Law, Trade and the Asian Miracle

In previous work (Berkowitz, Moenius and Pistor 2006), we have shown that countries with high quality legal institutions specialize in exporting complex products whose characteristics are difficult to fully specify in contracts. The miracle growth in the Asian Nine (China, Hong Kong, Indonesia, Japan, Malaysia, Singapore, South Korea, Taiwan and Thailand) during the latter half of the past century has been accompanied by a remarkable increase in complex goods exports and an increase in the ratio of complex to simple goods exports. We test our theory for the Asian Nine and find that good institutions have a substantially stronger than average impact on complex and simple goods trade in those countries. In countries outside the Asian Nine gains in the perceived quality of institutions spur complex exports primarily by lowering the domestic costs of producing complex goods. However, in the Asian Nine good institutions are also important because they lower transactions costs of importing and exporting complex goods