New Zealand's trade with Asia and the role of good governance

This paper investigates if achievements in good governance in Asian countries matter for New Zealand's trade by testing augmented equations of New Zealand's exports to and imports from Asia within the gravity model framework. The empirical findings based on the instrumental variable method of estimation confirm statistically significant inverse correlation of contract enforcement with New Zealand's exports to and imports from Asia. The findings also reveal that New Zealand's exports to Asia are negatively and statistically significantly correlated with Asian political rights and New Zealand's imports from Asia are negatively but statistically insignificantly correlated with Asian political rights. We conclude that as part of wider trade integration New Zealand's Asian trading partners should invest more resources in improving their governance such as instituting mechanisms for better enforcement of contracts and allowing greater political openness.