Welfare effects of introducing quality certification system for developing countries: Evidence from the Chinese experience*

Abstract

This paper examines whether the quality-certification system might benefit developing economies while there is a widespread conjecture that the system might negatively affect technologically less developed economies. Based on a simple oligopoly model where a developing economy trades with an advanced economy that produces higher quality products, we demonstrate that the introduction of a quality certification system between technologically asymmetric countries might deteriorate the trade balance of the developing economy with the widened technology gap. In addition, we demonstrate that the empirical evidence from the Chinese experience of introducing a quality certification system for imported products from the EU supports the theoretical findings. That is, the imports from the EU to China have significantly increased with the increased quality gap after China introduced the quality certification system. The results implicate that the quality certification system might damage less developed economies when advanced economies hesitate technology transfer, and therefore, it is increasingly imperative to introduce an international coordination mechanism for active technology transfer when quality certification systems are introduced with respect to developing economies.