International Harmonization of Product Standards and Firm Heterogeneity in International Trade
As free trade areas have proliferated and statutory tariffs have been dramatically reduced in recent decades, non-tariff barriers (NTBs) to international trade have risen in importance. Destination-specific product standards are one of the major ty...
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| Language: | English |
| Published: |
2012
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| Online Access: | http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20110606163024 http://hdl.handle.net/10986/3442 |
| Summary: | As free trade areas have proliferated
and statutory tariffs have been dramatically reduced in
recent decades, non-tariff barriers (NTBs) to international
trade have risen in importance. Destination-specific product
standards are one of the major types of NTBs as they impose
additional costs on exporters and increase the time required
to bring a product to market. This paper examines the
response of U.S. manufacturing firms to a reduction of this
NTB by looking at the harmonization of European product
standards to international norms in the electronics sector.
Using a highly detailed dataset that links U.S.
international trade transactions to U.S. firms and a new
industry-level database of EU product standards, the author
finds that harmonization increases U.S. exports to the EU
and that this increase is due to more U.S. firms entering
the EU market the extensive margin of trade. New entrants
to the EU region are drawn mainly from the most productive
set of firms already exporting to developing markets before
harmonization -the extensive margin of trade composition.
These firms are characterized by being smaller and less
productive than the firms that were already exporting to the
EU before harmonization. Furthermore, harmonization
decreases export sales at existing exporters -the intensive
margin of trade. These findings are consistent with a model
featuring the role of product standards heterogeneity across
market destinations and productivity heterogeneity across
firms. These results suggest that working toward a
harmonization of product rules across markets could be a
supportive policy to encourage small and medium size
firms' ability to enter new export markets. |
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