Exports and legal property rights: Exploring the connection

Given the well-recognized importance of legal and judicial institutions, the persistence of weak institutions may seem puzzling. This dissertation presents a new demand-side approach to institutional development. While not a complete explanation for institutions, the theory is able to account for much of the variation observed across countries. The theory is developed in two stages. Chapter I considers how the credibility of contract enforcement institutions in an exporter's country influences an importer's purchasing decisions. A simple model, utilizing Barzel's (2002) theory of transaction costs, is developed showing how better institutions allow buyers to substitute away from costly inspection and relationship building, ultimately encouraging new trade relationships involving complex goods.;Chapter II develops the second part of the demand-side theory by considering how the potential to export influences the demand for institutional reform. A simple model adapted from Wei (1999) posits that geographic and historic proximity lower search costs, and increase the predicted level of complex exports. Ultimately, the higher expected exports induces demand for more credible institutions.;Using Central and Eastern Europe (CEE) and the former Society Union (FSU) as a case study, Chapter III presents a variety of econometric results consistent the demand-side theory. First, the credibility of institutions explains complex exports, but not homogeneous exports. Second, the potential to export complex goods is positively correlated with better legal institutions. The model's predictions hold for exports to Western Europe, as well as for trade within Eastern Europe and former Soviet Union, suggesting that the results are not simply an anomaly of the Western European sample.;Applying the demand-side theory to economic development in general, Chapter IV considers how shifts in government policy towards export-led growth can increase the potential to export. The higher potential to export ultimately induces demand for institutional reform. Based on a number of case studies, the motivations behind judicial reform, structural change in exports, and ability of firms to lobby provide evidence consistent with demand for institutional reform originating from potential exporters. While data limitations prevent a more complete test, the variety of evidence all consistent with the predictions, provides motivation for consideration of the demand-side theory.