Abstract
This paper analyses the relevance of Colombian institutional quality in recent years in terms of the performance of its exports within a framework of trade openness. Based on the trade gravity model, we examine the effect of governance on the evolution of Colombian exports through an econometric approach that identifies, on the one hand, the influence of institutional quality, and on the other hand, the influence of the institutional distance between Colombia and its trading partners. We use a panel data set for 2005–2018, through which the export flows from Colombia to 136 of its trading partners are considered. The findings indicate that Colombian institutional quality and the institutional distance between the country and its partners are statistically significant and affect its foreign sales. Similarly, there is a prominent influence of regulatory quality and the rule of law variables in the performance of Colombian exports in relation to other variables included in the model. We conclude that the Colombian government must improve its institutional quality considerably as a fundamental step towards boosting its overseas sales, not least because the country’s institutional distance from the world average is notable, which also affects its exports.
Highlights
Based on this negative trend established within a context of complex socioeconomic factors, such as high rates of informality, greater concentration of wealth, controversial electoral processes, drug trafficking and internal armed conflict, among others related to governance, this study attempts to evaluate the effect of Colombian institutional quality on its export trade flows
Regarding the variables that illustrate the Colombian trade integration mechanisms, the regression shows that there is no statistical significance between Colombian export levels and whether the destination country belongs to the WTO or OECD
Contrary to the predominant positive results from different studies, the FTA variable exhibits a negative effect on Colombian exports, which suggests that when Colombia shares a trade agreement with its partners, its exports decrease
Summary
Relevant research has explored the effect of institutional variables, which have received a great deal of attention (Anderson and Marcouiller 2002; Dollar and Kraay 2004; Levchenko 2007; Egger et al 2011; Egger and Nigai 2015; Álvarez et al 2018), and it is widely understood that higher institutional quality and a better atmosphere of governance reduce business costs and promote an efficient business environment, which can improve bilateral trade flow between nations (Wu et al 2012).Colombia, as one of the countries experiencing one of the highest economic growth rates in Latin America over the past decades, has developed a dynamic policy of trade openness in order to promote its economic development through the promotion of itsAbreo et al Journal of Economic Structures (2021) 10:24 exports. The nation’s trade balance, which has historically been in deficit, has deepened further in recent years, presenting one of the largest imbalances in Latin America after only Mexico and Argentina (ECLAC 2020). Based on this negative trend established within a context of complex socioeconomic factors, such as high rates of informality, greater concentration of wealth, controversial electoral processes, drug trafficking and internal armed conflict, among others related to governance, this study attempts to evaluate the effect of Colombian institutional quality on its export trade flows.
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