Institutions, trade, and development: identifying the impact of country-specific characteristics on international trade

We quantify the impact of country-specific institutions on international trade and development in a structural gravity framework. The econometric analysis offers robust evidence that stronger institutions promote trade. A counterfactual analysis reveals that the changes in institutional quality in the poor countries in our sample between 1996 and 2006 have had, via their impact on imports from rich countries, significant and heterogeneous welfare effects, varying between -2% and 5%. Our approach is readily applicable to identifying the impact of any country-specific variable on international trade in the structural gravity framework.