The Effects Of Institutions And Institution Transition On International Trade

Since World War Ⅱ, international trade has vigorously developed and has forced the world economy to grow continuously. International economic communication and cooperation play a vital role for the development of countries all over the world. Almost all the countries attach importance to foreign trade. But people find that even under the heated development of economic globalization and regional economic integration, there is a big gap between the scale and patterns of the real world trade and the estimated values of the traditional theories. The traditional international trade theories cannot explain all the influencing factors of the real international trade, especially the facts that large scale of intra-international trade occur between developed countries after World War Ⅱ. The development of western institutional economics provides a new perspective for international trade theory study to us. From the1990s, the original centrally planning economic system states began to transit to the market economic system, which provide us a natural experimental platform to study the effects of institutions on international trade. People began to pay more attention to institutional factors effecting international trade and they especially focus on the property rights systems and contract implementation systems.China is not only the biggest developing country in the world, but also the most important transition country. In2009, China’s foreign trade ranked third all over the world. The foreign trade dependence was up to60%. Foreign trade has been playing a key role in economic growth. At the same time, our trade term is tending worse and the international competition power of commodities is small. These problems have become more serious. Therefore, to find the deeper causes from the institutional perspective during this key period of our economic transiton will do good to China to make full use of domestic and overseas resources and markets, to fully exert our advantages in international competition and promote economic growth.This article includes seven chapters:The first chapter is about the introduction. In this part, it firstly gives the background and significance of this study in order to fully understand that the effecting system and channels of institutions on foreign trade are important for a country to fully use the international market and promote domestic economy during the economic globalization. This topic is especially meaningful because China is at a crucial period of system transitions. Secondly, it briefly introduces the domestic and overseas studies on this topic. Nowadays, both domestic and overseas reseachers focus their studies on the property rights protection systems and contracts enforcement systems. They mainly use the "trade gravity models" to study how much effects the institutions have on bilateral trades. Thirdly, it provides the research thinkings, technical routes and the main methods. The last, it gives the innovations and shortcomings.The second chapter is about the summary of related international trade theories and reseach reviews. It firstly reviews the institutional theories. Institutions are rules standardizing people’s behaviors. Western institutional economics regards institutions as the prime determinants for one country’s economic growth. The formulation and implementation of institutions is to reduce the transaction costs which are everywhere. To measure institutions qualitatively and quantitatively is one of the most important contents of reseachers’work. Secondly, this essay reviews the institutions change theories and analyzes the nature and catalogues of institution changes. Thirdly, it gives the mainstream international trade theories. These mainstream international trade theories treat institutions as exogenous variables or use technicals to reflect the effects of institutions on economic growth. The institutions are not independent effective factors. The mainstream trade theories which mainly include technical differences international trade theory, factors endowment theory and the new trade theories, are not really related to institutions factors. Therefore, they can’t fully explain many international trade phenomenons reasonably. Western institutional economics gives us a new perspective to study the effect factors of international trade.The third chapter is about the influence mechanisms of institutions on international trade. There are many channels or mechanisms for institutions to affect international trade. Institutions are not only the key factors of one country’s technical innovations, but also the key factors of one country’s accumulation of human capitals and material capitals. Furthermore, efficient property rights protection institutions are infavor of the formulation of efficient market system. All these facts mean that countries with superior institutions have advantages on production of institutions incentive products. Futhermore, efficient institutions can reduce uncertainty and transaction costs, promote international trade and affect one country’s foreign trade scales and benefit distributions. Undoubtedly, it can do favor to the global resources distribution, competition and production efficiency. Besides, contracts enforcement institutions and the systems convergency among countries are convenient to enhance the trust among them, which will be convenient to the signing and performance of contracts. The trade gravity model is an important method for domestic and overseas researchers to study those factors affecting bilateral trade scales and modes. It has been expanded and used these years. This chapter reviews the basic form and its theoretical foundation and overviews the usage of trade gravity models including institutional variables. The result shows that institutions have significant effect on bilateral trade especially the control of corruption and regulatory quality.The fourth chapter is about the correlation analysis between institutions of different kinds of countries and their foreign trade. In this chapter, the main developed countries and least developed countries are both analyzed. The result shows that developed countries generally have superior institutions over those developing countries. Since World War Ⅱ, international trade has been developing quickly. There is a big gap between developed countries and developing countries in foreign trade. Both foreign trade scales and annual growth rate of developed countries are higher than those of developing countries. A correlation analysis between four institutional indicators and foreign trade scales is made in this chapter. The result reveals that there is a positive correlation between institutions and foreign trade. Countries with higher governance indexes generally have higher foreign trade values per capita. It means that one country will enjoy better foreign trade if it does better in government effectiveness, regulatory quality, rule of law and corruption control.The fifth chapter is about institutional changes and international trade. This chapter studies the effect of institutions on international trade from a dynamic perspective. It firstly believes that the main reasons of institutions change of transition countries is the poor efficiency of the original centrally planned economic system. Secondly, it reviews the process of transition countries’economic system change and the resulted changes of these countries’ governance management. Thirdly, it inspects the foreign trade of these countries. The result shows that the change of institutions havenot been reflected in foreign trade. Therefore, it indicates a direction for further institutional changes to promote one country’s foreign trade.The sixth chapter mainly discusses China’s institutional changes and foreign trade. China is the largest developing country and one of the most important transition countries of the world. Its institutional change and foreign trade are concerned more by people. This chapter firstly analyzes the main reasons and process of China’s institutional change. And then, it investigates China’s governance management and foreign trade outlines. Last, it establishes a trade gravity model including institution variables and analyzes the roles of institutions in international trade between China and other135countries of the world.The last part is the summary. Institutions are important for international trade. Developed countries have superior institutions over developing countries. They have larger trade quantities and can gain more from international trade than developing countries. Therefore, developing countries should perfect their institutions in order to gain more. The institutional change of transition countries is to find better institutions to promote economic development. But they still haven’t gained really from institutional changes. China is no exception. Deeper system change is the key for our economic growth and foreign trade development.The innovations of this essay include two points. Firstly, to study the effects of a country’s institutions on its foreign trade, it uses a compound method including both static anaylisis and a dynamic anaylisis. In this way, we can learn the institutional effective factors more comprehensively and make a conclusion that it is easier for countries with similar institutions to establish trust basis and develp their bilateral trade. Secondly, we treat joining the World Trade Organization as an institutional transforming. This kind of institutional transforming undoubtedly has a vital role in a country’s foreign trade.