Rules of Origin Liberalization with Multi-Product Firms: Theory and Evidence from Bangladeshi Apparel Exporters

Sytsma, Tobias (2019): Rules of Origin Liberalization with Multi-Product Firms: Theory and Evidence from Bangladeshi Apparel Exporters.

Abstract

I study how rules of origin in potential export destinations influence firm- and industry-level export behavior in least-developed countries (LDCs). Rules of origin restrict LDCs from taking advantage of preferential tariff rates in export markets, and this undermines market access for LDCs and reduces the efficacy of export-oriented industrialization. I develop a model of multi-product firms in which rules of origin influence the product scope and export revenue of final goods producers through their effect on input sourcing decisions. I test the model's predictions using the 2011 revisions to the EU's rules of origin for apparel products from LDCs. To control for the potential endogeneity of the policy change I use a triple-difference approach, exploiting variation in the input-cost differentials across apparel products and export destination, before and after the EU policy change. Liberalizing rules of origin results in revenue gains, expansion of product scope, and firm entry into the export market. Within firms, incumbents upgrade product quality. Across firms, market share is reallocated toward more productive incumbents.

• Item Type: MPRA Paper
• Language: English
• Keywords: Rules of origin, Non-tariff barriers, Economic development, Exports-oriented industries, Ready-made garments
• Subjects: F - International Economics > F1 - Trade > F13 - Trade Policy ; International Trade Organizations; F - International Economics > F6 - Economic Impacts of Globalization > F61 - Microeconomic Impacts; L - Industrial Organization > L2 - Firm Objectives, Organization, and Behavior > L25 - Firm Performance: Size, Diversification, and Scope; O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O19 - International Linkages to Development ; Role of International Organizations; O - Economic Development, Innovation, Technological Change, and Growth > O2 - Development Planning and Policy > O24 - Trade Policy ; Factor Movement Policy ; Foreign Exchange Policy

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