Technical standard regulations and firm markups: evidence from China

Abstract

ABSTRACT The purpose of this paper is to empirically evaluate the effect and mechanism of technical standard regulations on firm markups based on the micro data of Chinese manufacturing export enterprises. The results indicate that such regulations have a significant negative effect on firm markups and that this negative effect is greater for large enterprises, enterprises with high financing constraints and capital- and technology-intensive enterprises. Mechanism tests also reveal that under static conditions, technical standard regulations reduce firm markups through the ‘cost increase effect’ but that the ‘quality upgrade effect’ and ‘technological innovation effect’ produced by dynamic adjustment somewhat offset the negative effect of cost increases on firm markups. Further analysis shows that the implementation of these regulations significantly reduces the dispersion of firm markups in an industry, reduces resource mismatch, and enhances the industry’s development capability. This study provides a useful reference for enterprises to cope with technical standard regulations, reduce costs, improve quality and efficiency, and enhance standardization and market competitiveness.