Trade policy versus institutional trade barriers: an application using good old ols

Trade policy barriers are only one element of overall trade costs. Due to the decrease in the influence of tariff barriers on trade over time, institutional barriers are increasing in relative importance. This paper quantifies and compares the impact that a number of institutional and policy trade barriers have on bilateral trade flows. A theoretically justified gravity model of trade is estimated by using Baier and Bergstrand (2009) proposed methodology for a cross-section of countries in 2000. Results indicate that institutional trade barriers have a greater impact on trade flows than tariff barriers. According to these findings, trade policy negotiation efforts should focus on facilitating trade processes and should be at the forefront of multilateral negotiations.