Institutional Change and Product Composition: Does the Initial Quality of Institutions Matter?

Johannes Moenius () and Daniel Berkowitz

William Davidson Institute Working Papers Series from William Davidson Institute at the University of Michigan

Abstract: We argue that the quality of institutions that enforce contracts and protect property rights influences the costs of producing high-value added (complex) versus low-value added (simple) products. Since data is hardly available for domestic transactions, we generate predictions about the relationship between the quality of institutions and product composition with an international trade model and use a rich international trade data set for empirical tests. We find that improvements in institutional quality increase the share and volume of a country's complex product exports. However, the initial quality of institutions is important, since in countries with the least developed institutions, the share of complex products in exports is generally small and, institutional reform has almost no influence on simple product exports. These findings cast doubts on the efficacy of institutional reform in countries with underdeveloped institutions.

Keywords: Complex and simple products; volume effect of institutions; compositional effect of institutions (search for similar items in EconPapers)
JEL-codes: F14 K33 O24 P14 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2004-02-01
New Economics Papers: this item is included in nep-reg
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Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:wdi:papers:2004-662

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