases, and eventually becomes insignificant. The decline in the effect of trust on trade is less when the exporting country’s institutional quality improves.

Keywords: trust; international trade; institutional quality (search for similar items in EconPapers)
JEL-codes: F10 K40 Z10 (search for similar items in EconPapers)
Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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