Rules of Origin Liberalization with Multi-Product Firms: Theory and Evidence from Bangladeshi Apparel Exporters
MPRA Paper from University Library of Munich, Germany
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.
Keywords: Rules of origin; Non-tariff barriers; Economic development; Exports-oriented industries; Ready-made garments (search for similar items in EconPapers)
JEL-codes: F13 F61 L25 O19 O24 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec and nep-int
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