Standards Boost Britain”s Trade Performance

Standards published by the UK”s national standards body, the British Standards Institution (BSI), have a positive effect on the country”s trade performance. They boost both exports and imports but the effect on the former is more powerful than on the latter, hence improving the overall trade balance. That is the conclusion of Peter Swann, Paul Temple and Mark Shurmer in an article published today in the September 1996 issue of the Economic Journal. The positive role for British standards they discern has powerful policy implications in a neglected area of economic analysis.

The article summarises the results of a major econometric study of the impact of British
standards on British trade performance. There are three main findings:

  • British standards increase British trade. After taking account of some of the other factors that influence British trade performance in different sectors over the period 1985-91, the authors find that an increase in the number of British (BSI) standards increases British exports and British imports.
  • The net effect of British standards on the UK trade balance is favourable. Standards increase both exports and imports, but the effect on exports is stronger than the effect on imports. The authors’ estimates indicate that as an average across industrial sectors, an increase of 10 standards will improve the trade balance in that sector by about 1%. To put this in perspective, the average number of BSI standards per industrial sector is just over 100.

Original BSI standards (that is, British standards that do not simply copy pre-existing international or European standards) have a stronger positive effect on British exports than internationally equivalent standards.

These results are thought to be the first economy-wide estimates of the influence of standards on British trade performance. They shed valuable light on the as yet unresolved debates in both the policy arena and the theoretical economics literature. There are three contrasting perspectives taken by economic commentators:

  • The literature on non-price competitiveness and trade performance argues that inasmuch as UK strength in standards promotes domestic product quality, broadly defined, or reduces domestic costs, then it would lead to increased exports and reduced imports. These results are consistent with the predicted effect on exports, but not with the predicted effect on imports.
  • In contrast, the literature on non-tariff barriers to trade considers that incompatible national standards are definitely a barrier to imports, and can also be a possible barrier to exports. While this may be true in some cases, the overall results of this study are not consistent with this perspective, since it finds that standards expand both exports and imports.
  • Thirdly, the literature on economic integration argues that the existence of ;internationally accepted standards will promote intra-industry trade. This is the perspective that receives the strongest support from the study.

With the recent appointment of Peter Bonner as the new Director and General Manager of the BSI, this study is a timely contribution to the debate on the importance of standards across the full range of industrial sectors as well as in the UK”s overall international economic policy. It indicates that standards have a much more positive impact than is sometimes suggested by believers in a minimal economic role for the state. What’s more, idiosyncratic and high British standards can be powerful tools of economic policy, and just as effective as ”lowest common denominator” international standards.

”Standards and Trade Performance: The UK Experience” by Peter Swann, Paul Temple and Mark Shurmer is published in the September 1996 issue of the Economic Journal. Swann is at Manchester Business School, Temple at London Business School and Shurmer at Brunel University. The research on which the article draws is funded by the Leverhulme Trust, the Economic and Social Research Council and the Gatsby Trust.

Peter Swann

0161 275 6532 | P.Swann@fs2.mbs.ac.uk

Paul Temple

0171-262-5050 | PTemple@lbs.lon.ac.uk