The Gravity of Institutions in Resource-Rich Country

Abstract

This research will analyze the effects of the similarities in economic size and institutional level on bilateral trade. It is interested whether similarities at the country size and institutional level encourage international trade between countries. Using panel data of the bilateral trade of Azerbaijan with 50 different countries from 1995 to 2012 estimating by the Poisson Pseudo-Maximum Likelihood (PPML) method, it is expecting that similarity at the income size is not necessary for increasing bilateral trade across countries, on the contrary, country has interest to trade with dissimilar economic-size countries. Institutional similarity is expecting plays pivot role in international relationships and it has positive impact on bilateral trade.