Graduation Year

2026

Date of Submission

4-2026

Document Type

Campus Only Senior Thesis

Degree Name

Bachelor of Arts

Department

Economics

Reader 1

William Lincoln

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2026 Diana Alimzhan

Abstract

This paper investigates whether institutional quality acts as a comparative

advantage for trade in Low-Carbon Technologies (LCT). Using a gravity model

with high-dimensional fixed effects on a dataset of 140 countries from 1996 to

2023, I analyze whether governance standards impact green trade differently than

aggregate trade. Contrary to standard trade theory, results using raw governance

indices indicate that general improvements in governance have no statistically

significant effect on total trade volumes in this sample. However, I find strong

sectoral heterogeneity: the elasticity of trade with respect to governance is

significantly higher for LCT goods than for traditional goods. Specifically, a oneunit

improvement in the governance index is associated with an 8.2% increase

in LCT trade intensity (p < 0.10), compared to a statistically insignificant 1.5%

for non-green trade. Furthermore, robustness checks using an Instrumental

Variable (IV) strategy grounded in historical settler mortality confirm that this

relationship is causal, with the causal “Green Premium” estimated at 17.6%.

These findings imply that “green” markets are uniquely sensitive to institutional

credibility, making governance reform a critical component of climate trade

policy.

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