Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/305529 
Year of Publication: 
2024
Series/Report no.: 
CESifo Working Paper No. 11287
Publisher: 
CESifo GmbH, Munich
Abstract: 
This paper investigates the positive international spillover effects of non-discriminatory product regulations, such as quality standards. We incorporate regulations into a multi-country general equilibrium framework with firm heterogeneity and variable markups. We model regulations as a fixed cost that any firm selling to an economy must pay, consistent with stylized facts that we present. We demonstrate that in the presence of variable markups, the fixed cost generates a positive spillover on the rest of the world as it induces entry of high-quality firms, and it improves the terms of trade of the non-imposing countries. We argue that the benefits of such regulations are not fully realized under non-cooperative policy settings, leading to a call for international cooperation in setting regulations. We estimate our model to quantify the effects of regulations on consumers’ welfare, the extent of the positive externalities across countries, the relative importance of the entry of high-quality firms and of the terms of trade effect of regulations, and the value of cooperation.
Subjects: 
allocative efficiency
international spillover
quality standards
variable markups
trade policy
JEL: 
F12
F13
L11
Document Type: 
Working Paper
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