Institutions and Comparative Advantage in Services Trade

Recent studies have highlighted the role of human capital and good economic institutions in establishing comparative advantage in trade in complex institutions-intensive goods. We show that the effect of institutions on comparative advantage in services trade is quite different: in fact, countries with bad institutions rely significantly more on service export. More specifically, as quality of institutions deteriorates, the share of information technology sector (ICT) services export in total ICT export increases significantly and countries with worse institutions get a substantial comparative advantage in the provision of ICT services.

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