Distance, formal and informal institutions in international trade

Arbeitspapier

This paper brings together three strands of literature on the determinants of international trade − distance, formal, and informal institutions − to explain differences in export performance across countries. Using an augmented gravity model, we find that the importance of formal institutions (rule of law) for bilateral trade increases with distance. Similarly, the pro-trade effect of informal institutions (migrant networks) is larger for distant countries. After confirming that informal institutions can substitute for weak formal institutions in promoting trade, we finally show that this substitution effect does not decrease with distance. Our findings contribute to explaining the persistent negative effect of distance on the export performance of many developing countries despite reductions in trade costs, and provide guidance to policy makers in terms of trade reform, regional trade liberalization and export promotions strategies.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: WTO Staff Working Paper ; No. ERSD-2019-03

Classification and Topics

• Classification: Wirtschaft ; Organizational Behavior; Transaction Costs; Property Rights ; Empirical Studies of Trade ; International Migration ; Transactional Relationships; Contracts and Reputation; Networks ; Institutions and Growth
• Subject: International trade ; Distance ; Rule of law ; Migrant networks

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Lanz, Rainer ; Lee, Woori ; Stolzenburg, Victor
• Event: Veröffentlichung
• (who): World Trade Organization (WTO)
• (where): Geneva
• (when): 2019

Further information

• DOI: doi:10.30875/a3af8f03-en
• Handle: http://hdl.handle.net/10419/195776
• Last update: 10.03.2025, 11:44 AM CET