Do Product Standards Matter for Margins of Trade in Egypt? Evidence from Firm-Level Data
1. Do Product Standards Matter for
Margins of Trade in Egypt?
Evidence from Firm-Level Data
Hoda El-Enbaby Rana Hendy Chahir Zaki
ERF Policy Seminar on Exports Diversification
March 21st, 2014
2. Motivation
• Tariff reduction but the use of non-tariff measures (NTMs)
has constantly increased and raised new challenges for the
international trade policy.
• The empirical literature on trade policy has shown that
NTMs add on average an additional 87% on the
restrictiveness imposed by tariffs (Kee et al, 2009).
• These measures have several characteristics.
– They are applied by both the importing and exporting
countries.
– NTMs are widely used to correct for market failures and
maximize national welfare.
– These measures are chiefly present in the agri-food
trade.
3. Motivation
• According to World Trade Organization (WTO)
standards “It allows countries to set their own
standards. But it also says regulations must be
based on science. They should be applied only
to the extent necessary to protect human,
animal or plant life or health. And they should
not arbitrarily or unjustifiably discriminate
between countries where identical or similar
conditions prevail”.
4. What we do?
• One of the first studies for the MENA region.
• Methodology:
– Gravity model.
– We examine this on:
• The probability to export (firm-product extensive margin) .
• The value exported (firm-product intensive margin).
– Several econometric specifications (several fixed effects: firms,
sectors, years and their interactions).
• Data
– Egyptian firm-level dataset from GOIEC.
– A unique dataset was constructed by the authors using a new
database on specific trade concerns (STC) raised in the TBT and
SPS committees at the WTO.
5. Different Definitions
Existing firm
Existing product
Exist destination
Existing firm Existing firm New firm
Existing product New product Existing product
New destination Exist destination Existing destination
Existing firm New firm New firm
New product Existing product New product
New destination New destination Existing destination
New firm
New product
New destination
Intensive margin Extensive margins
10. Manufacturing Exports: Types of NTMs
Applied by Partner Countries on LAS
16.2%
22.7%
4.7%
6.5%
0.9%
10.7%0.4%
37.3%
0.2% 0.5%
Technical regulations
Conformity assessment
Pre-shipment inspection and
other formalities
Charges, taxes and other para-
tariff measures
Quantity control measures
Finance measures
Anti-competitive measures
Rules of origin
16. Main Findings
• The intensive margin of exports (value of exports and
average exports) is not significantly affected by such
measures.
• When we distinguish exporters by their size, we find
that such measures have a significantly negative impact
on the value of exports of small and medium exporters
(exporters whose exports are less than the 10th
percentile of exports, between the 25th and the 50th
percentiles, the 50th and the 75th percentiles). By
contrast, exporters whose exports are greater than the
90th percentile are not affected by such measures.
17. Main Findings
• SPS measures imposed on Egyptian exporters
have a negative impact on the probability of
exporting a new product to a new destination.
• An SPS concern reduces the probability to export
to a new destination by 4.9% or 7.4%. Such a
negative effect may be attributed to the increase
in the costs for producers due to burdensome and
separate certification, testing and inspection
procedures in different export markets.
18. Policy Recommendations
• The MENA region is characterized by low export
market shares and low competitiveness in global
markets.
• Only productive firms are able to bear the high
costs incurred by complying with the SPS
measures.
• Improved quality will not only encourage SPS
imposing countries to remove their SPS
measures, but would also allow exporting firms
to sell their products to new destinations that
have high quality standards (destination
extensive margin).
19. Policy Recommendations
• In addition, firms will be able to export new varieties
to the existing destinations (product extensive
margin), as well as new ones (product-destination
extensive margin).
• This can take place through:
– Government export promotion programs.
– Quality control agencies.
– Promoting SMEs exports (clusters, etc).