CEPII, Recherche et Expertise sur l'economie mondiale
Let's Try Next Door: Technical Barriers to Trade and Multi-destination Firms


Lionel Fontagné
Gianluca Orefice

 Highlights :
  • Stringent TBTs drive the average firm out of the market with a magnified effect for multi-destination players, who are encouraged to redirect their exports to other destinations (free of TBT concerns).
  • Multi-destination firms are more likely to exit as a response to a stringent TBT. Thus, the imposition of a stringent TBT, by pushing multi-destination (high-productive) firms out of the market, reduces the average productivity of incumbent firms (i.e. the welfare of the imposing country).
  • We combine aggregate estimations at sector-destination level with firm-level estimations and find that stringent TBTs represent mainly increases in fixed (more than variable) trade costs, with trade elasticity magnified for more homogeneous sectors.

 Abstract :
Stringent Technical Barriers to Trade (TBT) are expected to drive exporters out of the markets imposing these hurdles. However their impact will vary, with some exporters being able to refocus on TBT-free markets. By matching a database of TBT measures raised as concerns at the WTO (Specific Trade Concerns -- STCs), with a firm-level panel of French exporters, we show the complex effects of restrictive TBT measures on the different margins of trade. We show that the negative effect of TBT on export participation is magnified for multi-destination firms, which can divert their exports towards TBT-free destinations. Moreover, we conduct aggregate level estimations to show that the effect of stringent TBTs in reducing  export flows is magnified in more homogeneous sectors. Observing the shape of the firm distribution at sectoral level and the aggregate elasticity of export to trade cost, we shed light on the fixed component of the additional cost imposed by TBTs on exporters.

 Keywords : Non-tariff measures | TBT | Multi-destination Firms | Trade Margins

 JEL : F13, F14
CEPII Working Paper
N°2016-18, July 2016

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