Domestic versus Multilateral Institutions in Bilateral Trade: A Comparative Gravity Analysis

The role of domestic and multilateral institutional variables in determining bilateral trade is estimated using recent cross-sectional data covering 192 countries. Linear estimations are conducted using lognormal and Tobit models while multiplicative models use Poisson and hurdle Poisson-logit estimators. The multiple indices of domestic institutional quality available are scaled into four categories using multidimensional scaling. Membership of trade and political organizations proxy for multilateral institutional heterogeneity. Count data models a report better model fit and conservative estimates compared with linear estimations. Domestic institutional quality has a significant but moderate association with bilateral trade while multilateral institutions have a substantially large and statistically significant association with trade.