IDEAS home Printed from https://ideas.repec.org/p/era/wpaper/dp-2016-24.html
   My bibliography  Save this paper

Impact of Free Trade Agreement Utilisation on Import Prices

Author

Listed:
  • Kazunobu Hayakawa

    (Inter-disciplinary Studies Center, Institute of Developing Economies, Japan)

  • Nuttawut Laksanapanyakul

    (Science and Technology Development Program, Thailand Development Research Institute, Thailand)

  • Hiroshi Mukunoki

    (Faculty of Economics, Gakushuin University, Japan)

  • Shujiro Urata

    (Economic Research Institute for ASEAN and East Asia, Graduate School of Asia-Pacific Studies, Waseda University, Japan)

Abstract

We examine the impact of free trade agreement (FTA) utilisation on import prices. For this analysis, we employ establishment-level import data with information on tariff schemes, that is, the FTA and most-favoured-nation schemes used for importing. Unlike previous studies in this literature, we estimate the effects of FTA utilisation on prices by controlling for the differences in importing firms' characteristics. Our main findings are as follows. First, the effect of FTA use is overestimated when not controlling for the importing firm-related fixed effects. Second, the average effect of the tariff reduction induced by FTA utilisation is a 3.6-6.7 percent rise in import prices. Third, in general, we do not find a price rise resulting from the costs of compliance with the rules of origin. Fourth, we also find several other factors that affect import prices in the case of FTA utilisation.

Suggested Citation

  • Kazunobu Hayakawa & Nuttawut Laksanapanyakul & Hiroshi Mukunoki & Shujiro Urata, 2016. "Impact of Free Trade Agreement Utilisation on Import Prices," Working Papers DP-2016-24, Economic Research Institute for ASEAN and East Asia (ERIA).
    • Handle: RePEc:era:wpaper:dp-2016-24
    as

    Download full text from publisher

    File URL: http://www.eria.org/ERIA-DP-2016-24.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Feenstra, Robert C., 1989. "Symmetric pass-through of tariffs and exchange rates under imperfect competition: An empirical test," Journal of International Economics, Elsevier, vol. 27(1-2), pages 25-45, August.
    2. Marc J. Melitz & Giancarlo I. P. Ottaviano, 2021. "Market Size, Trade, and Productivity," World Scientific Book Chapters, in: Firms and Workers in a Globalized World Larger Markets, Tougher Competition, chapter 4, pages 87-108, World Scientific Publishing Co. Pte. Ltd..
    3. Hiau Looi Kee & Alessandro Nicita & Marcelo Olarreaga, 2008. "Import Demand Elasticities and Trade Distortions," The Review of Economics and Statistics, MIT Press, vol. 90(4), pages 666-682, November.
    4. Cherkashin, Ivan & Demidova, Svetlana & Kee, Hiau Looi & Krishna, Kala, 2015. "Firm heterogeneity and costly trade: A new estimation strategy and policy experiments," Journal of International Economics, Elsevier, vol. 96(1), pages 18-36.
    5. Hayakawa, Kazunobu & Nuttawut, Laksanapanyakul & Shiino, Kohei, 2013. "Some practical guidance for the computation of free trade agreement utilization rates," IDE Discussion Papers 438, Institute of Developing Economies, Japan External Trade Organization(JETRO).
    6. Bertoletti, Paolo & Epifani, Paolo, 2014. "Monopolistic competition: CES redux?," Journal of International Economics, Elsevier, vol. 93(2), pages 227-238.
    7. Kichko, Sergey & Kokovin, Sergey & Zhelobodko, Evgeny, 2014. "Trade patterns and export pricing under non-CES preferences," Journal of International Economics, Elsevier, vol. 94(1), pages 129-142.
    8. Bruce E. Hansen, 2000. "Sample Splitting and Threshold Estimation," Econometrica, Econometric Society, vol. 68(3), pages 575-604, May.
    9. Nicolas Berman & Philippe Martin & Thierry Mayer, 2012. "How do Different Exporters React to Exchange Rate Changes?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 127(1), pages 437-492.
    10. Hayakawa, Kazunobu, 2011. "Measuring fixed costs for firms’ use of a free trade agreement: Threshold regression approach," Economics Letters, Elsevier, vol. 113(3), pages 301-303.
    11. Michael B. Devereux & Ben Tomlin & Wei Dong, 2015. "Exchange Rate Pass-Through, Currency of Invoicing and Market Share," NBER Working Papers 21413, National Bureau of Economic Research, Inc.
    12. Joseph Francois & Bernard Hoekman & Miriam Manchin, 2006. "Preference Erosion and Multilateral Trade Liberalization," The World Bank Economic Review, World Bank, vol. 20(2), pages 197-216.
    13. Krugman, Paul R., 1979. "Increasing returns, monopolistic competition, and international trade," Journal of International Economics, Elsevier, vol. 9(4), pages 469-479, November.
    14. Marcelo Olarreaga & Çaglar Özden, 2005. "AGOA and Apparel: Who Captures the Tariff Rent in the Presence of Preferential Market Access?," The World Economy, Wiley Blackwell, vol. 28(1), pages 63-77, January.
    15. Marc J. Melitz & Gianmarco I. P. Ottaviano, 2008. "Market Size, Trade, and Productivity (DOI:10.111/j.1467-937x.2007.00463.x)," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 75(3), pages 985-985.
    16. Kazunobu Hayakawa, 2015. "Does firm size matter in exporting and using FTA schemes?," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 24(7), pages 883-905, October.
    17. Olivier Cadot & Céline Carrère & Jaime de Melo & Alberto Portugal-Pérez, 2005. "Market Access and Welfare under Free Trade Agreements: Textiles under," The World Bank Economic Review, World Bank, vol. 19(3), pages 379-405.
    18. Demidova, Svetlana & Krishna, Kala, 2008. "Firm heterogeneity and firm behavior with conditional policies," Economics Letters, Elsevier, vol. 98(2), pages 122-128, February.
    19. Mary Amiti & Oleg Itskhoki & Jozef Konings, 2012. "Importers, exporters, and exchange rate disconnect," Working Paper Research 238, National Bank of Belgium.
    20. Broda, Christian & Greenfield, Joshua & Weinstein, David E., 2017. "From groundnuts to globalization: A structural estimate of trade and growth," Research in Economics, Elsevier, vol. 71(4), pages 759-783.
    21. Mary Amiti & Oleg Itskhoki & Jozef Konings, 2014. "Importers, Exporters, and Exchange Rate Disconnect," American Economic Review, American Economic Association, vol. 104(7), pages 1942-1978, July.
    22. Takahashi, Katsuhide & Urata, Shujiro, 2010. "On the Use of FTAs by Japanese Firms: Further Evidence," Business and Politics, Cambridge University Press, vol. 12(1), pages 1-15, April.
    23. Çaglar Özden & Gunjan Sharma, 2006. "Price Effects of Preferential Market Access: Caribbean Basin Initiative and the Apparel Sector," The World Bank Economic Review, World Bank, vol. 20(2), pages 241-259.
    24. Nicolas Berman & Alan Asprilla & Olivier Cadot & Mélise Jaud, 2015. "Pricing-to-market, Trade Policy, and Market Power," IHEID Working Papers 04-2015, Economics Section, The Graduate Institute of International Studies.
    25. Hayakawa, Kazunobu & Kim, HanSung & Nuttawut, Laksanapanyakul & Shiino, Kohei, 2013. "FTA utilization : certificate of origin data versus customs data," IDE Discussion Papers 428, Institute of Developing Economies, Japan External Trade Organization(JETRO).
    26. Robert Z. Lawrence & David E. Weinstein, 1999. "Trade and Growth: Import-Led or Export-Led? Evidence From Japan and Korea," NBER Working Papers 7264, National Bureau of Economic Research, Inc.
    27. Xavier Cirera, 2014. "Who captures the price rent? The impact of European Union trade preferences on export prices," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 150(3), pages 507-527, August.
    28. Holger Gorg & Laszlo Halpern & Balazs Murakozy, 2010. "Why Do Within Firm-Product Export Prices Differ across Markets?," CERS-IE WORKING PAPERS 1003, Institute of Economics, Centre for Economic and Regional Studies.
    29. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November.
    30. Behrens, Kristian & Murata, Yasusada, 2007. "General equilibrium models of monopolistic competition: A new approach," Journal of Economic Theory, Elsevier, vol. 136(1), pages 776-787, September.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Kazunobu HAYAKAWA & Nuttawut LAKSANAPANYAKUL & Shujiro URATA, 2015. "Firm-level Impact of Free Trade Agreements on Import Prices," Working Papers DP-2015-33, Economic Research Institute for ASEAN and East Asia (ERIA).
    2. Kazunobu HAYAKAWA & Naoto JINJI & Toshiyuki MATSUURA & Taiyo YOSHIMI, 2019. "Costs of Utilizing Regional Trade Agreements," Discussion papers 19054, Research Institute of Economy, Trade and Industry (RIETI).
    3. Naoto JINJI & Kazunobu HAYAKAWA & Nuttawut LAKSANAPANYAKUL & Toshiyuki MATSUURA & Taiyo YOSHIMI, 2020. "A New Approach for Quantifying the Costs of Utilizing Regional Trade Agreements," Discussion papers e-19-010, Graduate School of Economics , Kyoto University.
    4. Hayakawa Kazunobu, 2015. "Impacts of FTA Utilization on Firm Performance," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 15(3), pages 1325-1352, July.
    5. Hayakawa, Kazunobu & Ito, Tadashi & Mukunoki, Hiroshi, 2022. "Lerner meets Metzler: Tariff pass-through of worldwide trade," Journal of the Japanese and International Economies, Elsevier, vol. 63(C).
    6. Parenti, Mathieu, 2018. "Large and small firms in a global market: David vs. Goliath," Journal of International Economics, Elsevier, vol. 110(C), pages 103-118.
    7. Hayakawa, Kazunobu & Yang, Chih-Hai, 2013. "How do free trade agreements change import prices? : firm-level evidence from China's imports from ASEAN," IDE Discussion Papers 436, Institute of Developing Economies, Japan External Trade Organization(JETRO).
    8. Parenti, Mathieu & Ushchev, Philip & Thisse, Jacques-François, 2017. "Toward a theory of monopolistic competition," Journal of Economic Theory, Elsevier, vol. 167(C), pages 86-115.
    9. Kazunobu Hayakawa & Nuttawut Laksanapanyakul & Shujiro Urata, 2016. "Measuring the costs of FTA utilization: evidence from transaction-level import data of Thailand," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 152(3), pages 559-575, August.
    10. Kiminori Matsuyama & Philip Ushchev, 2022. "Selection and Sorting of Heterogeneous Firms through Competitive Pressures," CIRJE F-Series CIRJE-F-1189, CIRJE, Faculty of Economics, University of Tokyo.
    11. Hayakawa, Kazunobu & Laksanapanyakul, Nuttawut & Yoshimi, Taiyo, 2023. "Firm-level Utilization Rates of Regional Trade Agreements: Importers’ Perspective," Journal of Asian Economics, Elsevier, vol. 86(C).
    12. Chen, Natalie & Juvenal, Luciana, 2022. "Markups, quality, and trade costs," Journal of International Economics, Elsevier, vol. 137(C).
    13. Ariu, Andrea & Mayneris, Florian & Parenti, Mathieu, 2020. "One way to the top: How services boost the demand for goods," Journal of International Economics, Elsevier, vol. 123(C).
    14. Kazunobu Hayakawa, 2023. "Multiple preference regimes and rules of origin," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 159(3), pages 673-696, August.
    15. Hayakawa, Kazunobu & Kim, Han-Sung & Yoshimi, Taiyo, 2017. "Exchange rate and utilization of free trade agreements: Focus on rules of origin," Journal of International Money and Finance, Elsevier, vol. 75(C), pages 93-108.
    16. Ziran Ding, 2022. "Firm heterogeneity, variable markups, and multinational production: A review from trade policy perspective," Journal of Economic Surveys, Wiley Blackwell, vol. 36(5), pages 1311-1357, December.
    17. Kristian Behrens & Sergei Kichko & Philip Ushchev, 2024. "ε‐ces preferences and trade," Review of International Economics, Wiley Blackwell, vol. 32(4), pages 1567-1586, September.
    18. Weinberger, Ariel, 2020. "Markups and misallocation with evidence from exchange rate shocks," Journal of Development Economics, Elsevier, vol. 146(C).
    19. Li, Hongbin & Ma, Hong & Xu, Yuan, 2015. "How do exchange rate movements affect Chinese exports? — A firm-level investigation," Journal of International Economics, Elsevier, vol. 97(1), pages 148-161.
    20. Andrew B. Bernard & J. Bradford Jensen & Stephen J. Redding & Peter K. Schott, 2018. "Global Firms," Journal of Economic Literature, American Economic Association, vol. 56(2), pages 565-619, June.

    More about this item

    Keywords

    FTA; Prices; Thailand;
    All these keywords.

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • F53 - International Economics - - International Relations, National Security, and International Political Economy - - - International Agreements and Observance; International Organizations

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:era:wpaper:dp-2016-24. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Ranti Amelia The email address of this maintainer does not seem to be valid anymore. Please ask Ranti Amelia to update the entry or send us the correct address (email available below). General contact details of provider: https://edirc.repec.org/data/eriadid.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.