Effect of sanitary and phytosanitary measures on cocoa exports : does the quality of governance matter ?

Abstract This paper contributes to the ongoing debate on the effects of institutional differences and sanitary and phytosanitary (SPS) measures on agricultural exports. Specifically, we first assess the effects of SPS measures and governance quality on cocoa exports. We then analyse how governance quality, measured by governance distance, modifies the effect of SPS measures on cocoa exports. The empirical analysis is conducted by applying Poisson Pseudo-Maximum Likelihood (PPML) and Heckman estimators to a gravity model on a panel of cocoa importing countries from the world's top 10 producers. Our results show that an increase in SPS measures reduces cocoa exports. Similarly, an increase in bilateral governance distance reduces cocoa exports. Furthermore, the interaction between governance distance and SPS measures is positively correlated with cocoa exports. This means that the quality of governance reduces the impact of SPS measures on cocoa exports. Cocoa producing countries targeting markets in developed countries, which are considered to be high value-added markets, but located in countries with low institutional quality, need to increase their level of compliance with SPS measures according to the requirements of importing countries.