The Cost of Compliance with Product Standards for Firms in Developing Countries: An Econometric Study

Standards and technical regulations exist to protect consumer safety or to achieve other goals, such as ensuring the interoperability of telecommunications systems, for example. Standards and technical regulations can, however, raise substantially both start-up and production costs for firms. For the purpose of this study econometric models have been developed to provide the first estimates of the incremental production costs for firms in developing nations in conforming to standards imposed by major importing countries. Firm-level data generated from 16 developing countries in the World Bank Technical Barriers to Trade (TBT) Survey Database have been used. Findings indicate that standards do increase short-run production costs by requiring additional inputs of labor and capital. A 1 percent increase in investment to meet compliance costs in importing countries raises variable production costs by between 0.06 and 0.13 percent, a statistically significant increase. Fixed costs of compliance are non-trivial; approximately $425,000 per firm, or about 4.7 percent of value added on average.

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Classification:Publications with Development Focus
AuthorsJohn S. Wilson (The World Bank), Keith E. Maskus (University of Colorado, USA), Tsunehiro Otsuki (Osaka University, Japan)
Other bibliographical information:Paper presented at ETSG 2005 Dublin, Seventh Annual Conference, held on 8-10 September 2005 at University College Dublin.