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Trade and harmonization : if your institutions are good, does it matter if they are different ?

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  • Islam, Roumeen
  • Reshef, Ariell

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 & Reshef, Ariell, 2006. "Trade and harmonization : if your institutions are good, does it matter if they are different ?," Policy Research Working Paper Series 3907, The World Bank.
    • Handle: RePEc:wbk:wbrwps:3907
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    References listed on IDEAS

    as
    1. Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 1998. "Law and Finance," Journal of Political Economy, University of Chicago Press, vol. 106(6), pages 1113-1155, December.
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    Cited by:

    1. Frank A.G. den Butter, 2012. "Managing Transaction Costs in the Era of Globalization," Books, Edward Elgar Publishing, number 14748.
    2. Frank A.G. den Butter & Stefan P.T. Groot & Faroek Lazrak, 2007. "The Transaction Costs Perspective on Standards as a Source of Trade and Productivity Growth," Tinbergen Institute Discussion Papers 07-090/3, Tinbergen Institute.
    3. Roumeen Islam & Gianni Zanini, 2008. "World Trade Indicators 2008 : Benchmarking Policy and Performance," World Bank Publications - Books, The World Bank Group, number 6334.

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    Keywords

    Legal Products; Trade Law; Economic Theory&Research; Transport and Trade Logistics; Common Carriers Industry;
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