This paper examines the impact of insecurity and imperfect contract enforcement on international trade using a structural model of import demand. The authors find that inadequate institutions can constrain trade as much as tariffs do, and that excluding institutional quality measures biases typical gravity model estimates. They also argue that the effectiveness of institutions and the prices of traded goods explain the stylized fact that high-income, capital-abundant countries trade disproportionately with each other. The paper develops a model where insecurity acts as a hidden tax on trade, and estimates that a 10% increase in a country's index of transparency and impartiality leads to a 5% increase in its import volumes. Additionally, the share of total expenditure devoted to traded goods declines as income per capita rises, contrary to recent findings. The authors conclude that transactions costs associated with insecure exchange significantly impede international trade and that strong institutions for the defense of trade are crucial for expanding trade volumes.This paper examines the impact of insecurity and imperfect contract enforcement on international trade using a structural model of import demand. The authors find that inadequate institutions can constrain trade as much as tariffs do, and that excluding institutional quality measures biases typical gravity model estimates. They also argue that the effectiveness of institutions and the prices of traded goods explain the stylized fact that high-income, capital-abundant countries trade disproportionately with each other. The paper develops a model where insecurity acts as a hidden tax on trade, and estimates that a 10% increase in a country's index of transparency and impartiality leads to a 5% increase in its import volumes. Additionally, the share of total expenditure devoted to traded goods declines as income per capita rises, contrary to recent findings. The authors conclude that transactions costs associated with insecure exchange significantly impede international trade and that strong institutions for the defense of trade are crucial for expanding trade volumes.