On the trade effects of bilateral SPS measures in developed and developing countries

Abstract

The agri-food trade has expanded considerably over decades, with a remarkable increase in the market share of developing countries. The upward trend in trade flows has been parallel to the proliferation of non-tariff measures, particularly of sanitary and phytosanitary (SPS) measures in the agri-food sector. SPS measures may have a dual impact on trade, that is. standards as catalysts versus standards as barriers, and the net effect is likely to depend on the level of economic development of countries involved. We investigate whether the trade effects of SPS measures are correlated with the economic development of trading partners. In particular, we disentangle the trade effects of SPS measures implemented by developed and developing countries and look at differential impacts due to a mismatch in the economic development of trading partners. Using a structural gravity approach on bilateral trade and regulation data, we conclude that SPS measures are catalysts for developing importers, whereas no evidence is found for developed importers. We also find a pro-trade effect of SPS measures when traders have different levels of economic development. Our findings have important policy implications: sharing SPS measures is strategic for economies characterised by different abilities to alter trade terms.