Institutional Determinants of Bilateral Trade: An Analysis According to Product Type

Tinbergen Institute Discussion Paper No. TI 2005-023/3

34 Pages Posted: 29 Mar 2005

See all articles by Gert-Jan Linders

Gert-Jan Linders

Ministry of Social Affairs and Employmen

Henri L. F. de Groot

VU University Amsterdam - Department of Spatial Economics; Tinbergen Institute

Piet Rietveld

VU University Amsterdam - Department of Spatial Economics (Deceased)

Date Written: February 2005

Abstract

Formal trade barriers and transport costs explain only part of the resistance to international trade. Search costs on the international market and insecurity of property rights and contract enforcement have recently been emphasized as important intangible barriers to trade. This paper proposes that the impact of institutional quality on bilateral trade varies depending on the type of product that is being traded. Distinguishing between homogeneous and differentiated product groups, we estimate gravity equations to investigate how trade patterns are affected by variation in the quality of institutions across countries. The results show that institutions matter most for trade in differentiated goods. This variation in the importance of property security for trade underlines the relevance of search costs and other transaction-specific investments for understanding variation in bilateral trade patterns.

Keywords: Bilateral trade, gravity model, institutions, trade costs, product type

JEL Classification: F14, F15

Suggested Citation

Linders, Gert-Jan and de Groot, Henri L.F. and Rietveld, Piet, Institutional Determinants of Bilateral Trade: An Analysis According to Product Type (February 2005). Tinbergen Institute Discussion Paper No. TI 2005-023/3, Available at SSRN: https://ssrn.com/abstract=678821 or http://dx.doi.org/10.2139/ssrn.678821

Gert-Jan Linders (Contact Author)

Ministry of Social Affairs and Employmen ( email )

Den Haag
Netherlands

Henri L.F. De Groot

VU University Amsterdam - Department of Spatial Economics ( email )

De Boelelaan 1105
Amsterdam, 1081 HV
Netherlands
+31 20 598 6168 (Phone)
+31 20 598 6004 (Fax)

Tinbergen Institute

Gustav Mahlerplein 17
Amsterdam, 1082 MS
Netherlands

Piet Rietveld

VU University Amsterdam - Department of Spatial Economics (Deceased)

De Boelelaan 1105
1081HV Amsterdam
Netherlands
+31 20 4446097 (Phone)
+31 20 4446004 (Fax)

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