Standards and political connections: Evidence from Tunisia

In this paper we investigate whether trade liberalization leads to more stringent product standards in a developing country context, uncovering the role that the connected firms’ market share plays in markets dominated by imports. We estimate a two-part model using data over the period from 2002 to 2010 to test whether additional product standards emerge in sectors where politically connected firms have a higher market share. Our main results show that the mechanisms we anticipated are in fact at play in Tunisia. During the implementation period of the EU-Tunisia association agreement, we find that sectors with a higher import share of connected firms – linked to the Ben Ali family – tend to have a higher probability of an increasing number of technical barriers to trade. This result is robust to addressing endogeneity issues and to the introduction of dynamics into the model. •Politically connected firms can benefit from higher product standards.•Bureaucratic procedures linked to their enforcement gives firms a cost advantage.•Tariff liberalization leads to higher standards where they have a high import share.•Tunisia was more likely to introduce TBTs in sectors with firms linked to Ben Ali.•Non-tariff measures can protect connected importers from external competition.