Institutional Quality and International Trade

By Andrei A. Levchenko. Social Science Research Network, 2004

1,228 citations recorded by the source corpus.

Institutions—quality of contract enforcement, property rights, shareholder protection, and the like—have received a great deal of attention in recent years. Yet trade theory has not considered the implications of institutional differences, beyond treating them simply as different technologies or taxes. The purpose of this paper is twofold. First, we propose a simple model of international trade in which institutional differences are modelled within the framework of incomplete contracts. We show that doing so reverses many of the conclusions obtained by equating institutions with productivity. Institutional differences as a source of comparative advantage imply, among other things, that the less developed country may not gain from trade and factor prices may actually diverge as a result of trade. Second, we test empirically whether institutions act as a source of trade, using data on U.S. imports disaggregated by country and industry. The empirical results provide evidence of “institutional content of trade”: institutional differences are an important determinant of trade flows. Copyright 2007, Wiley-Blackwell.

View Paper: https://www.semanticscholar.org/paper/7d9f25972f4d8100946487d0e8831a067ead5f16

How researchers see this paper

The researchers whose trusted networks rank it highest, strongest advocate first. Every researcher gets a different order.

Citations in the corpus

Misallocation in the Market for Inputs: Enforcement and the Organization of Production* (2018, unknown): “…is related to the literatures on legal institutions and economic development (La Porta et al. (1997), Djankov et al. (2003), Acemoglu and Johnson (2005), Nunn (2007), Levchenko (2007), Acemoglu, Antràs and Helpman (2007), Laeven and Woodruff (2007), Mukoyama and Popov (2019) among many others).”
What Drives the Dynamics of Business Growth (2016, methodology): “Similarly, Andrews et al. (2014) using firm-level data for around 20 countries find that patenting firms attract more resources, but at different pace across countries; the different degree to which resources are reallocated to patenting firms is robustly correlated with national policies indicators”
Volatility, labor market flexibility, and the pattern of comparative advantage (2012, unknown): “6 We show how measurable di⁄erences in (cid:133)rm-level volatility across sectors interact with capital intensity di⁄erences to generate a pattern of comparative advantage across countries with di⁄erence levels of labor market (cid:135)exibility.”
Contracts and Technology Adoption (2007, methodology): “35The link between contracting institutions and endogenous comparative advantage was previously discussed by Levchenko (2003), Costinot (2004), Nunn (2005) and Antràs (2005).”
Unpacking Sources of Comparative Advantage: A Quantitative Approach (2010, methodology): “Levchenko (2007) argued that industries that rely heavily on a few key inputs are more vulnerable to holdup problems from suppliers, and are hence more dependent on the legal system to enforce contracts. Column 4 examines this mechanism by interacting a Herfindahl index of input-use concentration in”
Property rights protection, corporate transparency, and growth (2009, unknown): “Blanchard and Kremer (1997), Levchenko (2007), and Rajan and Subramanian (2007) argue that the more complex the production structure, the easier it is to regulate transactions through contracts versus vertical integration and long-term relationships.”
Does institutional quality matter for trade? Institutional conditions in a sectoral trade framework (2018, background): “From a theoretical perspective, Levchenko (2007) extends the Ricardian model of comparative advantage, introducing the effect of institutions.”
Credit Constraints, Heterogeneous Firms and International Trade (2013, unknown): “Instead of financial market imperfections, others have explored the impact of labour market rigidities and limited contract enforcement (Helpman and Itskhoki, 2010; Cuñat and Melitz, 2012; Nunn, 2007; Levchenko, 2007).”
Organizations and Trade (2009, background): “…takes place), and only later (when the goods are mature) is manufacturing carried out in South.26 Acemoglu et al. (2007), Costinot (2007), Levchenko (2007), and Nunn (2007) argue that contractual frictions can shape the location of production and thus the structure of trade ows even in…”
Offshoring and the Role of Trade Agreements (2012, background): “…do so by deriving the Nash and internationally efficient trade policy choices of governments in an environment in which some trade flows involve the exchange of customized inputs, contracts governing these transactions are incomplete, and the matching between final-good producers and input…”