Institutions and Export Specialization: Just Direct Effects?

Abstract

Many developing countries' exports tend to be highly concentrated in terms of sectors and even products. In particular, they are strongly specialized in self-contained sectors. Recent economic literature has shown that institutions contribute to explaining this pattern. In this paper, we argue that the degree of self-containment itself is endogenous to institutions. Ceteris paribus a given sector will therefore have different levels of interactions with the rest of the economy across countries depending on the quality of institutions. We provide supportive evidence using a simultaneous equation approach on data on sectoral trade, country-specific input-output linkages, and institutional strength. Copyright 2009 Blackwell Publishing Ltd.

Quality of institutions and the BRIC countries agro-food exports

“…Empirical papers find evidence supporting a hypothesis that IQ is an important determinant of sectoral export performances (e.g. Blanchard and Kremer, 1997;Berkowitz et al, 2006;Levchenko, 2007;Ranjan and Lee, 2007;Nunn, 2007;Méon and Sekkat, 2008;Martincus and Gallo, 2009;Hansen et al, 2011). A better IQ can ensure a better contracting environment and their enforcement, and greater transparency with their direct and indirect effects for countries' export patterns.…”

The role of institutional quality on the performance in the export of coconut products

“…Furthermore, the product must be free from bacteria and other contamination (Centre for the Promotion of Imports, ). Countries with lower institution quality may not be able to fulfill these requirements and end up exporting only primary and raw commodities (Martincus & Gallo, ). These countries could also fail to innovate in the production of niche items due to the lack of complementary services and technology to develop them (Martincus & Gallo, ).…”

“…With good institutions in place, nations have jurisdiction not only to enforce contracts but also implement trade agreements (Rodrik, ). Countries with better institutional quality are able to facilitate long‐term contracts and agreements at different stages along the value chain that allows for increased exports in products with more complex processing (Martincus & Gallo, ). Amiri, Samadian, Yahoo, and Jamali () find that in countries with both good institutional quality and rich natural endowments, rents can lead to a promotion in the manufacturing sector.…”

“…Research by Duc, Lavallée, and Siroën () shows that countries with higher levels of corruption trade less with each other. Martincus and Gallo () find with increased institutional quality, countries have a comparative advantage at trading in sectors that produce more institutional‐intensive goods.…”

“…Institutions seem to influence manufactured goods and nonmanufactured goods differently, as Meon and Sekkat () find no significant relationship between nonmanufactured products and governance indicators. Martincus and Gallo () find that better institutional quality leads to increased export of goods with production processes that are of higher complexity. Furthermore, not every aspect of governance is conducive to trade.…”