Barriers to international trade are more sizeable than can be accounted for on the basis of formal trade barriers and transport costs alone. Search costs in the international marketplace and insecurity of property and contract enforcement have recently been stressed to explain this observation....

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, and with non-OECD countries.