Revisiting the Trade-Creating Effects of Non-Tariff Barriers

Modern regional trade agreements focus on promoting bilateral exchange mostly by loweringnon-tariff barriers to trade. But do existing regional trade agreements actually deliver what they promise This paperargues that existing results in the literature are upward biased because of measurement error in a crucial controlvariable: tariff rates. Using a novel data set of high-quality tariff information, the paper shows that, onaverage, non-tariff barriers reductions in deep regional trade agreements boost services trade but not goods trade.Estimating separate non-tariff barrier effects for each regional trade agreement reveals strong heterogeneity: only23 percent of all regional trade agreements seem to lower non-tariff barriers. For most regional trade agreements, wefail to find any significant effect, while 9 percent appear to reduce trade, possibly because a more balanced regulationevens out comparative advantages. The trade agreements that foster trade the most include non-discriminatory tradepolicy changes.