\documentclass[11pt,leqno]{article}
\setlength{\headheight}{0pt}
 \setlength{\textheight}{22cm}
\pagenumbering{empty} \linespread{1.3}

\title{Institutions ... but which?
\\ \bigskip \large{The importance of the institutional setting in determining the trade between EU member
states.}}

\bigskip
\author{\small{Joanna Tyrowicz}}

\pagestyle{empty}
\begin{document}
\maketitle
\bigskip
\bigskip
\begin{center}\textbf{Abstract}
\end{center}
The main goal of this paper is to identify and analyse main
institutional determinants of the intra-EU trade. We try to answer
the following question: \textbf{which institutions help two
companies to trade, despite their location?} In order to achieve
this, a gravity equation was constructed where formal and informal
institutions were explicitly specified. We analyse the impact of
\textbf{legal framework and its quality}, as measured by the
\textbf{observed corruption}. We further include institutions like
\textbf{common currency} as well as \textbf{measures of mental
proximity} (the marketing equivalent of the 'psychic distance'),
like \textbf{common language} and \textbf{historical background}.
We obviously control for infrastructure and geographical
determinants.

Does trade stimulate GDP or is it the other way around? Not only
is the answer to this question crucial for policy implications,
but it also helps to understand the nature of wealth creation.
Number of studies confirmed that overall openness stimulates
economic growth allowing also to explain differences in income
levels (cfr. the works of Xavier Sala-i-Martin, Jeffrey Frankel
and Andrew K. Rose). However, although for obvious reasons trade
and GDP seem closely related, one was so far unable to
unambiguously ascertain, what the causality is. Nevertheless, it
should not discourage economists from analysing what stands behind
the international exchange of goods and services.

Analysing the trade patterns between European Union member states
seems particularly important for at least few reasons. Primarily,
\textbf{EU is the most integrated regional trade block in the
world giving valuable experience of what such integration really
means}. Observing which factors determine patterns of trade seems
therefore interesting.

Secondly, the extent to which EU member states trade with each
other affects the level of their integration. Thus, since the
asymmetry of external shock response might be marginalised by the
deeper integration, it \textbf{might be crucial for reducing the
risk of EU collapse}. For that reason, the determinants of trade
are also important for other integration levels, as common market
and political union.

At last, but not least, the \textbf{Intra-EU trade patterns�
determinants are particularly important for Poland and the other
accessing countries}. The process of adjusting the institutions to
the EU standards, originated several years ago shall not be ended
on the accession day. Thus, understanding which institutions are
important for stimulating the Intra-EU exchange remains an
important issue.

In this paper we aim at \textbf{identifying the institutional
determinants of trade}. It has been argued frequently, that
institutions, geography are together important stimuli for
economic growth. Nevertheless, as shown by Dani Rodrik, some
institutions can influence GDP levels indirectly and in that
respect, trade was found to be an important transmission channel.
Unlike other studies, however, we intend to analyse \textbf{which
institutions exactly} can be considered essential.



\end{document}
