Non-tariff measures, quality and exporting:evidence from microdata in food processing in Ukraine

Abstract

Domestic non-tariff measures (NTM) influence firm’s production and import decisions. We introduce NTMs into a model with heterogeneous firms. NTMs increase the cost of production and play a role of a positive demand shifter. Interplay of these two factors leads to ambiguous impact of NTMs on extensive and intensive margins of trade. We test predictions of the model by looking at food-processing firms in Ukraine in 2008–2013. Evidence shows that more SPS regulations on inputs in upstream industries lead to exports of better quality products. At the same time, mandatory certifications have a negative impact on quality by limiting access of domestic firms to new technologies and equipment.