Cheap talk: transaction costs, quality of institutions, and trade agreements

Baccini, Leonardo ORCID: 0000-0002-6027-9192 (2014) Cheap talk: transaction costs, quality of institutions, and trade agreements. European Journal of International Relations, 20 (1). pp. 80-117. ISSN 1460-3713

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Abstract

While there is evidence that politics matter for international cooperation, the impact on economic integration of the quality of institutions has been given short shrift in the previous literature. I argue that the quality of institutions raises the quantity and the quality of information available to potential member states during the bargaining phase of a trade agreement. In turn, this inflow of information reduces the negotiation period of an agreement and, in doing so, dampens the transaction costs associated with it. As a result, countries with good institutions are more likely to form trade agreements. Using original data on both the formation of trade agreements and the duration of negotiations, I quantitatively test this argument. The results strongly support the claim that the quality of institutions is a crucial driver in explaining the recent wave of regionalism.

Item Type:	Article
Official URL:	http://ejt.sagepub.com/
Additional Information:	© 2012 The Author
Divisions:	International Relations
Subjects:	H Social Sciences > HC Economic History and Conditions H Social Sciences > HD Industries. Land use. Labor J Political Science > JZ International relations
JEL classification:	F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance
Date Deposited:	24 Jul 2012 09:39
Last Modified:	09 Oct 2024 22:00
Funders:	Ireland Research Scholarship in the Humanities and Social Science
URI:	http://eprints.lse.ac.uk/id/eprint/44923

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