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The cost of compliance with product standards for firms in developing countries: an econometric study

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Author Info

  • Maskus, Keith E.
  • Otsuki, Tsunehiro
  • Wilson, John S.

Abstract

Standards and technical regulations exist to protect consumer safety or to achieve other goals, such as ensuring the interoperability of telecommunications systems, for example. Standards and technical regulations can, however, raise substantially both start-up and production costs for firms. Maskus, Otsuki, and Wilson develop econometric models to provide the first estimates of the incremental production costs for firms in developing nations in conforming to standards imposed by major importing countries. They use firm-level data generated from 16 developing countries in the World Bank Technical Barriers to Trade (TBT) Survey Database. Their findings indicate that standards do increase short-run production costs by requiring additional inputs of labor and capital. A 1 percent increase in investment to meet compliance costs in importing countries raises variable production costs by between 0.06 and 0.13 percent, a statistically significant increase. The authors also find that the fixed costs of compliance are nontrivial-approximately $425,000 per firm, or about 4.7 percent of value added on average. The results may be interpreted as one indication of the extent to which standards and technical regulations might constitute barriers to trade. While the relative impact on costs of compliance is relatively small, these costs can be decisive factors driving export success for companies. In this context, there is scope for considering that the costs associated with more limited exports to countries with import regulations may not conform to World Trade Organization rules encouraging harmonization of regulations to international standards, for example. Policy solutions then might be sought by identifying the extent to which subsidies or public support programs are needed to offset the cost disadvantage that arises from nonharmonized technical regulations.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 3590.

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Date of creation: 01 May 2005
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Handle: RePEc:wbk:wbrwps:3590

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Keywords: Environmental Economics&Policies; Economic Theory&Research; Health Economics&Finance; Administrative&Regulatory Law; Science Education;

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References

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  1. Swann, Peter & Temple, Paul & Shurmer, Mark, 1996. "Standards and Trade Performance: The UK Experience," Economic Journal, Royal Economic Society, vol. 106(438), pages 1297-1313, September.
  2. Berndt, Ernst R & Wood, David O, 1975. "Technology, Prices, and the Derived Demand for Energy," The Review of Economics and Statistics, MIT Press, vol. 57(3), pages 259-68, August.
  3. Andrew B. Bernard & J. Bradford Jensen, 1998. "Understanding Increasing and Decreasing Wage Inequality," NBER Working Papers 6571, National Bureau of Economic Research, Inc.
  4. Wilson, John S. & Tsunehiro Otsuki, 2002. "To spray or not to spray? - pesticides, banana exports, and food safety," Policy Research Working Paper Series 2805, The World Bank.
  5. Harrigan, James, 1997. "Technology, Factor Supplies, and International Specialization: Estimating the Neoclassical Model," American Economic Review, American Economic Association, vol. 87(4), pages 475-94, September.
  6. Gasiorek, Michael & Smith, Alasdair & Venables, Anthony J., 1992. "`1992': Trade and Welfare; A General Equilibrium Model," CEPR Discussion Papers 672, C.E.P.R. Discussion Papers.
  7. Fischer, Ronald & Serra, Pablo, 2000. "Standards and protection," Journal of International Economics, Elsevier, vol. 52(2), pages 377-400, December.
  8. Morrison, Catherine J, 1988. "Quasi-Fixed Inputs in U.S. and Japanese Manufacturing: A Generalized Leontief Restricted Cost Function Approach," The Review of Economics and Statistics, MIT Press, vol. 70(2), pages 275-87, May.
  9. Berndt, Ernst R. & Hesse, Dieter M., 1986. "Measuring and assessing capacity utilization in the manufacturing sectors of nine oecd countries," European Economic Review, Elsevier, vol. 30(5), pages 961-989, October.
  10. Otsuki, Tsunehiro & Wilson, John S. & Sewadeh, Mirvat, 2001. "Saving two in a billion: : quantifying the trade effect of European food safety standards on African exports," Food Policy, Elsevier, vol. 26(5), pages 495-514, October.
  11. Jones, Philip & Hudson, John, 1996. "Standardization and the costs of assessing quality," European Journal of Political Economy, Elsevier, vol. 12(2), pages 355-361, September.
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Citations

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Cited by:
  1. van Tongeren, Frank & Beghin, John C. & Marette, Stephan, 2009. "A Cost-Benefit Framework for the Assessment of Non-Tariff Measures in Agro-Food Trade," Staff General Research Papers 13146, Iowa State University, Department of Economics.
  2. Juan Carlos Hallak & Jagadeesh Sivadasan, 2009. "Firms' Exporting Behavior under Quality Constraints," Working Papers 09-13, Center for Economic Studies, U.S. Census Bureau.
  3. Gabriel Sánchez & María Laura Alzúa & Inés Butler, 2008. "Impact of Technical Barriers to Trade on Argentine Exports and Labor Markets," CEDLAS, Working Papers 0079, CEDLAS, Universidad Nacional de La Plata.
  4. Anders, Sven & Caswell, Julie A., 2006. "Assessing the Impact of Stricter Food Safety Standards on Trade: HACCP in U.S. Seafood Trade with the Developing World," 2006 Annual meeting, July 23-26, Long Beach, CA 21338, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  5. Sven Anders & Julie Caswell, 2007. "Standards-as-Barriers versus Standards-as-Catalysts: Assessing the Impact of HACCP Implementation on U.S. Seafood Imports," Working Papers 2007-7, University of Massachusetts Amherst, Department of Resource Economics.
  6. Juan Carlos Hallak, 2006. "A Product-Quality View of the Linder Hypothesis," NBER Working Papers 12712, National Bureau of Economic Research, Inc.
  7. Tomás Castagnino, 2011. "What Drives firms´ Geographic Diversification in International Markets?," BCRA Working Paper Series 201152, Central Bank of Argentina, Economic Research Department.
  8. Chen, Maggie Xiaoyang & Otsuki, Tsunehiro & Wilson, John S., 2006. "Do standards matter for export success ?," Policy Research Working Paper Series 3809, The World Bank.
  9. Veliko Dimitrov & Vladimir Dubrovskiy & Irina Orlova, 2007. "Institutional Harmonization in the Context of Relations Between the EU and Its Eastern Neighbours: Costs and Benefits and Methodologies of Their Measurement," CASE Network Reports 0075, CASE-Center for Social and Economic Research.
  10. Henson, Spencer & Masakure, Oliver & Cranfield, John, 2011. "Do Fresh Produce Exporters in Sub-Saharan Africa Benefit from GlobalGAP Certification?," World Development, Elsevier, vol. 39(3), pages 375-386, March.
  11. Hallak, Juan Carlos & Sivadasan, Jagadeesh, 2008. "Productivity, quality and exporting behavior under minimum quality constraints," MPRA Paper 24146, University Library of Munich, Germany.
  12. Cadot, Olivier & Jaud, Mélise & Suwa Eisenmann, Akiko, 2009. "Do Food Scares Explain Supplier Concentration? An Analysis of EU Agri-food Imports," CEPR Discussion Papers 7431, C.E.P.R. Discussion Papers.
  13. Itzhak Goldberg & Lee Branstetter & John Gabriel Goddard & Smita Kuriakose, 2008. "Globalization and Ttechnology Absorption in Europe and Central Asia : The Role of Trade, FDI, and Cross-Border Knowledge Flows," World Bank Publications, The World Bank, number 6445, 5.

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