Date of Award
Master of Science
This paper empirically examines the effect of institutional quality on trade considering the gravity equation model. Taking data for 252 countries covering the period of 19 years from 1996 to 2014, the research has been done with two stage regression analysis. In the first stage, we estimate the effect of gravity factors that either benefit or hinder trade along with OECD membership and Linder’s effect by Poisson-Pseudo-Maximum-Likelihood (PPML) estimator with importer- time, and exporter- time fixed effects. Taking the estimated exporter- time fixed effects from the first stage, we regress it with institutional variables in the second stage by OLS method with country and time fixed effects. Results indicate that institutional quality has a significant and positive impact on bilateral export with mostly 1% and 5% significance level. Interestingly, our study also shows that Linder’s effect is negative only for trade among the OCED countries.
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