eThesis - School of Business electronic theses

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The target of this thesis is to study the influence of the WTO on Russian trade through the improved quality of Russian institutions by using a gravity model. It is investigated whether the improvement of the quality of Russian institutions to the EU standards will increase Russian export and import.

The theoretical part of this thesis consists of the theoretical framework of the influence of institutions on trade and the review of the empirical literature on the impact of the WTO on trade and institutions.

In the empirical part the gravity model is estimated for Russian export and import for the years 2000-2011. The influence of institutions on trade is estimated by using the Ordinary Least Squares (OLS), the Instrumental Variable (IV) and the Poisson Pseudo Maximum Likelihood (PPML) methods. The estimation results indicate that Russian institutions have a positive impact on the Russian trade. Russian export has a potential to increase up to 39% and import up to 27% in the PPML estimates if Russian institutions obtained the quality of the European institutions, due to the WTO accession. The institutions of the Russian partners influence negatively Russian trade, unless the endogeneity issues are accounted for. The post-estimation tests revealed that the endogeneity is a serious issue and the IV method gives more reliable results than the OLS method. The PPML method proved to be an appropriate estimator due to the big amount of zero observations in the data.