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

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  • Ines Buono

    ()
    (Bank of Italy)

  • Guy Lalanne

    ()
    (INSEE and Crest-LMa)

Abstract

Do tariffs inhibit trade flows by limiting the entry of exporting firms (`extensive margin') or by restricting the average volume exported by each firm (`intensive margin')? Using a gravity equation approach, we analyze how the decrease in tariffs promoted during the 1990s by the Uruguay Round multilateral trade agreement affected the trade margins of French firms across 57 sectors and in 147 countries, from 1993 to 2002. Our main contribution is to estimate the elasticity of trade for 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 determined by the implementation of the Uruguay Round did not lead more firms to export and instead, only encouraged 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 contribution is very small.

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Bibliographic Info

Paper provided by Bank of Italy, Economic Research and International Relations Area in its series Temi di discussione (Economic working papers) with number 743.

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Date of creation: Feb 2010
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Handle: RePEc:bdi:wptemi:td_743_10

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Keywords: tariffs; trade margins; Uruguay Round;

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Cited by:
  1. Scoppola, M. & Raimondi, V. & Olper, A., 2013. "The Impact of EU Trade Preferences on the Extensive and Intensive Agricultural and Food Product Margins," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 151145, Agricultural and Applied Economics Association.
  2. Anne-Célia Disdier & Lionel Gérard Fontagné & Mondher Mimouni, 2013. "Tariff Liberalization and Trade Integration of Emerging Countries," CESifo Working Paper Series 4425, CESifo Group Munich.
  3. Veysel Avsar, 2010. "The Anatomy of Trade Deflection," Working Papers 1004, Florida International University, Department of Economics.
  4. Cletus C. Coughlin, 2012. "Extensive and intensive trade margins: a state-by-state view," Working Papers 2012-002, Federal Reserve Bank of St. Louis.
  5. 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.
  6. Spearot, Alan C., 2013. "Variable demand elasticities and tariff liberalization," Journal of International Economics, Elsevier, vol. 89(1), pages 26-41.
  7. 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.
  8. Handley, Kyle, 2012. "Exporting under Trade Policy Uncertainty: Theory and Evidence," Working Papers 634, Research Seminar in International Economics, University of Michigan.

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