Regional Institutional Barriers and Trade Outcomes: A New Empirical Evidence from Developing Economies of Four Continents

Abstract

Objective: This study aims to explore the path of traditional nexus i.e. Trade Policy and Growth by using new road to development in which economic geography seems to be the driving force in institutional building and ultimately controlling the ‘fortune of nations’ i.e. economic growth.

Research Gap: The current study exhibits the Trade-Growth nexus after incorporating the regional disparities w.r.t. institutional setups because mostly developing nations in Asia and Africa are suffering from many institutional barriers and their institutional embeddedness has led to the rent seeking in the system which slows down the process of reforms.

Methodology: For analyzing the research question, instrumental variable technique has been used i.e. System Generalized methods of moments (SGMM) presenting 28 models in total for 83 countries from Four continents of the World differing in their institutional capacities.

The Main Findings: The results found that in case of each trade policy measure, models which are incorporating the role of economic institutions, political institutions and governance are adding more to the magnitude of Policy-Growth co-efficient. However results are sensitive to the geographical location of the nations.

Implications of the findings: The findings of the study emphasize upon that policies should be tailored according to region in which nations are situated because each nation has its own ‘institutional density’ due to its history traits which ultimately help policy choices to result in better or worse outcomes.

Originality: The work is original in its content because region wise institutional disparities have not been presented in literature endogenously.