Re-estimating the effects of stricter standards on trade: Endogeneity matters

Shingal, Anirudh; Ehrich, Malte; Foletti, Liliana (December 2016). Re-estimating the effects of stricter standards on trade: Endogeneity matters (EUI RSCAS Working Papers, Global Governance Programme-262 2017/20). San Domenico di Fiesole (FI), Italy: Robert Schuman Centre for Advanced Studies (RSCAS), European University Institute (EUI)

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In their meta-analysis of estimates of the impact of technical barriers to trade, Li and Beghin (2012) note that studies using pesticides Maximum Residue Levels (MRLs) tend to find more trade impeding effects, but these studies do not directly address the problem of endogeneity in the standards-trade relationship. Using pesticides MRL data for 53 countries over 2005-2014, we re-examine the trade effects of stricter standards accounting fully for endogeneity using three-way fixed effects. We find that the direction of the estimated trade effects gets reversed and we discuss why endogeneity biases the estimates downwards. In another original contribution, we examine the standards-trade relationship by the direction of imposition of stricter standards for a large panel. Our results suggest that stricter standards facilitate trade, irrespective of who imposes them.

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