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Trade policy, competition and productivity : The impact of EU harmonization in the Dutch food processing industry

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Henry de Frahan, Bruno [UCL] Vancauteren, Mark [Hasselt University]

Evidence broadly confirms that European Union (EU) harmonization of food regulations can be considered as a trade-promoting and market-integrating instrument in the Single Market. However, little is known on how this particular trade liberalization measure may impact total factor productivity (TFP). One of the general presumptions is that trade liberalization has a positive impact on productivity through the effect of competitive pressures to which domestic firms are exposed. For instance, as a result of lowering or removing regulatory barriers to trade, a decline in entry costs of foreign and domestic competitors leads to more competitive pressures which have a downward effect on prices and markups and higher TFP through a better reallocation of inputs. The overall evidence shown in this paper leads to the conclusion that the impact of EU harmonization on various TFP measures occurs through a markup mechanism: more EU harmonization results in more competition (lower markups) and greater TFP growth. We also investigate the impact of assumptions relating to market structure and the production function. We empirical test and refute the assumptions of perfect competition and constant returns to scale in our sample. The analysis is carried out at the level of Dutch food processing firms for the 1979–2005 period. We extend and built upon a new database on EU harmonization of regulations in the food industry. The product classification of this database follows the detailed Combined Nomenclature classification that codes the relevant harmonization initiatives of technical regulations at the product level.

Document type Article de périodique (Journal article) – Article de recherche
Access type Accès restreint
Publication date 2011
Language Anglais
Journal information "De Economist" - (2011)
Peer reviewed yes
Publisher Springer New York LLC ((United States) New York)
issn 0013-063X
e-issn 1572-9982
Publication status Publié
Affiliations UCL - SST/ELI/ELIA - Agronomy
Hasselt University - Faculty Applied Economics
Keywords technical barriers to trade - Eu harmonization - Markup - Productivity - Food firms - The Netherlands
Links
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Bibliographic reference Henry de Frahan, Bruno ; Vancauteren, Mark. Trade policy, competition and productivity : The impact of EU harmonization in the Dutch food processing industry. In: De Economist, (2011)
Permanent URL http://hdl.handle.net/2078.1/91006