Relationship-Specificity, Incomplete Contracts, and the Pattern of Trade

Nathan Nunn

Scholarly Articles from Harvard University Department of Economics

Abstract: Is a country's ability to enforce contracts an important determinant of comparative advantage? To answer this question, I construct a variable that measures, for each good, the proportion of its intermediate inputs that require relationship-specific investments. Combining this measure with data on trade flows and judicial quality, I find that countries with good contract enforcement specialize in the production of goods for which relationship-specific investments are most important. According to my estimates contract enforcement explains more of the pattern of trade than physical capital and skilled labor combined.

Date: 2007
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Published in Quarterly Journal of Economics -Cambridge Massachusetts-

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Journal Article: Relationship-Specificity, Incomplete Contracts, and the Pattern of Trade (2007)
Working Paper: Relationship Specificity, Incomplete Contracts and the Pattern of Trade (2005)
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