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

Baccini, Leonardo (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
Library of Congress subject classification: H Social Sciences > HC Economic History and Conditions
H Social Sciences > HD Industries. Land use. Labor
J Political Science > JZ International relations
Journal of Economic Literature Classification System: F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance
Sets: Departments > International Relations
Collections > Economists Online
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Funders: Ireland Research Scholarship in the Humanities and Social Science
Date Deposited: 24 Jul 2012 09:39
URL: http://eprints.lse.ac.uk/44923/

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