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Does institutional quality matter for trade? Institutional conditions in a sectoral trade framework

Álvarez, Inmaculada C. and Barbero, Javier and Rodríguez-Pose, Andrés and Zofío, José L. (2017) Does institutional quality matter for trade? Institutional conditions in a sectoral trade framework. World Development. ISSN 0305-750X (In Press)

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Abstract

This article examines the extent to which national institutional quality affects bilateral sectoral trade flows, as well as whether the conditioning role of institutions for trade has been waxing or waning with time. Based on a new trade theory framework, we derive a sectoral gravity equation, including novel variables corresponding to the exporter’s labour competitiveness levels, along with importer’s price indices and sectoral incomes, and analyse industry specific bilateral trade flows of 186 countries for the period 1996-2012. We address potential endogeneity and econometric drawbacks by means of Poisson Pseudo-Maximum Likelihood estimation methods. The results indicate that both the institutional conditions at destination and the institutional distance between exporting and importing countries are relevant factors for bilateral trade. Moreover, the effect associated to institutional conditions at destination moderately increases over time. This is a robust outcome across economic sectors, with higher values for agriculture and raw materials than for manufacturing and services.

Item Type: Article
Official URL: https://www.journals.elsevier.com/world-developmen...
Additional Information: © 2017 The Author
Subjects: H Social Sciences > HD Industries. Land use. Labor
Sets: Departments > Geography and Environment
Date Deposited: 20 Nov 2017 08:15
Last Modified: 20 Nov 2017 16:24
URI: http://eprints.lse.ac.uk/id/eprint/85637

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