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Trade Restrictiveness Indices in Presence of Externalities: An Application to Non-Tariff Measures

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  • Beghin, John C.
  • Disdier, Anne-Celia
  • Marette, Stephan

Abstract

We extend the trade restrictiveness indices (TRIs) approach to the case of market failures and domestic regulations addressing them, in presence of arbitrary tariffs and other domestic price policy distortions. We focus on standard-like non-tariff measures (NTMs) affecting cost of production and potentially enhancing domestic demand by increasing product quality or reducing negative externalities. The impact of NTMs on trade is ambiguous depending on the relative strength of the supply cost and demand enhancing effects. We apply the framework to the NTM database of Kee, Nicita, and Olarreaga (2009) and derive ad valorem equivalents for NTMs and other policy distortions. These equivalents are then used to compute TRIs. 10% of the NTM ad valorem equivalents at the 6-digit level of the Harmonized System are negative indicating a net trade-enhancing effect of these NTMs in those sectors. Consequently, TRIs computed without a protectionist presumption are smaller than their constrained counterparts not allowing for trade enhancements effects of NTMs. Accounting for externalities and anti-protective effects significantly reduces the measure of trade policy restrictiveness for most countries.

Suggested Citation

  • Beghin, John C. & Disdier, Anne-Celia & Marette, Stephan, 2012. "Trade Restrictiveness Indices in Presence of Externalities: An Application to Non-Tariff Measures," Staff General Research Papers Archive 35578, Iowa State University, Department of Economics.
  • Handle: RePEc:isu:genres:35578
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    More about this item

    Keywords

    Non-tariff measures; externalities; ad valorem equivalents; trade restrictiveness indices;
    All these keywords.

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations

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