Phase Out Tariffs, Phase In Trade?

James Lake, Tibor Besedes and Tristan Kohl

No 1903, Departmental Working Papers from Southern Methodist University, Department of Economics

Abstract: An important stylized fact in the empirical Free Trade Agreement (FTA) literature is that member trade flows gradually increase over time following an FTA. Baier & Bergstrand (2007) suggest two explanations: tariff phase-out and delayed pass-through of tariffs into import prices. We examine these hypotheses using 1989-2016 U.S. import growth and product-level data on the tariff phase-out negotiated under NAFTA and the earlier Canada-U.S. FTA. We find evidence supporting a weak form of the tariff phase-out hypothesis. But, we find little evidence supporting a strong form of this hypothesis because the bulk of delayed import growth stems from products granted tariff free access upon NAFTA rather than products with phased-out tariffs. Additionally, we do not find evidence supporting the delayed tariff pass-through hypothesis. Instead, we find evidence for an important role played by NAFTA tariff cuts reducing the impact of frictions that, in turn, allow a spatial expansion of imports across the U.S.

Keywords: Free Trade Agreements; CUSFTA; NAFTA; trade; phase-out; tariffs; extensive margin. (search for similar items in EconPapers)
JEL-codes: F1 (search for similar items in EconPapers)
Date: 2019-04
New Economics Papers: this item is included in nep-int
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Citations: View citations in EconPapers (6)

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Related works:
Journal Article: Phase out tariffs, phase in trade? (2020)
Working Paper: Phase out tariffs, phase in trade? (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:smu:ecowpa:1903

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