Sustainable Trade in Developing Countries: The Role of Institutions, Corruption, and Environment

Abstract

 The purpose of this study is to investigate the role of the environment, institutions, and corruption in relation to developing countries’ sustainable trade. Literature has explored these components, albeit in isolation. There has been less research on how these factors can be embedded within a sustainable trade framework. This study covers the panel data of 37 developing countries for the period 1990 to 2023, derived from the World Development Indicators, World Governance Indicators, and Transparency International’s reports. The data is used to construct a Generalized Method of Moments (GMM) model which solves endogeneity and unobserved heterogeneity problems in the panel data. The results suggest that institutional quality has a positive and significant effect on sustainable trade which reinforces the notion that the governance framework of a country determines the efficiency of trade and the level of adherence to the environmental provisions of the laws. Environmental quality, too, positively affects sustainable trade which indicates that the trade fostering policies and environmental policies of a country are reinforcing. In stark contrast, the negative and significant effect of corruption suggests that it acts as a barrier against the attainment of trade expansion coupled with sustainability. This integrated approach towards trade governance with corruption and environmental sustainability adds to the existing literature. The focus of policies must be targeted towards the strengthening of institutions, adoption of rigorous anti-corruption policies, and promotion of trade policies that protect the environment, to be able to achieve sustainable development in developing economies.