International trade in rough diamonds and the Kimberley Process Certification Scheme.

• This paper empirically examines the impacts of the Kimberley Process Certification Scheme on international trade in rough diamonds. • The Kimberley Process Certification Scheme has worked as a catalyst, increasing trade in rough diamonds. • The Kimberley Process Certification Scheme does not affect low-income exporters differently. • The agreement's induced trade effects apply not only to exporter- or importer-hubs but equally to smaller trade partners. • The Kimberley Process Certification Scheme signed unilaterally reduces the trade in rough diamonds originating from belligerent countries. In 2003, the Kimberley Process Certification Scheme (KPCS) went into force to stop the trade in those diamonds, directly linked to the fueling of armed conflict and activities of rebel movements, also known as conflict diamonds. This article gives empirical evidence on the impact of the KPCS on international trade in rough diamonds. We find that bilateral KPCS participation facilitates access to international markets for rough diamonds and increases trade values. The bilateral trade impact of the KPCS does not depend on the exporters' economic development or market access. A more detailed analysis of exporters' heterogeneity in trade values shows that unilaterally KPCS intensifies the trade impediments resulting from armed conflicts and, thereby, reduces the international trade in rough diamonds stemming from countries with ongoing internal conflicts. We further offer evidence that the KPCS-induced trade effects apply not only to exporter- or importer-hubs but equally to smaller trade partners. Our analysis gives insights into how agreements setting a particular standard may affect international trade patterns in conflict minerals. [ABSTRACT FROM AUTHOR]