What set of domestic institutions most affect bilateral trade flows? Extant research emphasizes security institutions or democratic political institutions. We agree that domestic institutions matter, but not the ones previously identified. Rather, the key set of institutions influencing trade flows are those that protect property rights. These market-protecting institutions, such as the establishment of banking and insurance laws and common standards of measurement, promote trade by lowering the transaction costs of commercial exchange. An empirical analysis of bilateral trade flows employing a number of estimation methods and operationalizations of the key concept support our market-protecting institutions argument. [ABSTRACT FROM AUTHOR]
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