Preferential Trade Liberalization and the Path-Dependent Expansion of Exports
AbstractIn the presence of sunk costs to exporting, preferential tariff liberalization may have a prolonged, dynamic effect on the pattern of a beneficiary country's exports. In particular, preferential tariff liberalization might trigger a geographic spread of exports to third markets outside the preferential trading area. I test this hypothesis for the pattern of Mexican exports after the inception of NAFTA to several Latin American trading partners. After controlling for product specific shocks and the overall trend in export growth, the evidence is consistent with the hypothesis that initial exports to the United States further prompted exports to third markets. The results suggest a significant impact on exports to large or geographically proximate countries (Argentina, Brazil, Peru, Costa Rica, Guatemala, Honduras and Panama). The stunning growth in the extensive margin as a count measure owes much to rather simple goods, while more sophisticated goods exert a substantial impact on the value of Mexican exports. The findings also document the existence of considerable tariff-induced trade diversion for goods with little skill or technology content.
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Bibliographic InfoPaper provided by Department of Economics, University of St. Gallen in its series University of St. Gallen Department of Economics working paper series 2007 with number 2007-06.
Length: 41 pages
Date of creation: Mar 2007
Date of revision:
Preferential tariffs; Mexico; NAFTA; sunk costs; conditional logit panel estimation;
Find related papers by JEL classification:
- F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
- F15 - International Economics - - Trade - - - Economic Integration
- K33 - Law and Economics - - Other Substantive Areas of Law - - - International Law
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-03-31 (All new papers)
- NEP-INT-2007-03-31 (International Trade)
- NEP-LAW-2007-03-31 (Law & Economics)
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