The effect of the Uruguay Round on the intensive and extensive margins of trade
AbstractDo 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 InfoPaper provided by Bank of Italy, Economic Research and International Relations Area in its series Temi di discussione (Economic working papers) with number 743.
Date of creation: Feb 2010
Date of revision:
tariffs; trade margins; Uruguay Round;
Other versions of this item:
- Buono, Ines & Lalanne, Guy, 2012. "The effect of the Uruguay round on the intensive and extensive margins of trade," Journal of International Economics, Elsevier, vol. 86(2), pages 269-283.
- I. Buono & G. Lalanne, 2009. "The Effect of the Uruguay round on the Intensive and Extensive Margins of Trade," Documents de Travail de la DESE - Working Papers of the DESE g2009-15, Institut National de la Statistique et des Etudes Economiques, DESE.
- F10 - International Economics - - Trade - - - General
- F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
- F14 - International Economics - - Trade - - - Empirical Studies of Trade
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- Joao Santos Silva & Silvana Tenreyro, 2005.
"The Log of Gravity,"
CEP Discussion Papers
dp0701, Centre for Economic Performance, LSE.
- 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.
- Cletus C. Coughlin, 2012. "Extensive and intensive trade margins: a state-by-state view," Working Papers 2012-002, Federal Reserve Bank of St. Louis.
- Veysel Avsar, 2010. "The Anatomy of Trade Deflection," Working Papers 1004, Florida International University, Department of Economics.
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