Preferential Trade Agreements and MFN Tariffs: Global Evidence

Rishi Sharma and David Kuenzel

No 2019-02, Working Papers from Department of Economics, Colgate University

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.

Keywords: Trade Agreements; GATT/WTO; Tariffs (search for similar items in EconPapers)
JEL-codes: F13 F14 (search for similar items in EconPapers)
Date: 2019-01-01, Revised 2019-11-12
New Economics Papers: this item is included in nep-int
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Journal Article: Preferential trade agreements and MFN tariffs: Global evidence (2021)
Working Paper: Preferential Trade Agreements and MFN Tariffs: Global Evidence (2019)
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