Journal
JOURNAL OF INTERNATIONAL COMMERCE ECONOMICS AND POLICY
Volume 13, Issue 2, Pages -Publisher
WORLD SCIENTIFIC PUBL CO PTE LTD
DOI: 10.1142/S1793993322500053
Keywords
Institutional similarity; institutional quality; bilateral trade; system-GMM
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The study found that institutional similarity between countries increases bilateral trade, except when one or both countries have low institutional quality. Therefore, measures to enhance institutional similarity must be accompanied by policies to promote institutional adaptability.
To shed light on the question of whether or not institutional similarity always increases bilateral trade, we divide institutional quality into the low level (one standard deviation below the mean), medium level (in between minus one and one standard deviation from the mean), and high level (one standard deviation above the mean). By applying the system-GMM estimator, we found that the institutional similarity between the two countries has a trade-boosting effect, except in cases where one or both countries have low-institutional quality. These imply that measures to enhance institutional similarity must be accompanied by policies to promote institutional adaptability.
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