General equilibrium effects of technical non‐tariff measures: evidence from bilateral trade cost estimates

We estimate the trade and income effects of regulatory developments concerning standard‐like non‐tariff measures (NTMs) over 2012–2017 combining structural gravity estimates and general equilibrium projections. The trade cost effects of regulatory changes vary at the country‐pair level and across sectors. Overall, NTM‐related regulatory changes over 2012–2017 increased trade costs in goods, which reduced global trade by 1.2%. The majority of this reduction corresponds to a decline in goods trade equivalent to about 40% of the actual worldwide decrease of nominal goods trade over this period. Yet the implied reduction of real income is small. We highlight significant variation of these effects at the country and sector level, and show that excluding pair‐specific trade frictions and third‐country effects introduces omitted variable bias. Our findings imply that advances in international coordination of technical regulation can further reduce trade frictions and enhance trade and real income.