Abstract
Institutional arrangements can play an important role in fostering trade between countries. It can help to boost export from one country to another and ease the penetration of new products to the market of the importing country. The institutional aspects, however, have been largely overlooked in trade studies for developing economies, especially for Malaysia. This study focuses on examining the importance of diplomatic relationships in fostering Malaysia–China's trade. Through consumer utility maximisation, diplomatic relationships as well as other institutional aspects such as halal‐related variables are incorporated into an augmented gravity model. The findings suggest that building and improving diplomatic ties tend to boost trade between countries.
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