Good governance and preferential trade : evidence from the Swiss generalized system of preferences

Purpose: The purpose of this paper is to determine if the institutional quality of developing countries (DCs) and least-developed countries (LDCs) contributes to a significant increase in the utilization rate of the Swiss generalized system of preferences in the agro-food sector. Design/methodology/approach: The authors use state of the art regression techniques accounting for zero values to identify if the institutional quality – separately depicted by the Worldwide Governance Indicators, the Index of Economic Freedom and the Human Development Index – can contribute in overcoming non-tariff barriers (NTBs) to trade. Findings: The institutional quality exerts a consistent positive effect on the level of utilization of trade preferences. Research limitations/implications: Swiss food trade represents, of course, only a very small share of world trade, therefore it would be worthwhile to extend the analysis to other countries and sectors. Practical implications: Industrialized countries’ development policies should more strongly focus on capacity building in DCs and LDCs to strengthen trade-related institutions. Originality/value: The study focuses on an often underemphasized element in international trade relations – the role of the institutional quality in overcoming NTBs to trade.