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Trade law and trade flows

Author

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  • Salvador Gil‐Pareja
  • Rafael Llorca‐Vivero
  • Jordi Paniagua

Abstract

This paper develops and estimates a model to study the effect of improving the quality of commercial trade law on trade flows. We focus on improvements aimed to privately resolve disputes among trading partners: international commercial arbitration and conciliation. The main novelty of the model is to explicit the balance between the contractual quality of importer and exporter (contractual distance) in an environment with informational frictions (contractual noise). Using a structural gravity estimation with high‐dimensional fixed effects, the main contribution of the empirical exercise is to confirm previous results and unravel new traits that align with our theoretical results. Arbitration has a moderate and positive effect on exports that increases (decreases) with the contractual quality of the exporter (importer) and the remoteness of markets. The effects of conciliation are similarly positive, but only for similar trading partners with high levels of income. Results also suggest both domestic trade law reform and international treaties have a positive effect on trade, with a stronger effect of the latter.

Suggested Citation

  • Salvador Gil‐Pareja & Rafael Llorca‐Vivero & Jordi Paniagua, 2020. "Trade law and trade flows," The World Economy, Wiley Blackwell, vol. 43(3), pages 681-704, March.
    • Handle: RePEc:bla:worlde:v:43:y:2020:i:3:p:681-704
    DOI: 10.1111/twec.12886
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    More about this item

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • K12 - Law and Economics - - Basic Areas of Law - - - Contract Law

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