International spillovers of quality regulations

10  October 2023    2:00 pm CEST

Presenter: Luca Macedoni (Aarhus University), Discussant: Mingzhi (Jimmy) Xu (Peking University, Asian Infrastructure Investment Bank)

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This presentation is based on a paper from Luca Macedoni and Ariel Weinberger.

This paper investigates the positive international spillover effects of non-discriminatory product regulations, such as quality standards. It will incorporate regulations into a multi-country general equilibrium framework with firm heterogeneity and variable mark-ups. The research models regulations as a fixed cost that any firm selling to an economy must pay, consistent with stylised facts that are presented. It is demonstrated that, in the presence of variable mark-ups, the fixed cost generates a positive spillover effect on the rest of the world, as it induces entry of high-quality firms and it improves the terms of trade of the non-imposing countries. The author argues that the benefits of such regulations are not fully realised under non-cooperative policy settings, leading to a call for international cooperation in setting regulations. The research estimates the model and applies its gravity formulation to quantify the global welfare consequences of altering regulatory policies, the extent of the positive externalities across countries, the effects of cooperation, and the comparison with further tariff liberalisation. The analysis reveals that the entry of new high-quality firms, rather than changes in terms of trade, serves as the main quantitative driver of international spillovers.

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Luca Macedoni

Luca Macedoni is an associate professor of economics at Aarhus University and a fellow at the Research Centre for Firms and Industry Dynamics (FIND). He holds a PhD from the University of California, Davis. Macedoni's research focuses on international trade and industrial organization. He has specific interests in the effects of regulations in international markets and the role played by superstar firms and multi-product firms.

Mingzhi (Jimmy) Xu

Mingzhi (Jimmy) Xu is the assistant professor of economics at Peking University and Economic Consultant at Asian Infrastructure Investment Bank. He obtained the Ph.D. in economics from the University of California Davis. During 2018 and 2019, he is the post-doctoral researcher at the National Bureau of Economic Research, and the visiting researcher at Harvard Kennedy School. His research specialization includes international trade, development economics, and the economy of China.

The organizers gratefully acknowledge support from EU Horizon MSCA Fellowship program.