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Do Free Trade Agreements Affect Tariffs of Nonmember Countries? A Theoretical and Empirical Investigation

In: Economic Analysis of the Rules and Regulations of the World Trade Organization

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  • Kamal Saggi
  • Andrey Stoyanov
  • Halis Murat Yildiz

Abstract

We investigate the effects of free trade agreements (FTAs) on tariffs of nonmember countries. In our multi-country model, the formation of an FTA leads members to reduce their exports to the rest of the world. Such external trade diversion weakens the ability of nonmembers to manipulate their terms of trade vis-à-vis FTA members, a mechanism that induces them to lower their tariffs on FTA members. We empirically confirm this insight using industry-level trade data for 192 importing and 253 exporting countries, along with information on all FTAs formed in the world during 1989-2011.

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  • Kamal Saggi & Andrey Stoyanov & Halis Murat Yildiz, 2018. "Do Free Trade Agreements Affect Tariffs of Nonmember Countries? A Theoretical and Empirical Investigation," World Scientific Book Chapters, in: Kamal Saggi (ed.), Economic Analysis of the Rules and Regulations of the World Trade Organization, chapter 11, pages 238-280, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789813233058_0011
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    Cited by:

    1. Moise Nken & Halis Murat Yildiz, 2017. "Implications of multilateral tariff bindings on the formation of preferential trade agreements and quest for global free trade," Working Papers 068, Ryerson University, Department of Economics.
    2. Xi He, 2022. "Regional Trade Agreements and Excluded Countries," American Journal of Agricultural Economics, John Wiley & Sons, vol. 104(1), pages 428-449, January.
    3. Kuenzel, David J. & Sharma, Rishi R., 2021. "Preferential trade agreements and MFN tariffs: Global evidence," European Economic Review, Elsevier, vol. 138(C).
    4. Akira Okada & Yasuhiro Shirata, 2021. "The Formation of Global Free Trade Agreement," Papers 2103.16118, arXiv.org, revised Mar 2021.
    5. Lukaszuk, Piotr & Legge, Stefan, 2019. "Which Factors Determine the Utilization of Preferential Tariff Rates?," VfS Annual Conference 2019 (Leipzig): 30 Years after the Fall of the Berlin Wall - Democracy and Market Economy 203639, Verein für Socialpolitik / German Economic Association.
    6. Moïse Nken & Halis Murat Yildiz, 2022. "Implications of multilateral tariff bindings on the extent of preferential trade agreement formation," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 73(1), pages 301-347, February.
    7. Gu, Ke & Stoyanov, Andrey, 2018. "Skills, Population Aging, and the Pattern of Trade," MPRA Paper 84349, University Library of Munich, Germany.
    8. Sokolovska, Olena & Sokolovskyi, Dmytro, 2016. "Optimization of government trade behavior and its implication for small developing economy (the case of Ukraine)," MPRA Paper 71983, University Library of Munich, Germany.
    9. Mei, Yuan, 2020. "Sustainable cooperation in international trade: A quantitative analysis," Journal of International Economics, Elsevier, vol. 123(C).
    10. Harold D Chiang & Yukun Ma & Joel Rodrigue & Yuya Sasaki, 2021. "Dyadic double/debiased machine learning for analyzing determinants of free trade agreements," Papers 2110.04365, arXiv.org, revised Dec 2022.
    11. Olena Sokolovska & Dmytro Sokolovskyi, 2017. "Efficient Government Trade Behavior and Its Implication for Small Developing Economy: The Case of Ukraine," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 2, pages 64-81.
    12. KURTOVIC, Safet & HALILI, Blerim & MAXHUNI, Nehat & TALOVIC, Sead, 2016. "Liberalization of Trade with the EFTA Countries: Some Evidence from Bosnia and Herzegovina - La liberalizzazione del commercio con i paesi dell’ EFTA: evidenze dalla Bosnia e Herzegovina," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 69(3), pages 213-232.

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    More about this item

    Keywords

    Multilateral Trading System; Trade Agreements; Trade Liberalization; International Tariff Cooperation; WTO Disputes; Case Studies;
    All these keywords.

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations

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