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Institutional Determinants of Bilateral Trade: An Analysis according to Product Type

Gert-Jan M. Linders (), Henri de Groot () and Piet Rietveld
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Gert-Jan M. Linders: Faculty of Economics and Business Administration, Vrije Universiteit Amsterdam

No 05-023/3, Tinbergen Institute Discussion Papers from Tinbergen Institute

Abstract: Formal trade barriers and transport costs explain only part of the resistance to international trade. Search costs on the international market and insecurity of property rights and contract enforcement have recently been emphasized as important intangible barriers to trade. This paper proposes that the impact of institutional quality on bilateral trade varies depending on the type of product that is being traded. Distinguishing between homogeneous and differentiated product groups, we estimate gravity equations to investigate how trade patterns are affected by variation in the quality of institutions across countries. The results show that institutions matter most for trade in differentiated goods. This variation in the importance of property security for trade underlines the relevance of search costs and other transaction-specific investments for understanding variation in bilateral trade patterns.

Keywords: bilateral trade; gravity model; institutions; trade costs; product type (search for similar items in EconPapers)
JEL-codes: F14 F15 (search for similar items in EconPapers)
Date: 2005-02-17
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