Non-tariff measures and competitiveness

We explore how tariffs and standard-like Non-Tariff Measures (NTMs) introduced by the EU affect industry characteristics in the domestic market. While tariffs work as a pure tax on import, standards like NTMs potentially affect costs of both domestic and foreign firms, although likely more the latter. We use the model by Melitz and Ottaviano (2008) to include NTMs. We derive some testable implications on the number of firms selling in the domestic market and on average efficiency. We take the model to the data for a group of European countries. The empirical analysis confirms the implication of the theoretical model; As a consequence of NTMs the number of firms and average efficiency increase in the home country. We also test if NTMs effects differ by firms' size, and we find that the effect is positive on the number of medium-large firms, while negative on that of small firms.