Essay on A Theoretical Analysis Of Anderson And Young

762 Words Nov 28th, 2016 4 Pages
A theoretical analysis by Anderson and Young (1999) provided a first theoretical illustration of the relationship between institutions and trade. They found that the lack of enforcement of contacts may serve as the customs duties on risk-neutral traders and decrease in trade. Using gravity models, Anderson and Marcouiller (2002) lend empirical support to the impact of the quality of institutions on trade. They argued that weak institutions acted as significant barriers to trade. Increasing the transparency of the trading environment through greater predictability and simplification can be an important way of reducing trade costs (Matthias, et al 2007) while De Groot et al, 2004 found that both institutional quality and existence of similar institutions in trading partners were positively associated with bilateral trade. Also, Lavallée (2005) uses a gravity model to assess the impact on the trade of the proximity and the quality of institutions. A new index of institutional similarity is proposed, it is computed on the basis of data on national legal traditions. The trade policy can explain the relation between institutions and trade. Gilbert (2002) explains the importance of ‘good governance or quality of institutions in addition to trade openness (policy). Also the effect of institutions on trade may result from their effect on the risks associated with international transactions. Anderson and Marcouiller (1997) found that the lack of security may prevent…

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