The Gravity of Institutions in Resource-Rich Country

This research analyzes the effects of the similarities in economic size and institutional level on bilateral trade. It is interested, whether the similarities at the country size and institutional level encourage enlarging volume of international trade between countries. Using panel data of the bilateral trade of Azerbaijan with 50 different countries from 1995 to 2012 estimating by the GEE Population-averaged method, it has been found that similarity at the income size is not necessary for increasing bilateral trade across countries, on the contrary, country has interest to trade with dissimilar economic-size countries. The influence of institutions plays a pivotal role on bilateral trade between countries. It is confirmed that institutional similarity tends to increase bilateral trade: reliable countries tend to trade more between each other, and less with unreliable one