Comparative Advantage and the Uneven Effects of Non-Tariffs Measures
Brazil - 17 October 2018
Trade topics: NTMs
This chapter investigates the uneven effects of TBT/SPS measures on bilateral trade flows, according to a country’s income level. Estimating standard gravity models, we find that the effects of TBT/SPS depend mostly on the exporter’s development level (developed, developing or least developed). We find that, on average, SPS measures promote exports from Latin American (LatAm) countries, but harm exports from developed and other developing countries. However, TBT measures raise exports of developed and other developing countries whereas they decrease LatAm exports. Least Developed Countries (LDCs) are negatively affected by both types of measures. We argue that these effects are in line with pre-existing comparative advantages, i.e., both developed and other developing countries are relatively more efficient in manufacturing exports – where the incidence of TBT measures tends to be greater than SPS measures – while LatAm countries are relatively more efficient in agricultural exports, where SPS measures tend to prevail. Therefore, NTMs tend to exacerbate pre-existing specialization patterns in international trade and may harm prospects for industrialization in LDCs. We provide suggestive evidence of this channel by controlling for product-exporter fixed effects that help to control for comparative advantages in gravity equations.