Stricter regulation boosts exports: the case of Maximum Residue Levels in pesticides

Constructing an original panel on Maximum Residue Levels (MRLs) in pesticides for 50 countries over 2006-2012, this paper studies the effect of heterogeneity in MRL regulation on bilateral trade. We find evidence of regulatory heterogeneity diminishing trade at the extensive margin when the exporter faces more stringent regulation abroad, suggesting compliance costs in entering the destination market. Significantly, however, we also find strong evidence of regulatory heterogeneity increasing trade at the intensive margin for exports coming from countries that set the strictest standards, alluding to the positive informative effect of such regulation