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Preferential Trade Agreements and MFN Tariffs: Global Evidence

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Abstract

We study the effects of preferential trade agreements (PTAs) on multilateral liberalization using a new global tariff database that covers the 2001-2010 period. Employing a theoretically motivated empirical approach and instrumental variable strategy, we provide evidence that PTAs induce tariff cuts on non-member countries. Our baseline estimates imply that each 1% point PTA-induced decline in applied tariffs lowers most-favored nation (MFN) tariff rates by 0.42% points. This effect is driven by countries that negotiate deeper preferential trade deals. PTAs that span more policy fields are prone to lead to more inefficient trade diversion, which creates a stronger incentive to subsequently cut MFN tariffs. At the same time, our results are remarkably consistent across other subsamples emphasized in the literature, including high- and low-tariff importers, poorer and richer economies as well as large and small countries.

Suggested Citation

  • Sharma, Rishi & Kuenzel, David, 2019. "Preferential Trade Agreements and MFN Tariffs: Global Evidence," Working Papers 2019-02, Department of Economics, Colgate University, revised 12 Nov 2019.
    • Handle: RePEc:cgt:wpaper:2019-02
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    Cited by:

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    2. David J. Kuenzel, 2023. "Non‐tariff measures: What's tariffs got to do with it?," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 56(1), pages 133-163, February.
    3. Renliang Liu & Thanasis Stengos & Yiguo Sun, 2024. "Spatial spillovers in trade agreement memberships: Does institutional proximity matter?," Review of International Economics, Wiley Blackwell, vol. 32(3), pages 1398-1433, August.
    4. Ross Jestrab, 2024. "Importer market power and preferential trade agreements: Empirical evidence," Review of International Economics, Wiley Blackwell, vol. 32(3), pages 993-1038, August.
    5. Kimsanova, Barchynai & Herzfeld, Thomas, 2022. "Policy analysis with Melitz-type gravity model: Evidence from Kyrgyzstan," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 80.
    6. Ornelas, Emanuel & Tovar, Patricia, 2022. "Intra-bloc tariffs and preferential margins in trade agreements," Journal of International Economics, Elsevier, vol. 138(C).
    7. Herghelegiu, Cristina & Martin, Fernando, 2023. "Is the European Union providing a regulatory model for other countries?," Single Market Economics Papers WP2023/15, Directorate-General for Internal Market, Industry, Entrepreneurship and SMEs (European Commission), Chief Economist Team.

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    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

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