Investigating the impact of MRL standards' similarity on trade

A similarity index of maximum residue level (MRL) regulations is introduced into a variable elasticity of substitution (VES) model to analyze the impacts of MRL regulation similarity on trade flows and social welfare. We specially consider the situation where the requirements set by the importing country are stricter than those of the exporting country. We find that the more similar the MRL regulation between trading partners is, the more substitutable their goods are, and for the consumers that have home preferences for domestic goods, they prefer the imported goods that are more similar to the domestic goods. Our results also show that if the developing countries upward harmonized their MRL standards to developed countries, their exports would expand.