Table 5: Third-country effects of RTAs: Regulation-intensive products

||(1)|(2)|(3)|(4)|(5)|(6)|(7)|(8)|
|---|---|---|---|---|---|---|---|---|
|||Export pa|rticipation|||Export|entry||
|Exp Other...(t-1)|||||||||
|... RTA|0.017***|0.018***|0.005***|0.007***|0.008***|0.008***|0.003***|0.004***|
||(0.001)|(0.001)|(0.001)|(0.001)|(0.000)|(0.000)|(0.000)|(0.000)|
|... RTA x STC|0.000|-0.004***|0.001*|-0.003***|-0.000|-0.002***|0.000|-0.001***|
||(0.001)|(0.001)|(0.001)|(0.001)|(0.000)|(0.000)|(0.000)|(0.000)|
|... Depth||-0.002*||-0.004***||-0.001||-0.001**|
|||(0.001)||(0.001)||(0.001)||(0.001)|
|... Depth x STC||0.012***||0.011***||0.005***||0.004***|
|||(0.002)||(0.001)||(0.001)||(0.001)|
|... Border|||0.045***<br>(0.001)|0.045***<br>(0.001)|||0.017***<br>(0.000)|0.016***<br>(0.000)|
|... Language|||0.003***<br>(0.000)|0.003***<br>(0.000)|||0.002***<br>(0.000)|0.002***<br>(0.000)|
|... Colony|||-0.013***|-0.013***|||-0.003***|-0.003***|
||||(0.001)|(0.001)|||(0.000)|(0.000)|
|Observations<br>|164,595,130|164,595,130|164,595,130|164,595,130|164,298,452|164,298,452|164,298,452|164,298,452|
|R-squared|0.338|0.338|0.340|0.340|0.156|0.156|0.156|0.156|
|Firm-prod-year FE|YES|YES|YES|YES|YES|YES|YES|YES|
|Dest-prod-year FE|YES|YES|YES|YES|YES|YES|YES|YES|
|Firm-prod-dest FE|YES|YES|YES|YES|YES|YES|YES|YES|

Robust standard errors, clustered at the firm-product level, are in parentheses. The dependent variable _yijp,t_ is a dummy variable equal to 1 if firm _i_ exported (or started exporting) product _p_ to country _j_ in year _t_ . STC=1 if a Specific Trade Concern (STC) on product _p_ has been raised in the WTO. *** p _<_ 0.01, ** p _<_ 0.05, * p _<_ 0.1 promote firm entry only for these products (column 8). Similar results apply to export participation — columns (3) and (4). We also find that shallow trade agreements, which focus on preferential trade policy liberalization only, have a smaller third-country effect for regulation-intensive products.

A possible interpretation of these results is that a deep trade agreement between two destination countries makes the two markets more similar by promoting some form of regulatory convergence.<sup>26</sup> Thus, the RTA makes it easier for firms in a third-country to start exporting, especially regulation-intensive products, to an additional destination if they already comply with the standards of one of the members.<sup>27</sup>

> 26As more detailed data on the content of specific provisions in RTAs become available, future research may look into the differential trade effects on members’ and non-members’ firms of different forms of regulatory convergence (e.g. harmonization of standards, mutual recognition).

> 27One concern is that these positive spillover effects might be driven by rules of origin. This could be the case if, for instance, shallow RTAs had stricter rules of origin than deep agreements. Then, Costa Rican firms exporting intermediate products would face less discrimination by members part of a deep agreement than those part of a shallow one. A second concern is that deep agreements increase FDI between member countries and that Costa Rican suppliers of intermediates are just following their old customers in the new markets instead of benefiting from a more uniform regulatory environment. To show that our results are not driven by these alternative mechanisms, Table A.6 presents the results for a subset of firms exporting consumption goods. Excluding intermediate exports does not alter our main results.

15