Relationship-specificity, incomplete contracts, and the pattern of trade: a comment on the role of natural resources
In his seminal paper, Nunn (2007) finds that countries with good contract enforcement have a comparative advantage and, therefore, specialize in exporting goods for which relationship-specific investments are most important. We argue that this result cannot be extrapolated to all industries: there is substantial heterogeneity regarding the effect of contract enforcement on exports. In particular, we empirically demonstrate that there is a disconnection between judicial quality and exporting in relationship-specific natural resource related industries. Due to the lack of input factor mobility, for such industries, the quality of contract enforcement cannot explain the pattern of trade, but rather other factors that are widely discussed in the literature. We discuss some relevant implications of this disconnection between judicial quality and relationship-specific industries in terms of the natural resource curse and the impact of natural resources trade on economic development.