This paper investigates how insecurity reduces international trade by estimating the impact of institutional quality on trade using a structural model of import demand. It finds that inadequate institutions constrain trade as much as tariffs do. The study shows that omitting institutional quality in gravity models biases results, obscuring a negative relationship between income and the share of expenditure on traded goods. It argues that institutional differences explain why high-income countries trade more with each other. The paper develops a model where insecurity raises the price of traded goods, and institutional quality affects trade through transaction costs. It estimates that improving institutions in Latin America could increase trade by 30%, similar to reducing tariffs to US levels. The study also shows that higher income per capita reduces the share of expenditure on traded goods, contradicting some previous findings. The paper concludes that institutional quality and security are key factors in trade patterns, with high-income countries benefiting from strong institutions and lower transaction costs. The results highlight the importance of institutional quality in explaining trade flows and suggest that trade patterns are influenced by both income and institutional factors. The paper also addresses the robustness of results and the impact of excluding certain data, finding that results remain consistent across different base countries and data sets. Overall, the study emphasizes the role of institutional quality in shaping international trade and the need to consider it in trade models.This paper investigates how insecurity reduces international trade by estimating the impact of institutional quality on trade using a structural model of import demand. It finds that inadequate institutions constrain trade as much as tariffs do. The study shows that omitting institutional quality in gravity models biases results, obscuring a negative relationship between income and the share of expenditure on traded goods. It argues that institutional differences explain why high-income countries trade more with each other. The paper develops a model where insecurity raises the price of traded goods, and institutional quality affects trade through transaction costs. It estimates that improving institutions in Latin America could increase trade by 30%, similar to reducing tariffs to US levels. The study also shows that higher income per capita reduces the share of expenditure on traded goods, contradicting some previous findings. The paper concludes that institutional quality and security are key factors in trade patterns, with high-income countries benefiting from strong institutions and lower transaction costs. The results highlight the importance of institutional quality in explaining trade flows and suggest that trade patterns are influenced by both income and institutional factors. The paper also addresses the robustness of results and the impact of excluding certain data, finding that results remain consistent across different base countries and data sets. Overall, the study emphasizes the role of institutional quality in shaping international trade and the need to consider it in trade models.