Trade and Harmonization: If Your Institutions are Good, Does it Matter If They are Different?

65 Pages Posted: 20 Apr 2016

See all articles by Roumeen Islam

Roumeen Islam

World Bank

Ariell Reshef

Paris School of Economics (PSE); CNRS; Université Paris I Panthéon-Sorbonne - CES/CNRS; Centre d'Etudes Prospectives et d'Info. Internationales (CEPII)

Date Written: May 1, 2006

Abstract

Good institutional quality (function) and similar institutional design (form) can promote international trade by reducing transactions costs. The authors evaluate the relative importance of function versus form in a gravity model, using an indicator of different legal systems as a proxy for differences in form, together with indicators of overall institutional quality. They find that good institutions promote trade much more than similar legal systems and have much more explanatory power. This effect is economically large-up to 10 times the effect of different legal systems. Moreover, better infrastructure matters as much as good institutions.

Suggested Citation

Islam, Roumeen and Reshef, Ariell, Trade and Harmonization: If Your Institutions are Good, Does it Matter If They are Different? (May 1, 2006). World Bank Policy Research Working Paper Series, Available at SSRN: https://ssrn.com/abstract=917478

Roumeen Islam (Contact Author)

World Bank ( email )

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Ariell Reshef

Paris School of Economics (PSE) ( email )

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CNRS ( email )

France

Université Paris I Panthéon-Sorbonne - CES/CNRS ( email )

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