How institutions affect export quality

We examine the relationship between a country's institutional environment and the quality of its exports. Institutional factors such as widespread corruption, inefficient bureaucracy, and high risk of expropriation of private property by government can create uncertainty among producers and discourage them from investing and innovating over the long term. This can limit the ability of producers to improve the quality of their exports in the future. We find some evidence that a better institutional environment (i.e. lower corruption, more efficient bureaucracy and more secure property rights) is associated with better export quality. After accounting for potential endogeneity between institutional and economic variables, we conclude that better institutions lead to improvements in export quality. Among the institutional factors considered in this article, corruption appears to be most robustly associated with export quality. These results have important implications for policymakers.

► We examine the link between a country's institutions and its export quality. ► Corruption is associated with lower export quality. ► Better bureaucracy and property rights are associated with better export quality. ► The causality runs from institutions to export quality.