Ineffective institutions increase transaction costs and reduce trade. This paper shows that differences in the … effectiveness of institutions offer an explanation for the tendency of OECD countries to trade disproportionately with each other …

Investment (FDI). The conventional proximity-concentration theory suggests that FDI substitutes for trade if distance between … dimensions of distance affect exports and FDI differently. There is clear evidence of a proximity-concentration trade-off in … positive relation between import tariffs and FDI intensity provides further evidence for a trade-off resulting from trade costs …