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The effect of the Uruguay round on the intensive and extensive margins of trade

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  • Buono, Ines
  • Lalanne, Guy

Abstract

Do tariffs inhibit trade flows by limiting the entry of exporters (‘firm extensive margin’) or by restricting the average volume exported by each firm (‘firm intensive margin’)? Using a gravity equation approach, we analyze how the decrease in tariffs promoted during the 90s by the Uruguay Round multilateral trade agreement affected the trade margins of French firms for 57 sectors and 147 countries from 1993 to 2002. Our main contribution is to estimate the elasticity of trade on both margins, controlling for the unobserved heterogeneity of trade flows thanks to a three-dimensional panel and to time-varying tariffs as a measure of variable trade costs. Our results show that the number of firms exporting in a given sector to a given destination is related to the level of tariffs. But they also show that the decrease in tariffs induced by the implementation of the Uruguay Round did not lead more firms to export and that it only induced incumbent exporters to increase their shipments. We control for two problems that may affect our basic specification: tariff changes may be endogenous and zero flows are not included. Our results are confirmed — even when the extensive margin is significant, its magnitude is very small.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of International Economics.

Volume (Year): 86 (2012)
Issue (Month): 2 ()
Pages: 269-283

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Handle: RePEc:eee:inecon:v:86:y:2012:i:2:p:269-283

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Web page: http://www.elsevier.com/locate/inca/505552

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Keywords: Tariffs; Trade margins; Uruguay Round;

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  1. Joao Santos Silva & Silvana Tenreyro, 2005. "The Log of Gravity," CEP Discussion Papers dp0701, Centre for Economic Performance, LSE.
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Cited by:
  1. Handley, Kyle, 2012. "Exporting under Trade Policy Uncertainty: Theory and Evidence," Working Papers 634, Research Seminar in International Economics, University of Michigan.
  2. Cletus C. Coughlin, 2012. "Extensive and intensive trade margins: a state-by-state view," Working Papers 2012-002, Federal Reserve Bank of St. Louis.
  3. Guy Lalanne & Ines Buono, 2010. "La réaction des entreprises françaises à la baisse des tarifs douaniers étrangers," Économie et Statistique, Programme National Persée, vol. 435(1), pages 13-29.
  4. Veysel Avsar, 2010. "The Anatomy of Trade Deflection," Working Papers 1004, Florida International University, Department of Economics.
  5. I. Buono & G. Lalanne, 2010. "The reaction of French firms to the decrase of foreign tariffs," Documents de Travail de la DESE - Working Papers of the DESE g2010-10, Institut National de la Statistique et des Etudes Economiques, DESE.

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