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Does institutional quality matter for trade? Institutional conditions in a sectoral trade framework

Inmaculada Álvarez (), Javier Barbero, Andrés Rodríguez-Pose () and José Zofío

No 1729, Papers in Evolutionary Economic Geography (PEEG) from Utrecht University, Department of Human Geography and Spatial Planning, Group Economic Geography

Abstract: This article examines the extent to which national institutional quality affects bilateral sectoral trade flows, as well as whether the conditioning role of institutions for trade has been waxing or waning with time. Based on a new trade theory framework, we derive a sectoral gravity equation, including novel variables corresponding to the exporterÕs labour competitiveness levels, along with importerÕs price indices and sectoral incomes, and analyse industry specific bilateral trade flows of 186 countries for the period 1996-2012. We address potential endogeneity and econometric drawbacks by means of Poisson Pseudo-Maximum Likelihood estimation methods. The results indicate that both the institutional conditions at destination and the institutional distance between exporting and importing countries are relevant factors for bilateral trade. Moreover, the effect associated to institutional conditions at destination moderately increases over time. This is a robust outcome across economic sectors, with higher values for agriculture and raw materials than for manufacturing and services.

Keywords: Relatedness; international trade; gravity equation; institutional quality; public policy (search for similar items in EconPapers)
JEL-codes: F10 Z18 D02 K4 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-int
Date: 2017-11, Revised 2017-11
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http://econ.geo.uu.nl/peeg/peeg1729.pdf Version November 2017 (application/pdf)

Related works:
Journal Article: Does Institutional Quality Matter for Trade? Institutional Conditions in a Sectoral Trade Framework (2018) Downloads
Working Paper: Does institutional quality matter for trade? Institutional conditions in a sectoral trade framework (2018) Downloads
Working Paper: Does institutional quality matter for trade? Institutional conditions in a sectoral trade framework (2015) Downloads
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