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Firm heterogeneity, Rules of Origin and Rules of Cumulation

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  • Pamela Bombarda

    ()
    (THEMA - Théorie économique, modélisation et applications - CNRS : UMR8184 - Université de Cergy Pontoise)

  • Elisa Gamberoni

    (Elisa Gamberoni - World Bank)

Abstract

This paper sheds light on the restrictive nature of rules of origin (ROO) and on the role of diagonal cumulation in mitigating the protectionist content of ROO. Empirical evidence suggests that diagonal cumulation has beneficial effects on trade - particularly among spoke countries. We show that these patterns can be reconciled with a theoretical setting where heterogeneous firms buy intermediate inputs from domestic and foreign sources. The model finds that switching from bilateral to diagonal cumulation relaxes the restrictiveness of the ROO and leads the least productive exporters to stop exporting.

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Bibliographic Info

Paper provided by HAL in its series Post-Print with number hal-00874949.

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Date of creation: 23 Jan 2013
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Publication status: Published, International Economic Review, 2013, Volume 54, issue 1, 307-328
Handle: RePEc:hal:journl:hal-00874949

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Keywords: Intermediate goods; Rules of origin; Rules of cumulation; Firm heterogeneity; Gravity;

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  1. Mark J. Melitz, 2002. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," NBER Working Papers 8881, National Bureau of Economic Research, Inc.
  2. Baldwin, Richard, 2008. "Big-Think Regionalism: a Critical Survey," CEPR Discussion Papers 6874, C.E.P.R. Discussion Papers.
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  10. Diego Puga & Anthony J. Venables, 1995. "Preferential Trading Arrangements and Industrial Location," CEP Discussion Papers dp0267, Centre for Economic Performance, LSE.
  11. Rubinstein, Yona & Helpman, Elhanan & Melitz, Marc, 2008. "Estimating Trade Flows: Trading Partners and Trading Volumes," Scholarly Articles 3228230, Harvard University Department of Economics.
  12. Fugazza, Marco & Robert-Nicoud, Frédéric, 2006. "Can South-South Trade Liberalisation Stimulate North-South Trade?," CEPR Discussion Papers 5699, C.E.P.R. Discussion Papers.
  13. Anderson, James E, 1979. "A Theoretical Foundation for the Gravity Equation," American Economic Review, American Economic Association, vol. 69(1), pages 106-16, March.
  14. Richard Baldwin, 2005. "Heterogeneous Firms and Trade: Testable and Untestable Properties of the Melitz Model," NBER Working Papers 11471, National Bureau of Economic Research, Inc.
  15. Kala Krishna, 2005. "Understanding Rules of Origin," NBER Working Papers 11150, National Bureau of Economic Research, Inc.
  16. Patricia Augier & Michael Gasiorek & Charles Lai-Tong, 2007. "Multilateralising Regionalism: Relaxing the Rules of Origin Or Can Those Pecs Be Flexed?," CARIS Working Papers 03, Centre for the Analysis of Regional Integration at Sussex, University of Sussex.
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Cited by:
  1. Svetlana Demidova & Kala Krishna & Hiau Looi Kee & Ivan Cherkashin, 2009. "Firm Heterogeneity and Costly Trade: A New Estimation Strategy and Policy Experiments," 2009 Meeting Papers 1199, Society for Economic Dynamics.

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