Institutions and International Trade

Institutions have increasingly appeared in the literature on trade and previous findings suggest a causal and positive relationship. To expand the current base of literature in this field, a panel data approach was taken and a fixed effects model was used. The main analysis of 152 countries over a 20 year time-span (1996-2015) finds an overwhelmingly positive significant relationship between institution and trade. Additionally, an instrument variable approach was taken, using a random effects model and a much smaller sample to avoid endogeneity of institutions and prove causality, which resulted in insignificant results however. Overall, the coefficients for exports are larger than for imports, indicating a stronger relationship.