Reports & Publications

Effects of RoHS and REACH regulations on firm-level production and export, and the role of global value chains:The cases of Malaysia and Vietnam

Discussion Papers

No.526

by Tsunehiro Otsuki, Keiichiro Honda, Etsuyo Michida , Kaoru Nabeshima and Yasushi Ueki

April 2015

ABSTRACT

This paper uses firm-level data to examine the impact of foreign chemical safety regulations such as RoHS and REACH on the production costs and export performance of firms in Malaysia and Vietnam. This paper also investigates the role of global value chains in enhancing the likelihood that a firm complies with RoHS and REACH. We find that in addition to the initial setup costs for compliance, EU RoHS (REACH) implementation imposes on firms additional variable production costs by requiring additional labor and capital expenditures of around 57% (73%) of variable costs. We also find that compliance with RoHS and REACH significantly increases the probability of export and that compliance with EU RoHS and REACH helps firms enter a greater variety of countries. Furthermore, firms participating in global value chains have higher compliance with RoHS and REACH regulations, regardless of whether the firm is directly exporting, when the firm operates in upstream or downstream industries of the countries’ supply chain.

Keywords: trade; RoHS; REACH; cost function; market access; supply chain; Malaysia; Vietnam
JEL classification: F14, L15, O53

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Please note that discussion papers are works in various stages of progress and most have not been edited and proofread and may contain errors of fact or judgment. Revised versions of these papers may subsequently appear in more formal publication series. The views expressed in this publication are those of the author(s). The IDE does not guarantee the accuracy of the data included and accepts no responsibility for any consequences arising from its use.