Governance Distance as a Catalyst of Trade: Insights from Tanzania’s Exports to Sub-Saharan Africa
Abstract
This study investigates how governance distance affects Tanzania’s exports to sub-Saharan Africa (SSA) countries. The study is based on the new institutional economics and the augmented gravity model. The Poisson Pseudo-Maximum Likelihood (PPML) estimation is used to analyse panel data from 2002 to 2023. The study used the fuzzy index to compute the governance similarity index based on the Worldwide Governance Indicators (WGI). The results reveal that closer alignment of governance dimensions to Tanzania by the SSA country fosters Tanzania's exports, confirming that governance similarities reduce transaction costs and expand trade. Gravity model variables, such as Tanzania's and SSA countries' GDPs, positively affected exports, and distance adversely affected trade as anticipated. Thus, policymakers should strive to improve Tanzania’s governance quality, reduce governance distance with developed countries, and improve Tanzania’s global exports.
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