The effect of regulation‐driven trade barriers and governance quality on export entrepreneurship

Abstract

AbstractThis paper examines the impact of regulation‐driven trade barriers on export entrepreneurship in a panel of 60 countries between 2006 and 2014. The paper finds robust evidence that unfavorable trade regulations significantly reduce export entry rate and export entry density (two critical measures of export entrepreneurship) by increasing the time and cost associated with documentary and customs compliance procedures. These findings support the hypothesis that less conducive business regulations are an important domestic supply constraint which impedes export entrepreneurship by increasing trade costs. In addition, the paper finds that the magnitude of the negative relationship between export entrepreneurship and regulation‐driven trade barriers is significantly more pronounced in countries with poor governance quality. Two measures of governance quality (i.e., political stability and rule of law) are shown to be relatively more significant in aiding favorable trade regulations that promote export entrepreneurship. Furthermore, a reduction in regulation‐driven trade barriers has a positive impact on net entry rate and survival rates of first‐, second‐ and third‐year exporters, and high‐quality governance institutions significantly increase the magnitude of this positive relationship.