The governance threshold in international trade flows

摘要: This paper studies the flows of international trade from an institutional comparative advantage perspective. It establishes a good governance threshold necessary for well-functioning of commerce. The incorporates quality into gravity equation through an iceberg transaction cost. Then, it replicates accessibility to foreign markets based on bilateral distance and geographical characteristics as suggested by Redding Venables (2004) in order estimate GDP incorporating World Bank Governance Matters indicators. results show that only when country enjoys high enough government effectiveness can effectively benefit markets. Attributing good governance has not could imply increase around 20 percent.