Disentangling the Demand-Enhancing Effect andTrade-Cost Effect of Technical Measures inAgricultural Trade Among OECD Countries

Domestic technical measures such as SPS and TBTs can enhance import demand viainformation disclosure and quality improvement, or hamper foreign export supply via imposingsizeable compliance costs, or both. The traditional gravity equation model estimates the neteffect of these measures on international trade with a loss of useful inference on separate effects.We stipulate a generalized gravity equation model to disentangle the two effects. We apply theaugmented approach to agricultural trade among OECD countries in 2004. We find that technicalmeasures in agriculture often jointly enhance import demand and hinder export supply with thenet effect of promoting the propensity to trade. Further disaggregated data analysis revealsheterogeneity across sectors in terms of net effects of technical measures, despite commondemand-enhancing and supply-hindering effects. These measures in the net decrease theprobability of intra-OECD trade in dairy products, whereas they increase that of intra-OECDtrade in cereal preparations.[...]