The Costs of Complying with Foreign Product Standards for Firms in Developing Countries: An Econometric Study

Keith Maskus, University of Colorado at Boulder, Tsunehiro Otsuki, University of Colorado at Boulder, and John Wilson, University of Colorado at Boulder

9/25/2008
(Original Publish Date: 5/19/2004)

Standards and technical regulations exist to protect consumer safety or to achieve other goals. However, such regulations can raise set-up costs and production costs significantly. We develop econometric models to provide the first estimates of the incremental production costs of enterprises in developing nations in conforming to standards imposed by major importing countries. We use firm-level data generated from 16 developing countries through the World Bank Technical Barriers to Trade Survey Database. Our translog cost function estimation suggests that standards increase short-run production costs by requiring additional labor and capital. A one-percent increase in one-time compliance cost in importing countries raises production costs by 0.06 percent, a statistically significant increase. While the impact is small, it does imply that standards and technical regulations may constitute non-tariff trade barriers.