Harmony in Trade: Impact of Quality-Enhancement and Labor-Welfare Voluntary Sustainability Standards from a Global Perspective

Abstract

This study investigates the trade implications of agricultural Voluntary Sustainability Standards (VSSs), with a novel distinction between Quality-Enhancement (QE) and Labor Welfare (LW) certifications. While VSSs are increasingly adopted to address sustainability concerns in agriculture, their trade effects remain ambiguous. We develop a theoretical gravity model grounded in Melitz (2002) to explore how product quality improvements and labor welfare gains influence trade, and test mechanisms empirically. Decomposing trade into intensive and extensive margins, we find that QE-VSSs boost both trade volume and new trade relationships in the short term, with effects tapering after four years. LW-VSSs, in contrast, show delayed benefits: while their early impact on trade is insignificant, they enhance trade volume in the longer run. In heterogeneity analyses, we find that VSS adoption is associated with a reduction in income disparity. Our findings highlight the need for tailored policy support to balance sustainability with trade competitiveness.