How Do Technical Barriers to Trade Affect Exports? Evidence from Egyptian Firm-Level Data

The paper examines the impact of Technical Barriers to Trade on firms’ exports in Egypt over the period 2005~2011. Firm-level data for Egypt are combined with the WTO’s TBT-specific trade concerns database. Employing a variant of a gravity model with highdimensional fixed effects, the impact of Technical Barriers to Trade on firms’ intensive and extensive margins, and exit and entry probabilities is estimated, as well as impacts on product and market diversification. Regressions examine the heterogeneous effect of Technical Barriers to Trade by firm size. Results indicate an insignificant effect of Technical Barriers to Trade on firms’ intensive margin. On the other hand, the extensive margin and entry probability are negatively affected by Technical Barriers to Trade, whereas exit probability is positively affected. Accordingly, Technical Barriers to Trade mainly induce an increase in the fixed costs of exporting. Importantly, smaller firms are more adversely affected by Technical Barriers to Trade in their export participation and entry and exit decisions. The effect of Technical Barriers to Trade on firms’ product diversification is found to be sector-dependent:positive for agricultural sectors and mixed for non-agricultural ones. Finally, firms generally tend to increase their market diversification in response to Technical Barriers to Trade. This is especially true for large firms within their set of African and Asian destination markets. By contrast, there are lower prospects of firm diversification into less stringent destinations within the European region.