TDPE presents: Emanuel Ornelas

Institutions and Export Dynamics (with Luis Araujo and Giordano Mion) We study the role of contract enforcement in shaping the dynamics of international trade at the firm level. We develop a theoretical model to describe how agents build reputations to overcome the problems created by weak enforcement of international contracts. We find that, all else equal, countries with better contracting institutions are served by more exporters, these exporters start their activities with higher volumes, and they remain exporters for a longer period. However, conditional on survival, the growth rate of a firm's exports to a country decreases with the quality of the country's institutions. We test these predictions using a rich panel of Belgium exporting firms that encompasses all Belgium exports from 1995 to 2008 to every country in the world. Overall, our findings suggest that weak contracting institutions cannot be thought simply as an extra sunk, fixed, or variable cost to exporting firms; they also affect firms' dynamics in foreign markets in a non-trivial way. Emanuel Ornelas is on the faculty of the Managerial Economics and Strategy Group at the London School of Economics. He serves as an Associate Editor for the Journal of International Economics and is Director of the Globalisaton Programme at the Centre for Economic Performance. His work focuses on the effect of institutions and policies on trade flows, firm behavior, and country welfare.