DOES TRADE OPENNESS AFFECT INSTITUTIONAL QUALITY?

Sammanfattning: A rich literature in economics has identified Institutions as a key factor in explaining the disparity in growth across countries. It is thus essential to look at the determinants of institutional quality. This study tries to capture the affect of one of the possible determinants of institutional quality that is trade openness. Theory suggests that there is a positive relationship between trade openness and institutional quality. This study uses panel data estimation techniques to uncover the relationship between trade openness and institutional quality. The results suggest that there exists a positive relationship between trade openness and institutional quality, although it is not significant for the legal system and property right index available from "Economic Freedom of the World‟ dataset. Furthermore, the results are quite robust to the changes in definitions of the variables as well as to the inclusion of additional control variables.