Nathan Nunn examines whether a country's ability to enforce contracts influences its comparative advantage. He constructs a measure of relationship-specific investments for each good, based on the proportion of intermediate inputs requiring such investments. Using data on trade flows and judicial quality, he finds that countries with better contract enforcement specialize in goods requiring more relationship-specific investments. Contract enforcement explains more of the global trade pattern than combined physical capital and skilled labor endowments. He uses instrumental variables and propensity score matching to address potential reverse causality. Results show that judicial quality significantly affects trade flows, with contract enforcement being a key determinant of comparative advantage. The study highlights the importance of contract enforcement in international trade, particularly in industries reliant on relationship-specific investments. Data sources include trade flows, factor endowments, and judicial quality measures. The findings suggest that countries with strong contract enforcement have a comparative advantage in producing goods that require significant relationship-specific investments. The study also considers the role of vertical integration and legal origins in determining trade patterns. Overall, the research supports the idea that contract enforcement is a critical factor in shaping the global pattern of trade.Nathan Nunn examines whether a country's ability to enforce contracts influences its comparative advantage. He constructs a measure of relationship-specific investments for each good, based on the proportion of intermediate inputs requiring such investments. Using data on trade flows and judicial quality, he finds that countries with better contract enforcement specialize in goods requiring more relationship-specific investments. Contract enforcement explains more of the global trade pattern than combined physical capital and skilled labor endowments. He uses instrumental variables and propensity score matching to address potential reverse causality. Results show that judicial quality significantly affects trade flows, with contract enforcement being a key determinant of comparative advantage. The study highlights the importance of contract enforcement in international trade, particularly in industries reliant on relationship-specific investments. Data sources include trade flows, factor endowments, and judicial quality measures. The findings suggest that countries with strong contract enforcement have a comparative advantage in producing goods that require significant relationship-specific investments. The study also considers the role of vertical integration and legal origins in determining trade patterns. Overall, the research supports the idea that contract enforcement is a critical factor in shaping the global pattern of trade.