Technical regulation and trade: Export quality matters

Abstract

Abstract This study develops an approach for quantifying the importance of exporter product quality in the effects of the technical regulations of an importing country on bilateral trade flows. In this framework, the dual effects of technical regulation as the demand‐enhancing effect through reduced information asymmetry and the trade‐impeding effect from adaptation to different standards are identified. Using bilateral nontariff data for 74 countries at product levels from 1996 to 2014, we find that technical regulation can reduce exports, particularly in markets that have imposed technical regulations more frequently than exporting countries, but increase exports of high‐quality products. This result is confirmed across different income groups and technology, highlighting the importance of the trade‐promoting effect of technical regulation through increases in perceived quality.