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Title:Institutional Quality and the Gains From Trade PDF Logo
Authors:Borrmann, Axel
Busse, Matthias
Neuhaus, Silke
Issue Date:2006
Series/Report no.:HWWA Discussion Paper 341
Abstract:While theoretical models suggest that trade is likely to increase productivity and income levels, the empirical evidence is rather mixed. For some countries, trade has a strong impact on growth, whereas for other countries there is no or even a negative linkage. We examine one likely prerequisite for a welfare increasing impact of trade, that is, the role of institutional quality. Using several model specifications, including an instrumental variable approach, we identify those aspects of institutional quality that matter most for the positive linkage between trade and growth. We find that, above all, labour market regulation is the key to reducing trade-related adjustment costs. Market entry regulations, the efficiency of the tax system, the rule of law and government effectiveness do play a role too. In essence, the results demonstrate that countries with low-quality institutions are less likely to benefit from trade.
Subjects:Trade
Income Levels
Institutional Quality
Regulations
Good Governance
JEL:P48
L51
F16
O17
Document Type:Working Paper
Appears in Collections:HWWA Discussion Paper, Hamburgisches Welt-Wirtschafts-Archiv

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