Baccini Cheap talk : transaction costs , quality of institutions , and trade agreements
نویسنده
چکیده
While there is evidence that politics matter for international cooperation, the impact on economic integration of the quality of institutions has been given short shrift in the previous literature. I argue that the quality of institutions—control of corruption and enforcement of the rule of law, in particular—raises the quantity and the quality of information available to potential member states during the bargain phase of a trade agreement. In turn, this inflow of information reduces the negotiation period of an agreement and in doing so, dampens the transaction costs associated with it. As a result, countries with good institutions are more likely to form trade agreements. Using original data on both the formation of trade agreements and the duration of negotiations, I quantitatively test this argument. The results strongly support the claim that the quality of institutions is a crucial driver in explaining the recent wave of regionalism.
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