General Equilibrium Effects of Technical Non-Tariff Measures: Evidence from Bilateral Trade Cost Estimates

We estimate the trade and income effects of regulatory developments concerning standard- like non-tariff measures (NTMs) over 2012–2017 combining structural gravity estimates and general equilibrium projections. The trade cost effects of regulatory changes vary at the country-pair and across sectors. Overall, NTM-related regulatory changes over 2012–2017 increased trade costs in goods, which reduced global trade by 1.4%. The majority of this reduction corresponds to a decline in goods trade equivalent to more than 40% of the actual worldwide decrease of nominal goods trade over this period. Yet, the implied reduction of real income is a small. We highlight significant variation of these effects at the country and sector level and show that excluding pair-specific trade frictions and third-country effects introduces omitted variable bias. Our findings imply that advances in international coordination of technical regulation can further reduce trade frictions and enhance trade and real income.