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

  • Antoni Estevadeordal
  • Christian Volpe Martincus
  • Mitsuyo Ando
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    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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    Paper provided by Inter-American Development Bank in its series IDB Publications (Working Papers) with number 9332.

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    Date of creation: Dec 2009
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    Handle: RePEc:idb:brikps:9332
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    1. 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.
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    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. 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.
    5. 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.
    6. Ornelas, Emanuel, 2008. "Feasible multilateralism and the effects of regionalism," Journal of International Economics, Elsevier, vol. 74(1), pages 202-224, January.
    7. 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.
    8. Baldwin, Richard & Seghezza, Elena, 2007. "Are Trade Blocs Building or Stumbling Blocks? New Evidence," CEPR Discussion Papers 6599, C.E.P.R. Discussion Papers.
    9. Richardson, Martin, 1993. "Endogenous protection and trade diversion," Journal of International Economics, Elsevier, vol. 34(3-4), pages 309-324, May.
    10. 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.
    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.
    12. Foroutan, Faezeh, 1998. "Does membership in a regional preferential trade arrangement make a country more or less protectionist?," Policy Research Working Paper Series 1898, The World Bank.
    13. P. Magee, Stephen & Lee, Hak-Loh, 2001. "Endogenous tariff creation and tariff diversion in a customs union," European Economic Review, Elsevier, vol. 45(3), pages 495-518, March.
    14. Faezeh Foroutan, 1998. "Does Membership in a Regional Preferential Trade Arrangement Make a Country More or Less Protectionist?," The World Economy, Wiley Blackwell, vol. 21(3), pages 305-335, 05.
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