We derive two main testable predictions, respectively related to non-tariff measures and to tariffs. Specifically, we show that NTMs applied in a non-discriminatory fashion – that is, in compliance with the WTO’s “national treatment” clause, whereby imported and domestically-produced products must be treated alike – raise market power and PTM for incumbents if they induce the exit of smaller firms, e.g. through higher fixed costs.<sup>4</sup> Import tariffs, on the other hand, decrease the sales of incumbents but also induce the exit of small firms, leading to an ambiguous impact on market power. However, given their discriminatory nature, tariffs are more likely to displace foreign firms in favor of domestic ones, implying that the intensive margin effect dominates and in net tariffs reduce the market shares of exporters and thus their incentive to engage in PTM.<sup>5</sup> We then test these predictions using a large multi-country firm-level data set obtained from customs administrations in twelve developing countries, ranging from low income to middle income. We combine the firm-level data with destination-product specific data on bilateral applied tariffs as well as non-tariff measures. The latter cover a wide range of measures ranging from sanitary and phytosanitary measures to technical barriers to trade. Pooling together firm-level data from several developing countries allows us to provide evidence on the extent of exchange rate pass-through for countries and regions that have received little attention so far. It also allows us to explore more systematically the impact of trade policy on competition and market power using a sample of countries facing different trade policy arrangements, in particular preferential tariffs. Importantly, the high dimensionality of the data enables us to account for unobserved heterogeneity and for a large set of confounding influences at the level of both the firm and the market using a powerful array of fixed effects. The fact that our unit of observation is the firm rather than the product or the country also implies that our estimates are unlikely to be driven by large firms, which is important given the skewness of the firm-size distribution.

Our results can be summarized as follows. First, and consistent with the literature, PTM is observed in our sample, especially in the case of large firms. Faced with a 10 percent bilateral exchange rate depreciation on a given market, firms in our sample cut their home-currency price for export to that market by around 1.4 percent on average, implying incomplete, although still high (86 percent), exchange rate pass-through to export prices.<sup>6</sup> Second and more importantly, trade policy significantly affects PTM, in a way that depends on the type of instrument. When exporters face non-tariff measures on their destination markets, they do more PTM. Tariffs have the opposite effect. Exporters faced with tariffs on their destination markets do significantly _less_ PTM, as if tariffs were robbing them of some of their market power through rent-shifting effects. Considered jointly, the differential effects of tariffs and NTMs on PTM can be large. Consider an initial situation where a firm prices symmetrically on all markets. In the absence of tariffs and NTMs, a 10 percent bilateral exchange rate shock on market _i_ will create, ceteris paribus, a 0.7 percent wedge between the producer price of a given good shipped by that firm to _i_ and the same good shipped by the same firm to market _j_ . In the presence of a 5 percent tariff on market _i_ , the same shock will only create a 0.35 percent wedge. When tariffs reach 10-15 percent no significant adjustment is detected in the home-currency export price anymore, implying full pass-through.

> 4We will leave aside the case of quantitative restrictions, as those have largely been phased out, and focus on regulations, either sanitary or technical, of which there is a plethora in high- and middle-income countries.

> 5In the online appendix, we also provide a detailed discussion of these predictions using a specific model from Atkeson and Burstein (2008).

> 6Interestingly, this rate remains quite stable across exporting countries and regions.

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