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Complements or Substitutes? Preferential and Multilateral Trade Liberalization at the Sectoral Level

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  • Ando, Mitsuyo

    ()
    (Keio University)

  • Estevadeordal, Antoni

    (Inter-American Development Bank)

  • Volpe Martincus, Christian

    ()
    (Inter-American Development Bank)

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    Abstract

    This paper explores the relationship between preferential and multilateral trade liberalization at the sectoral level using a unique dataset that includes data on most favored nation (MFN) and bilateral preferential tariffs at the 4-digit ISIC level for 11 Latin American countries over the period 1985–2005. We find evidence of heterogeneity across sectors. While in some industries, complementary effects between both kinds of trade liberalization are observed, in others no significant links are detected and—in a few cases—even substitutability seems to prevail. Variation across sectors appears to be systematically related to both import demand elasticities and countries’ sectoral comparative advantages.

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    File URL: http://aric.adb.org/pdf/workingpaper/WP39_Complements_or_Substitutes.pdf
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    Bibliographic Info

    Paper provided by Asian Development Bank in its series Working Papers on Regional Economic Integration with number 39.

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    Length: 32 pages
    Date of creation: 01 Nov 2009
    Date of revision:
    Handle: RePEc:ris:adbrei:0039

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    Keywords: Trade liberalization; regionalism; Latin America;

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    1. Karacaovali, Baybars & Limão, Nuno, 2008. "The clash of liberalizations: Preferential vs. multilateral trade liberalization in the European Union," Journal of International Economics, Elsevier, vol. 74(2), pages 299-327, March.
    2. Pabo Sanguinetti & Alok Bohara & Kishore Guatanabe, 2003. "Trade Diverion and Declinning Tariffs: Evidence from MERCOSUR," Department of Economics Working Papers 003, Universidad Torcuato Di Tella.
    3. Antoni Estevadeordal & Caroline Freund & Emanuel Ornelas, 2008. "Does regionalism affect trade liberalization towards non-members?," LSE Research Online Documents on Economics 19584, London School of Economics and Political Science, LSE Library.
    4. James Proudman & Stephen Redding, 2000. "Evolving patterns of international trade," LSE Research Online Documents on Economics 206, London School of Economics and Political Science, LSE Library.
    5. Stoyanov, Andrey, 2009. "Trade policy of a free trade agreement in the presence of foreign lobbying," Journal of International Economics, Elsevier, vol. 77(1), pages 37-49, February.
    6. Christian Broda & Joshua Greenfield & David Weinstein, 2006. "From Groundnuts to Globalization: A Structural Estimate of Trade and Growth," NBER Working Papers 12512, National Bureau of Economic Research, Inc.
    7. Richardson, Martin, 1993. "Endogenous protection and trade diversion," Journal of International Economics, Elsevier, vol. 34(3-4), pages 309-324, May.
    8. Ornelas, Emanuel, 2008. "Feasible multilateralism and the effects of regionalism," Journal of International Economics, Elsevier, vol. 74(1), pages 202-224, January.
    9. Nuno Limao, 2006. "Preferential Trade Agreements as Stumbling Blocks for Multilateral Trade Liberalization: Evidence for the United States," American Economic Review, American Economic Association, vol. 96(3), pages 896-914, June.
    10. Baldwin, Richard & Seghezza, Elena, 2007. "Are Trade Blocs Building or Stumbling Blocks? New Evidence," CEPR Discussion Papers 6599, C.E.P.R. Discussion Papers.
    11. Ornelas, Emanuel, 2005. "Trade creating free trade areas and the undermining of multilateralism," European Economic Review, Elsevier, vol. 49(7), pages 1717-1735, October.
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