Abstract
Secure property rights, established through court enforcement of contracts, are widely acknowledged to be fundamental to economic exchange. Despite their essential function, weak legal and judicial institutions remain the norm across much of Eastern European and former Soviet Union. Barzel (2002) hypothesizes that the value of contract trade, as opposed to relationships and reputation, increases as products travel further and are more costly to inspect. Combining Barzel's theory with the high cost of searching for foreign buyers (Rauch, 1999), this article presents evidence that international trade played a significant role in the emergence of institutions. Search costs influence the potential to export value-added, or complex, products. The level of potential complex exports in turn influences the intensity with which businesses lobby for more credible legal and juridical institutions. Both a micro-level model and empirical evidence provide evidence consistent with an endogenous link between exports and legal and judicial institutions.
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