The Transformative Impact of EU Product Requirements on Costs and Revenues in the Manufacturing Sector in a Developing Economy

Abstract

As international trade continues to expand, non-tariff barriers (NTBs): such as technical regulations, standards, and conformity assessments are gaining prominence. These measures, often referred to as technical barriers to trade (TBTs), pose significant challenges for businesses, particularly those in less developed countries aiming to access markets like the European Union (EU). While these requirements aim to ensure the safety and quality of products for EU customers, they often present substantial challenges for firms from countries like Kosovo. This study explores the potential escalation in costs as well as the economies of scale stemming from enhanced EU product requirements compliance. Based on a comprehensive survey of Kosovar manufacturing firms and logistic regression analysis, the findings indicate that operational adjustments required for compliance with EU product standards significantly increase the likelihood of firms experiencing difficulties in this process. Additionally, the study reveals the potential for achieving economies of scale, highlighting both the challenges and potential opportunities this process entails. Understanding this duality is essential for businesses navigating the complexities of exporting to the EU, ultimately fostering informed decision-making and strategic actions. To the best of our knowledge, this is the first study that makes a substantial contribution to the field, by providing empirical analysis of the financial implications of EU product compliance for manufacturing businesses in Kosovo. Kosovo’s economy is import-dependent, and its manufacturing exports are limited and often concentrated in low-complexity products, while manufacturing sector is dominated by Small and Medium-Sized Enterprises (SMEs), faces limited institutional support for compliance infrastructure and constrained access to international markets.