Impacts of additional compliance requirements of regulations on the margins of trade

Abstract

It is widely known that countries export less to destination countries with greater regulatory burdens. Using finely disaggregated product-level bilateral trade value and quantity data for 98 countries, together with a new data set of detailed information on technical regulations, we answer the following question: If a country faces a greater regulatory burden in a particular destination market, is that country more likely to export a narrower set of goods (the extensive margin) and lower quantities of each good at a higher price (the intensive margin)? We find that beyond the overall trade-diminishing effect, regulatory burdens adversely affect the extensive margin of trade. With respect to the intensive margin, regulatory burdens negatively affect the quantity margin but positively affect the price margin. As the negative effect on the quantity margin is relatively larger in magnitude than the positive effect on the price margin, the result is a negative net impact on the intensive margin.