Title : Upgrading Product Quality: The Impact of Tariffs and Standards

Author : Jihyun Eum(BOK)

In this paper the effects of tariff reduction and enhanced standards on efforts to upgrade product quality are analyzed. Compliance costs are introduced into the model of competition and innovation where the rate of product quality upgrading is affected by both changes in tariffs and standards. Using disaggregated data for European food imports from 159 trading partners over the period 1995 to 2003 across 28 industries, it is found that the effect of lower tariffs and stricter standards on quality upgrading varies non-monotonically, whereby products that already have relatively higher quality are more likely to be upgraded but those having relatively lower quality are less likely to be upgraded.