Friday, May 12, 2006
It's something of an article of faith that contract law plays a positive role in promoting trade. How big a role, though? In a new paper, How Important is State Enforcement for Trade?, West Virginia University economist Peter T. Leeson examines that that question. Here's the abstract:
This paper investigates the effect of state contract enforcement on international trade. I estimate a gravity model of bilateral trade using panel data that covers 157 countries over the last 50 years. I find that state enforcement increases trade between nations - but less impressively than its status as essential for flourishing trade suggests. My analysis provides the first direct evidence of state enforcement's impact on trade in general and international trade in particular.