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American Law and Economics Review Advance Access published online on April 10, 2008
American Law and Economics Review, doi:10.1093/aler/ahn003
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© The Author 2008. Published by Oxford University Press on behalf of the American Law and Economics Association. All rights reserved. For Permissions, please e-mail: journals.permissions@oxfordjournals.org

How Important is State Enforcement for Trade?

Peter T. Leeson

George Mason University

Send correspondence to: Peter T. Leeson, Department of Economics, George Mason University, MSN 3G4, Fairfax, VA 22030, USA; E-mail: pleeson{at}gmu.edu

JEL Classification: F10, F53, F55


  Abstract

According to conventional wisdom, state-provided contract enforcement is critical to an expansive, growing trade. This paper estimates state enforcement's impact on international trade for one hundred and fifty-seven countries over the last half a century. I find that state enforcement increases trade between nations by about fifteen to thirty-eight percent. This effect is significant though modest compared to intuition about the importance of government enforcement, the long-run growth of trade, and the estimated effect of trade's other determinants. Thus, while state enforcement appears to enhance trade, it does so less impressively than its status as essential for flourishing trade tends to suggest.

I thank Pete Boettke, Chris Coyne, Tyler Cowen, John Donohue, Michael Makowsky, Andrew Rose, Jesse Shapiro, Andrei Shleifer, Russell Sobel, Thomas Stratmann, Bob Subrick, and an anonymous referee for helpful comments and suggestions. Special thanks are also owed to the ICC, LCIA, and ICDR for generously providing me with arbitration data.


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