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Do Tariffs Matter for the Extensive Margin of International Trade? An Empirical Analysis

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  • Debaere, Peter
  • Mostashari, Shalah
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    Abstract

    Explaining the strong growth of world trade with the relatively moderate tariff reductions since WW II is a quantitative challenge. The trade of new goods resulting from tariff reductions, it has been conjectured, might be the missing link. We investigate this hypothesis with very disaggregate trade and tariff data for US bilateral imports between 1989 and 2000. A probit analysis shows that changing tariffs and tariff preferences influence the extensive margin of countries' exports to the US in a statistically significant way. Tariff reductions give way to new goods' being traded, and tariff preferences reduce the extensive margin of trade for the excluded party. However, while we do find evidence of both trade creation and diversion on the extensive margin, our estimates show that country and industry specific factors are far more important than tariffs in explaining why countries start trading new goods and stop trading others.

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    Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 5260.

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    Date of creation: Sep 2005
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    Handle: RePEc:cpr:ceprdp:5260

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    Keywords: international trade;

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    1. Won Chang & L. Alan Winters, 2002. "How Regional Blocs Affect Excluded Countries: The Price Effects of MERCOSUR," American Economic Review, American Economic Association, vol. 92(4), pages 889-904, September.
    2. Russell Hillberry & Christine McDaniel, 2003. "A Decomposition of North American Trade Growth since NAFTA," International Trade 0303003, EconWPA.
    3. Jonathan Eaton & Samuel Kortum, 2002. "Technology, Geography, and Trade," Econometrica, Econometric Society, vol. 70(5), pages 1741-1779, September.
    4. Greene, W., 2001. "Fixed and Random Effects in Nonlinear Models," New York University, Leonard N. Stern School Finance Department Working Paper Seires 01-01, New York University, Leonard N. Stern School of Business-.
    5. Pol Antras, 2004. "Incomplete Contracts and the Product Cycle," Econometric Society 2004 North American Summer Meetings 62, Econometric Society.
    6. David Hummels & Peter J. Klenow, 2005. "The Variety and Quality of a Nation's Exports," American Economic Review, American Economic Association, vol. 95(3), pages 704-723, June.
    7. Pravin Krishna, . "Regionalism and Multilaterialism: A Political Economy Approach," Working Papers 96-5, Brown University, Department of Economics.
    8. Anne O. Krueger, 1999. "Trade Creation and Trade Diversion Under NAFTA," NBER Working Papers 7429, National Bureau of Economic Research, Inc.
    9. Elhanan Helpman & Marc Melitz & Yona Rubinstein, 2006. "Trading Partners and Trading Volumes," DEGIT Conference Papers c011_022, DEGIT, Dynamics, Economic Growth, and International Trade.
    10. Baldwin, Richard E. & Venables, Anthony J., 1995. "Regional economic integration," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 31, pages 1597-1644 Elsevier.
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    Cited by:
    1. Persson, Maria, 2008. "Trade Facilitation and the Extensive and Intensive Margins of Trade," Working Papers 2008:13, Lund University, Department of Economics.
    2. Giancarlo Corsetti & Philippe Martin & Paolo Pesenti, 2008. "Varieties and the Transfer Problem: The Extensive Margin of Current Account Adjustment," RSCAS Working Papers 2008/01, European University Institute.
    3. Christian Volpe Martincus & Sandra Milena Gómez, 2009. "Trade Policy and Export Diversification: What Should Colombia Expect from the FTA with the United States," IDB Publications 9292, Inter-American Development Bank.
    4. Christodoulopoulou, Styliani, 2010. "THE Effects of Multilateral Trade Liberalization on the Extensive and the Intensive Margins of Trade," MPRA Paper 29169, University Library of Munich, Germany.
    5. Dennis, Allen & Shepherd, Ben, 2007. "Trade costs, barriers to entry, and export diversification in developing countries," Policy Research Working Paper Series 4368, The World Bank.

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