Horizontal Regulatory Barriers in International Trade: Evidence from Electric Plugs 

Abstract

Domestic policies regulating the horizontal dimensions of product differentiation can impede international trade and have become a major concern in contemporary trade negotiations. We estimate trade frictions associated with incompatible designs of electric plugs, a well-known example of a horizontal regulatory barrier. Our findings indicate that fewer electronic devices are exported to destinations with incompatible electric plugs, and this effect operates through both the extensive margin (i.e., the number of trading firms) and the intensive margin (i.e., the average sales per firm) of exports. These results are further corroborated by an online survey of Chinese electronics exporters. Moreover, incompatible plugs reduce the average quality of affected electronic devices, suggesting that horizontal regulatory barriers can indirectly affect the vertical dimension of product differentiation. With a tractable trade model we illustrate the mechanism through which horizontal regulatory barriers can influence international trade.

Keywords: JEL Classification: F13, F14, L51 non-tariff barriers, product quality, horizontal product standards

JEL Classification: F13, F14, L51