Diffusion of ISO 9000 Standards and International Trade

Abstract

Investigating the link between ISO 9000 standards and bilateral exports, this paper contributes to the literature on standardization and international trade. A debate exists as to how ISO 9000 impacts trade. First, it has been argued that ISO 9000 is a "common language" that lowers information asymmetries between firms, thus, allowing more efficient organization of inter-firm trade. Second, ISO 9000 has been criticized as a means of introducing market-entry barriers and a tariff on international trade. To assess the actual impact we estimate a gravity equation for bilateral exports incorporating ISO 9000 adoptions in each country as factors affecting bilateral trade barriers. Endogeneity issues are carefully addressed. To obtain additional insights, we separately estimate an ISO 9000 international diffusion equation. In general, our results support the "common language" hypothesis, i.e., the empirical tests find both domestic and foreign ISO 9000 adoptions to benefit bilateral exports. Moreover, we find evidence for a substitution effect, as ISO 9000 certified firms tend to trade with each other more than with uncertified firms. Consequently, the positive impact of these standards on trade is more pronounced among ISO 9000 abundant countries.

Keywords: Gravity model, international trade, ISO 9000, adoption of standards, network effects, compatibility

JEL Classification: C51, C52, F15