The Cost of Compliance with Product Standards for Firms in Developing Countries : An Econometric Study

By Keith E. Maskus, T. Otsuki, John Wilson. 2005

201 citations recorded by the source corpus.

Standards and technical regulations exist to protect consumer safety or to achieve other goals, such as ensuring the interoperability of telecommunications systems, for example. Standards and technical regulations can, however, raise substantially both start-up and production costs for firms. Maskus, Otsuki, and Wilson develop econometric models to provide the first estimates of the incremental production costs for firms in developing nations in conforming to standards imposed by major importing countries. They use firm-level data generated from 16 developing countries in the World Bank Technical Barriers to Trade (TBT) Survey Database. Their findings indicate that standards do increase short-run production costs by requiring additional inputs of labor and capital. A 1 percent increase in investment to meet compliance costs in importing countries raises variable production costs by between 0.06 and 0.13 percent, a statistically significant increase. The authors also find that the fixed costs of compliance are nontrivial-approximately $425,000 per firm, or about 4.7 percent of value added on average. The results may be interpreted as one indication of the extent to which standards and technical regulations might constitute barriers to trade. While the relative impact on costs of compliance is relatively small, these costs can be decisive factors driving export success for companies. In this context, there is scope for considering that the costs associated with more limited exports to countries with import regulations may not conform to World Trade Organization rules encouraging harmonization of regulations to international standards, for example. Policy solutions then might be sought by identifying the extent to which subsidies or public support programs are needed to offset the cost disadvantage that arises from nonharmonized technical regulations.

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Citations in the corpus

Product and Process Productivity: Implications for quality choice and conditional exporter premia (2013, background): “High-income countries tend to demand goods of higher quality (Hallak, 2006, 2010) and set more stringent quality standards (Maskus et al., 2005).”
Help or hindrance ? the impact of harmonized standards on african exports (2007, unknown): “For econometric analysis using these data, see Maskus et al. (2005) and Chen et al. (2006).”
Standards as Barriers Versus Standards as Catalysts: Assessing the Impact of HACCP Implementation on U.S. Seafood Imports (2009, unknown): “2001; Wilson and Otsuki 2004; Maskus, Otsuki, and Wilson 2005; Peterson and Orden”
Firms' Exporting Behavior under Quality Constraints (2009, unknown): “…in developed and developing countries, these studies document firms’ need to upgrade quality as a crucial requirement to access foreign markets.15 Finally, policy-oriented research also emphasizes the existence of quality requirements for exports as part of a broader concern about the impact of…”
A Product-Quality View of the Linder Hypothesis (2010, unknown): “See World Bank (1999), Maskus, Otsuki, and Wilson (2005), World Trade Organization (2005), and Chen, Otsuki, and Wilson (2006).”
Non-Tariff Measures and Standards in Trade and Global Value Chains (2015, background): “On the other hand, standards increase fixed production costs and transaction costs related to conformity assessment (or shift those costs from buyers to suppliers) and thereby create economies of scale and advantages for larger suppliers (Gibbon, 2003; Dolan and Humphrey, 2000; Maskus et al., 2005).”