Disentangling Demand-Enhancing and Trade-Cost Effects of Maximum Residue Regulations

Abstract: Maximum residue levels (MRLs) regulations in plant products can createunnecessary trade barriers on one hand and enhance demand via risk mitigation or qualityassurance on the other. We stipulate a generalized gravity equation model to disentanglethe effects of MRLs on the import demand and foreign exporters’ supply. Applying theframework to the MRLs on pesticides imposed by high-income OECD countries, we findthat the MRLs jointly enhance the import demand and hinder foreign exporters’ supply.In addition, exporters from the less and least developed countries are more constrained bythe MRLs than their competitors from the developed world.