Information versus Product Adaptation: the Role of Standards in Trade

This paper examines the commonly held view that country-specific product and process standards are barriers to trade and that harmonizing standards promotes international trade. The econometric analysis generally confirms that bilaterally shared standards are favorable to trade. However, it does not find that the number of country-specific standards of importers is a barrier to trade on average. While country-specific standards of importers reduce imports for non-manufactured goods (e.g. agriculture), they do promote trade in the manufacturing sector. Information costs appear to be an explanation for this puzzle: if goods have to be adapted to a foreign market, then country-specific standards of the importing country offer valuable information for adapting the product to that market. Otherwise, this information would be costly to gather.