Institute of Comparative Economic Studies, Hosei University
Abstract
This paper investigates the conditions under which institutional qualities and homogeneities affect international flows and what type of international transaction is most influenced by institutions. Estimation results indicate that institutional quality matters when trading countries’ qualities are significantly different or equally low. When trading countries’ qualities do not differ, institutional homogeneity increases international transactions, suggesting the validity of harmonization of institutions. The empirical results on relative effects show that institutional qualities and homogeneities have a larger effect on foreign direct investment than on trade in goods, implying that better and similar institutions decrease FDI-related costs more than trade costs
