Trade and Harmonization : If Your Institutions are Good, Does it Matter if They are Different ?

Trade and Harmonization : If Your Institutions are Good, Does it Matter if They are Different ?

Good institutional quality (function) and similar institutional design (form) can promote international trade by reducing transactions costs. The authors evaluate the relative importance of function versus form in a gravity model, using an indicator of different legal systems as a proxy for differences in form, together with indicators of overall institutional quality. They find that good institutions promote trade much more than similar legal systems and have much more explanatory power. This effect is economically large-up to 10 times the effect of different legal systems. Moreover, better infrastructure matters as much as good institutions.

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Bibliographic Details
Main Authors: Islam, Roumeen, Reshef, Ariell
Language:English
Published: World Bank, Washington, DC 2006-05
Subjects:AGRICULTURE, AUTHORITY, BILATERAL TRADE, CIVIL LAW, CIVIL LAW SYSTEMS, COMMON LAW, COMPARATIVE ADVANTAGE, COMPETITION LAW, CONSUMER PREFERENCES, CONTROL, CONTROL OF CORRUPTION, CORRUPTION, CUSTOMS, CUSTOMS PROCEDURES, DECENTRALIZATION, ECONOMIC OUTCOMES, ECONOMICS LITERATURE, ELASTICITY, EUROPEAN UNION, EXPORTS, EXTERNALITIES, FACE VALUE, FEDERALISM, FINANCIAL SECTOR, FREE TRADE, GATT, GDP, GDP PER CAPITA, GENERAL SYSTEM OF PREFERENCES, GOVERNMENT SUBSIDIES, INDUSTRIALIZED COUNTRIES, INFORMAL INSTITUTIONS, INTELLECTUAL PROPERTY, INTELLECTUAL PROPERTY RIGHTS, INTERNATIONAL AGREEMENTS, INTERNATIONAL TRADE, LANDLOCKED COUNTRIES, LAWS, LEGAL DEVELOPMENT, LEGAL LITERATURE, LEGAL PROCEDURES, LEGAL RECOURSE, LEGAL SYSTEM, LEGAL SYSTEMS, LEGISLATION, LESS DEVELOPED COUNTRIES, MARKET ACCESS, MARKET SHARE, POLICY RESEARCH, POSITIVE EFFECTS, PRICE LEVELS, PRIVATE PROPERTY, PROPERTY RIGHTS, QUALITY, REDISTRIBUTION, REGIONAL TRADE, REGIONAL TRADE AGREEMENTS, SHIPMENTS, SUFFICIENT EVIDENCE, SYSTEM OF PREFERENCES, TRADE AGREEMENTS, TRADE FLOWS, TRANSACTIONS COSTS, TRANSITION ECONOMIES, WTO,
Online Access:http://documents.worldbank.org/curated/en/2006/05/6762296/trade-harmonization-your-institutions-good-matter-different
https://hdl.handle.net/10986/8678
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Summary:Good institutional quality (function) and similar institutional design (form) can promote international trade by reducing transactions costs. The authors evaluate the relative importance of function versus form in a gravity model, using an indicator of different legal systems as a proxy for differences in form, together with indicators of overall institutional quality. They find that good institutions promote trade much more than similar legal systems and have much more explanatory power. This effect is economically large-up to 10 times the effect of different legal systems. Moreover, better infrastructure matters as much as good institutions.

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