Questions and answers
Q: How was the study conducted?
A: This report analyses the macroeconomic benefits of standardisation in the five Nordic countries and the Netherlands. All six countries are highly productive, small, open economies, relying heavily on exports and thrive through rules-based international cooperation. They also have a long tradition of standardisation. This, coupled with the availability of extensive and high-quality data, makes them a particularly interesting group to study.
Q: What kind of research organisation is Menon?
A: Menon Economics, a highly regarded and specialised economic consulting firm. Menon is known for its expertise in empirical analysis of economic policy, offering a wide range of services including industry analysis, economic impact assessments, and strategic advisory services.
Q: What is the methodology behind the numbers?
A: The method employed in this report combines regression analysis, the net stock of standards as a metric, and the inclusion of country-fixed and time-fixed effects to assess the productivity benefits of standardisation in a comprehensive and rigorous manner.
Q: How can you link standardisation to 25 % of the productivity growth?
A: In order to quantify the impact of standards on productivity growth, Menon uses a model of economic growth to estimate how much of the growth in labour productivity comes from standardisation, and how much comes from other sources.
Menon applies a method based on macroeconomic theory and a widely applied model by Blind (2000). To account for unmeasurable factors (such as rules and regulations) they also include country fixed and time fixed effects in their regression analysis.
Q: How can you link standardisation to 9 % of the growth in exports?
A: The general consensus is that standardisation supports export performance by supporting compatibility, reducing transaction costs, and providing a signal of quality to customers.
In order to quantify how an increase in standards within a particular industry affects the amount of exports from that industry , Menon applies a method based on the gravity model of trade, which is widely used in numerous studies to explain international trade patterns. The methodology combine data from all six countries to obtain a single coefficient that reflected the collective impact of standardisation on trade across these countries, resulting in more accurate estimates.
The model does not capture the benefits of management standards, which have been found in previous studies to contribute to increased exports.
Q: How is the value creation estimated?
A: The estimation of future value creation associated with increased standardisation is done by considering the finding that 25 % of productivity growth in the Nordics and the Netherlands over the past decades can be attributed to standardisation efforts and then assuming that the current pace of standardisation work will continue in the future. This approach allows for an estimation of the potential value that can be created through ongoing standardisation efforts.
If the standardisation increases, we can anticipate even more substantial figures.
Furthermore, Menon’s analysis focuses solely on sector-specific benefits and does not consider the advantages of management standards. Thus, the benefits from standardisation may be even more significant than the reported figures suggest.
Q: How does these numbers compare with previous studies? (i.e. the previous Menon study in 2018)
A: Menon’s finding is in line with most empirical studies which finds that standards’ contribution to GDP growth is 15−28 percent. However, recent studies might suggest that the impact of standardisation on GDP growth is slightly lower compared to older studies. This is primarily due to improvements in methodology.
In this analysis, Menon applies time fixed effects, whereas the 2018 study from Menon used time trends. In a model which uses a time trend, the results align more closely with the findings of the older studies. With time fixed effects, the results are less affected by other, unobservable variables and are thus regarded to be more precise.
Q: How can government contribute to the promotion of standardisation?
A: The government can contribute to the promotion of standardization by providing proactive support and incentives. Recognising the substantial positive externalities generated by standardisation, policymakers can play a crucial role in fostering further standardisation efforts. By embracing and promoting standardisation, the government can facilitate the broader societal benefits that arise from it. This includes encouraging businesses to adopt and adhere to standards, fostering sustainable economic growth, and driving overall progress.
Q. In terms of historical evidence, it seems like the numbers for productivity and exports are not drawn from the same time period?
A: The historical numbers for productivity and exports are drawn from different time periods. The data for productivity covers the period from 1970 to 2019, while the data for exports spans from 1995 to 2019.
Q: Can it be concluded that standards directly lead to increased productivity and trade?
A: The report does not conclude on the causality. The causality between labour productivity and standardisation may go both ways. While we cannot prove the direction of causality, Menon believes it to be more likely that there is a larger effect from standardisation to productivity than the other way around.
Q: The study is looking at how standardisation is impacting productivity and trade. However, International trade seems to be both a goal, and one of the five factors for increased productivity. How so?
A: The prevailing consensus in scholarly literature, among companies, and within institutions is that international standards contribute to international trade. However, Menon emphasizes that market access and international trade serve as vital mechanisms through which standards effectively drive productivity. Thus, trade not only represents an objective in its own right but also serves as a catalyst for bolstering productivity.
Q: The five mechanisms are all ways in which standardisation contributes positively to labour productivity. But can´t standards also create more ineffective, rigorous procedures or slow innovation?
A: Standards serve a variety of purposes, many of which are unrelated to increasing productivity. Examples include promoting health and safety, consumer protection and environmental protection. In the short term, these objectives can lead to more elaborate and expensive production processes, thus reducing productivity.
That said, Menon finds that regulations made with reference to standards is often less rigorous than regulation made without reference to standards. Without reference to standards, the regulators would have to regulate more directly. This often creates more barriers and inefficiencies than referring to standards, which tend to be more closely connected with the industry.