Trade Margins and Product Quality Adjustments to Non-Tariff Measures

Résumé

The paper tests whether the “quality”-focused non-tariff measures, such as technical barriers to trade (TBT) measure or sanitary and phytosanitary (SPS) measures, are trade-distorting and quality-improving. We first develop a firm-based trade model with information asymmetry on product quality. We show that the enforcement of a minimum quality standard intended to solve the asymmetric information problems induces the exit of low-quality and low-productivity firms. However, it also causes the exit of some high-quality firms because of a reallocation of demand from low-productivity to high-productivity low-quality firms. Thus, the effect of stricter quality standards on average quality of products is ambiguous. Then, using French data at the firm-product level, we study the impact of SPS and TBT measures on export decisions of firms (participation and export values) and average quality of products. We find that both SPS and TBT measures force low-productivity firms to exit. We also show that more SPS measures (resp. TBT measures) raise the market share of high-productivity low-quality incumbents at the expense of low-productivity firms and average quality of products in the food industry (resp., in the manufacturing industries). (joint with Anne-Célia Disdier and Cristina Herghelegiu)