Exports and governance: The role of private voluntary standards

The empirical evidence that institutional differences across countries affect bilateral trade is robust. The crucial question remains how countries can enhance trade amid these differences. In this paper, we measure the degree to which governance and institutions differ between countries as "governance distance". Using a sample of EU/EFTA imports, we examine how the adoption of private food standards and certifications modify the effect of governance distance on exports within a structural gravity framework. Our results show that while increasing governance distance hinders bilateral trade, the interaction of standards and the governance distance is positively associated with exports, hence partially offsetting their direct trade-inhibiting effects. GlobalGAP certified countries see the trade-inhibiting effects of governance distance on their exports reduced by about 50%, ceteris paribus.