Heterogeneous effects of nontariff measures on cross-border investments: Bilateral firm-level analysis

Abstract

We analyze the heterogeneous effects of technical regulations and safety standards embodied in nontariff measures on foreign direct investment using global firm-level panel data of bilateral cross-border ownership relationships over the period 2008–2018. We develop a novel measure of time-varying bilateral ad valorem equivalents of sectoral nontariff measures, which reveals that technical barriers to trade (TBTs) played a much greater role as a trade-inhibiting factor in comparison with import tariffs and sanitary and phytosanitary (SPS) measures over the period 1996–2018. Estimations using the Poisson pseudo-maximum likelihood framework reveal the importance of nontariff measures as a driver of foreign direct investment.