Abstract
In 2003, the Kimberley Process Certification Scheme (KPCS) went into force to stop the trade in those diamonds, directly linked to the fueling of armed conflict and activities of rebel movements, also known as conflict diamonds. This article gives empirical evidence on the impact of the KPCS on international trade in rough diamonds. We find that bilateral KPCS participation facilitates access to international markets for rough diamonds and increases trade values. The bilateral trade impact of the KPCS does not depend on the exporters’ economic development or market access. A more detailed analysis of exporters’ heterogeneity in trade values shows that unilaterally KPCS intensifies the trade impediments resulting from armed conflicts and, thereby, reduces the international trade in rough diamonds stemming from countries with ongoing internal conflicts. We further offer evidence that the KPCS-induced trade effects apply not only to exporter- or importer-hubs but equally to smaller trade partners. Our analysis gives insights into how agreements setting a particular standard may affect international trade patterns in conflict minerals.
Highlights
Diamond production can play an essential role in a country’s economic and social development, especially in resource-based economies, as is the case for many low-income countries
We focus on import flows in rough diamonds referring to three different HS-1996 codes, which are directly drawn from the Kimberley Process Certification Scheme (KPCS) agreement text: diamonds unsorted (710210), industrial diamonds, unworked or sawn, cleaved or bruted (710221) and nonindustrial diamonds, unworked or sawn, cleaved or bruted (710231)
This paper provides empirical evidence on the impact of the KPCS on the international trade in rough diamonds
Summary
Diamond production can play an essential role in a country’s economic and social development, especially in resource-based economies, as is the case for many low-income countries. Whether the trade-enhancing or the cost-increasing effect dominates, i.e., how the KPCS affects international trade flows in rough diamonds, remains an empirical question which we address in this paper. If we exclude large exporter and importer hubs, i.e., South Africa and the United Kingdom, from the sample, our central conclusions remain valid This finding assures us that despite the fairly concentrated market for rough diamonds, the KPCS trade impacts we observe apply to smaller diamond traders and are not specific to the big players. They often do not participate in the design and international coordination of these standards, are less informed, and are often unable to anticipate these regulations (Chen, Wilson & Otsuki 2008) This leads product standards to be questioned as a development tool to integrate low-income countries into the world trade system.
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