Abstract
AbstractThis paper addresses the impact of sustainability in production on international trade. In particular, it examines the effect of the International Tropical Timber Agreement (ITTA) on tropical timber trade. The empirical analysis is based on a gravity equation in a difference‐in‐difference setting, which is estimated by a panel Heckman's selection model. This accounts for the potentially systematic selection of trading partners into timber trade activity. We then conduct a comprehensive comparative static analysis solving the structural gravity model with and without the ITTA. This allows us to determine the trade impact of an ITTA‐induced increase in sustainability for participating as well as for third countries. We find that countries participating in the ITTA exhibit a significant and substantial increase in trade values ranging from 4% to 6%. Furthermore, we observe that this effect is more pronounced for smaller member countries. Non‐ITTA countries are confronted with reduced values of tropical timber trade flows.
Highlights
In previous years, more and more countries have been signing agreements, which aim at increasing the level of sustainable natural resource management practices
Our results show that product quality matters and that it plays a central role in forming international trade patterns of tropical timber
Given that exporters endowed with a high baseline timber quality have a comparative advantage in providing sustainably produced and managed tropical timber, which the International Tropical Timber Agreement (ITTA) importers demand, we find that their trade flows tend to be higher than the trade flows of low quality timber exporters (for an analogous interpretation see Hallak (2010))
Summary
More and more countries have been signing agreements, which aim at increasing the level of sustainable natural resource management practices. We ask whether the sustainability standard induced by the ITTA influences the firms’ decision in the exporting country to serve a foreign market with tropical timber and whether the ITTA leads to a quality improvement of the observed trade flows in addition to a reduction of trade barriers This question is motivated by the large literature on the impact of product standards on international trade (e.g., Chen & Matoo 2008, Czubala, Shepherd & Wilson 2009, Disdier, Fontagne & Cadot 2015). We thereby explicitly allow for changes in the multilateral resistance terms This enables us to estimate the trade impact of an increase in sustainable product quality induced by the ITTA for participating as well as for third-countries.
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