Domestic Institutions and Export Performance: Evidence for Cambodia

The paper analyzes the relevance of domestic institutions for export performance of Cambodia. Regulatory quality, control of corruption, rule of law, government effectiveness, and political stability are introduced in an augmented gravity model with a panel data set over 1996–2015. The research is the first application to Cambodia, until 2015 a least developed country which is generally believed to have poorly developed institutions. Due to high multicollinearity among the variables, the institutional variables are introduced in the model one by one. Estimation is by the Hausman–Taylor method, which reduces or removes the correlation between the composite error terms and the included variables. All institutional variables show a highly significant positive relationship with Cambodia's exports, with rule of law having the largest impact. It is concluded that the government should give high priority to the further improvements of the legal environment and to strong enforcement of property rights and contracts.