Do Chinese Technical NTMs Increase the Exports of Less Sophisticated Products to China?

Much evidence suggests that NTMs (non-tariff measures) have become a major instrument of trade policy. Compliance with NTMs entails significant costs on exporters who may be required to meet pre-determined standards set by the importing countries to prevent the import of substandard and dangerous products. We consider NTMs imposed by China on its imports as China not only dominates world trade but its trade policies influence global trading patterns. Our results suggest that NTMs do help increase imports of less sophisticated products into China, particularly if they are originating from low-income countries. Although, our OLS and IV estimations report similar results for products facing NTMs and not facing NTMs, the magnitude of the influence is higher for the products facing NTMs when we consider fixed effect estimations. We introduce an interaction variable defined by the income level of the trading partner. The interaction variable magnifies the influence of the level of export sophistication for products facing NTMs on imports into China, while that for products not facing NTMs become insignificant.