The impact of governance indicators on international trade: Evidence from G-20 countries

The concept of governance is one of the most important indicators showing whether states are governed well or not. Thanks to this concept, introduced by the World Bank in 1989, it provides the opportunity to analyze the economic potential of countries in a more rational way by analyzing the governance data of states. With globalization in the world, competition in international trade has begun to increase. Countries are trying to keep up with this race by making many regulations and reforms to increase their trade volumes. Many assumptions have been put forward for countries to achieve stable trade growth and increase their trade capacity. While companies want to deliver the products they produce to wider markets, they also need to protect the raw material supply chain. Among all these equations, those dealing with international trade ignore various risk factors, which negatively affects the results of their trade. With the free market economy, companies expect to act comfortably in the countries they do business with and continue their activities under legal security. They also fear the existence of corruption and various public order problems. Companies will hesitate to invest or trade as it will be difficult to achieve healthy results in an environment where their investment or trade is at risk. Therefore, where there is governance weakness, trade will also be negatively affected. In this study, the governance indicators of G20 countries were examined using the panel data analysis method and it was examined whether there was a proportionality between the economic indicators and governance indicators over the years. In panel data analyses, the Driscoll and Kraay estimator was used, which allows more consistent results to be obtained in the presence of heteroscedasticity, autocorrelation and inter-unit correlation in the model. According to the findings obtained from the results of this model, it has been observed that governance indicators such as freedom of expression, accountability, government effectiveness, quality of regulations and control of corruption have statistically significant and positive effects on the trade volume of G20 countries. In addition, it has been determined that the per capita income and gross gross capital formation of the G20 countries significantly and positively affect the total international trade of the G20 countries. However, no significant relationship was observed regarding the effects of political stability and rule of law indicators on international trade volume in G20 countries.