Preferential trade agreements and MFN tariffs: Global evidence

David Kuenzel and Rishi Sharma

European Economic Review, 2021, vol. 138, issue C

Abstract: We study the effects of countries’ import composition on multilateral liberalization using a global tariff database that covers the 2000–2011 period. Employing a theoretically motivated empirical approach and instrumental variable strategy, we provide evidence that greater preferential trade agreement (PTA) import shares induce tariff cuts on non-member countries. Our baseline estimates imply that a 10 percentage point increase in the share of imports from PTA partners, or alternatively a 1 percentage point PTA-induced decline in applied tariffs, lowers most-favored nation (MFN) tariff rates by about 0.4 percentage 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.

Keywords: Trade agreements; GATT/WTO; Tariffs (search for similar items in EconPapers)
JEL-codes: F13 F14 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Related works:
Working Paper: Preferential Trade Agreements and MFN Tariffs: Global Evidence (2019)
Working Paper: Preferential Trade Agreements and MFN Tariffs: Global Evidence (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:138:y:2021:i:c:s0014292121001811

DOI: 10.1016/j.euroecorev.2021.103850

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