Institutions, a prerequisite for trade in the knowledge-based economy

Creation, developing and strengthening of institutions, affects international trade and is prerequisite for it. Explaining of the process and channels of the influence of different types of institutions on the trade between the countries and quantifying of the Impact of Institutions on international trade, on the basis of scientific methods, has a particular importance, which has been studied in this paper. In this study, the effect of economic freedom and good governance institutions, as second and third levels of institutional analysis from the Oliver Williamson social analysis fourth levels theory, on the trade between a group of leading Asian countries in knowledge-based economy, using the gravity model and the method of panel data at 2005-2014 has been investigated. According to the results of the research, institutions are influential on trade and affect through important channels, such as competition and competitive advantage, human capital, productivity and transaction costs, on the between countries trade. The estimated model's shows that the effect of good governance and economic freedom on  the trade between the countries has been positive and significant. According to the results of the estimated model's, 1 percent increase in economic freedom index in the exporting and importing countries, their trading value has increased by 3.78 percent and 3.49 percent respectively. The trading value of the exporting countries, has increased by 0.933 percent, as a result of  1 percent increase in good governance, as well.