Trade and the intensity of product regulation

Regulatory requirements are an important determinant of production and thus trade patterns. The effects can be complex as the requirements with which firms and/or products have to comply can either hinder or stimulate international trade. We use machine learning and text-analysis tools on a core set of EU Regulations and Directives to construct a novel set of indices of EU ‘regulatory intensity’ at the HS 6-digit level along three dimensions: technical production requirements, compliance, and conformity assessment. We then test the responsiveness of EU imports from EU and non-EU countries to regulatory intensity by estimating a gravity model with a stringent set of fixed effects. Distinguishing between the areas of regulation is crucial to understand the its impacts on trade: higher production requirements stimulate EU imports, while higher compliance and conformity assessment requirements affect EU imports negatively, mainly from non-EU countries. The trade effects are driven by products characterised by higher complexity, and countries for which the EU is a less relevant export-destination.