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Trade Implies Law: The Power of the Weak

Author

Listed:
  • James E. Anderson

    (Boston College)

  • Leslie Young

    (Chinese University of Hong Kong)

Abstract

Without the rule of law, traders who incur trading costs can be held up by counter-parties who are stronger in anarchic bargaining. The favourable terms which the latter extract can overcrowd that side of the market, dissipating the benefits. We establish plausible necessary and sufficient conditions for a move from anarchy toward the rule of law to benefit all traders. The rule of law might be delayed, not only by the difficulties of setting up legal institutions, but by monopolistic traders that have meantime emerged to address the inefficiencies of anarchic trade. These monopolistic traders must also guarantee atomistic traders against holdup.

Suggested Citation

  • James E. Anderson & Leslie Young, 2000. "Trade Implies Law: The Power of the Weak," Boston College Working Papers in Economics 475, Boston College Department of Economics.
    • Handle: RePEc:boc:bocoec:475
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    References listed on IDEAS

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    1. Greif, Avner, 1992. "Institutions and International Trade: Lessons from the Commercial Revolution," American Economic Review, American Economic Association, vol. 82(2), pages 128-133, May.
    2. Claessens, S. & Djankov, S. & Lang, L.H.P., 1999. "East Asian Corporations. Heroes or Villains?," World Bank - Discussion Papers 409, World Bank.
    3. Greif, Avner, 1993. "Contract Enforceability and Economic Institutions in Early Trade: the Maghribi Traders' Coalition," American Economic Review, American Economic Association, vol. 83(3), pages 525-548, June.
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    Cited by:

    1. Gani, Azmat & Clemes, Michael D., 2016. "Does the strength of the legal systems matter for trade in insurance and financial services?," Research in International Business and Finance, Elsevier, vol. 36(C), pages 511-519.
    2. Babetskaia-Kukharchuk, Oxana & Maurel, Mathilde, 2004. "Russia's accession to the WTO: the potential for trade increase," Journal of Comparative Economics, Elsevier, vol. 32(4), pages 680-699, December.
    3. James E. Anderson & Leslie Young, 2002. "Imperfect Contract Enforcement," NBER Working Papers 8847, National Bureau of Economic Research, Inc.
    4. Tomasz Michalski, 2006. "Borders, Endogenous Market Access and Growth," DEGIT Conference Papers c011_007, DEGIT, Dynamics, Economic Growth, and International Trade.
    5. Wenshou Yan & Xi Yang, 2019. "A New Motivation for Sustainable Trade Between Countries with Different Regulatory Qualities," Sustainability, MDPI, vol. 12(1), pages 1-16, December.
    6. Yongwei Chen & Wei‐Min Hu & Radek Szulga & Buoyuan Xue, 2018. "Cultural Differences and Interprovincial Trade in China: Effect of Surname Distance and its Mechanisms," Pacific Economic Review, Wiley Blackwell, vol. 23(4), pages 609-631, October.
    7. Michaël Bonnal, 2010. "Export Performance, Labor Standards and Institutions: Evidence from a Dynamic Panel Data Model," Journal of Labor Research, Springer, vol. 31(1), pages 53-66, March.

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    More about this item

    Keywords

    endogenous institutions;

    JEL classification:

    • F1 - International Economics - - Trade
    • K0 - Law and Economics - - General

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