Standards and Development

Abstract

Consumers have increasing demands for product standards. This has important implications for development. While there has been increasing attention to empirical work in this area, it is often grounded in a poor conceptual base. To overcome this shortcoming, this paper develops a formal theory of the process of the introduction of high product standards in developing countries and identifies the implications of the emergence of high product standards. The model endogenizes the introduction of high standards and the choices of the actors - firms and producers - who make up the supply chain. Initial differences in income, the nature of capital constraints, transaction costs, the efficiency of traditional marketing channels and policies and institutions are shown to affect the likelihood of and the speed with which the high standards economy emerges. Initial differences in some of these same factors - as well as inter-country differences in the distribution of the sizes of farmers - are also shown to determine who begins to produce and sell high standards commodities in the early stages of the growth process. We also use the model to analyze the welfare effects of the introduction of high standards production systems.