Re-Estimating the Effects of Stricter Standards on Trade: Endogeneity Matters

Abstract

The continual decline of taris through successive rounds of multilateral trade negotiations has increased the relative importance of non-tari measures (NTMs). Sanitary and Phytosanitary (SPS) standards and technical barriers to trade (TBT) are two such NTMs, which though imposed for legitimate reasons such as alleviating information asymmetries, mitigating consumption risks and promoting environmental sustainability, can also be instruments of disguised protectionism. Literature suggests that SPS and TBT measures can have both demand-enhancing and trade cost eects (Xiong and Beghin, 2014). Standards prescribe requirements for product characteristics, production processes and/or conformity assessment to address information problems, market failure externalities and societal concerns, which may assuage consumer concerns in importing countries. Standards can also convey positive information on product quality, again enhancing demand. Existing literature has documented the positive eects of standards on trade (

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Trade and Welfare Effects of Standards in Agricultural Markets

“…Second, standards may be endogenous to trade volumes. A specific case is made for MRLs by Shingal et al (2017). But, many empirical exercises carried out within gravity-type models ignore the problem (e.g., Tran et al, 2012;Arita et al, 2017;Kareem et al, 2018).…”