1 Corresponding author: Henri L.F. de Groot, Department of Spatial Economics, Vrije Universiteit, De
Boelelaan 1105, 1081 HV Amsterdam, The Netherlands, Tel: +31 20 444 6168 (6090), Fax: +31 20 444 6004,
Email: [email protected].
2 The analogy doesn’t entirely follow suit. While the resulting force with which either of the two particles
attracts the other is equal (irrespective of their individual mass), trade from one country to the other may in
general be different from its counterpart.
3 Anderson (2001) and Den Butter and Mosch (2002) are examples in the literature that focus on the effects of
informal institutions on trade.
4 On a similar note, Frankel and Rose (2002) use a gravity model approach to argue that a the main benefits of
a currency union for economic performance are related to its positive effect on trade and openness, which
affect performance beneficially.
5 See Aghion and Howitt (1998) for an overview of new, or endogenous, growth theories.
6 Appendix A presents details on the construction of other bilateral variables that represent geographical and
cultural distance (i.e., distance, common border, common primary language, common dominant religion and
common colonial history).
7 The large sample size is of course conducive to this fact, but it supports our expectations concerning a
relevant, considerable impact of these variables on trade.
8 This percentage is derived from specification 3, as follows: (e°'9-1).100% = 146%.
9 Similarity of informal norms resulting from a similar experience with formal governance is an important
potential factor of cultural familiarity. Language, religion and other historical ties are other factors that have
received earlier attention in the literature. The general argument of ‘cultural familiarity’, or ‘psychic distance’,
goes back to Linnemann (1966) and others (cited in Frankel et al., 1997).
10 This confirms the finding by Tamirisa and Wei (2002) that corruption is an important informal barrier to
trade.
References
Aghion, P. and P. Howitt (1998): Endogenous Growth Theory, Cambridge, MA: MIT
Press.
Anderson, J.E. (2001): Trade and Informal Institutions, unpublished manuscript.
Beugelsdijk, S. and A. Van Schaik (2001): 'Cultuur en economie', Tijdschrift voor Politieke
Ekonomie, 23, pp. 69-84.
Deardorff, A.V. (1998): 'Determinants of Bilateral Trade: Does Gravity Work in a
Neoclassical World?’ in: J. Frankel (ed.), The Regionalization of the World
Economy, Chicago: University of Chicago Press.
Deardorff, A.V. (2001): Local Comparative Advantage: Trade Costs and the Pattern of
Trade, unpublished manuscript.
Den Butter, F.A.G. and R.H.J. Mosch (2002): 'Het belang van vertrouwen in de
internationale handel: een empirische verkenning', Maandschrift Economie, 66, pp.
314-336.
Dollar, D. and A. Kraay (2002): Institutions, Trade, and Growth, unpublished manuscript.
13
Bilateral Trade Flows and Institutions