Trade diversion and declining tariffs: evidence from Mercosur

Abstract

This paper empirically examines the alternative posed by Richardson [J. Intern. Econ. 34 (1993) 39] to the traditional view that trade integration may exacerbate inefficiencies. Richardson's hypothesis boldly predicts that trade diversion (and trade creation) may actually cause tariffs to decline! The hypothesis is fundamentally attributable to the presence of a political component in the governments' objective functions. A cross-sectionally rich data set on trade and tariffs from the Mercosur-pact countries, primarily Argentina, is used. The evidence yields surprising conclusions about the validity of endogenous tariff determination in models of trade integration. D

Trade Policy Determinants and Trade Reform in a Developing Country

“…went through signi…cant unilateral trade liberalization in the early 1990s (see Figure 1). 5 The average tari¤ rate went from 44% in 1983 down to 14% after the reform and given that there were not any …nancial crises during this time period that could potentially interfere with the analysis, Colombia provides a natural experiment environment for studying trade policy determinants and trade reform in a developing country. Import licenses were another common measure used along with tari¤s prior to trade reform but these were almost eliminated together with tari¤ liberalization (Edwards 2001).…”

“…5 Although Colombia is a founding member of the World Trade Organization since 1995, the Colombian trade liberalization that took place starting in 1990 was not in response to a multilateral process, hence did not entail reciprocity (World Trade Organization 1996). Yet, the unilateral liberalization that occurred prior to joining the WTO was recognized as part of Colombia's tari¤ concessions.…”

The impact of trade preferences on multilateral tariff cuts: Evidence for Japan

“…3 Limão (2006) and Karacaovali and Limão (2008) analyse bound multilateral tariff changes of preferentially and non-preferentially traded goods during the Uruguay Round, whereas Bohara et al (2004), Estevadeordal et al (2008), andCalvo-Pardo et al (2010) analyse the relationship between preferential and multilateral tariff changes by regressing applied MFN tariff changes on lagged values of preferential tariff changes in panel data settings using OLS and IV estimators. The former two studies find evidence for preferences hindering further multilateral tariff reductions, whereas the latter studies find evidence for the opposite.…”

“…The former two studies find evidence for preferences hindering further multilateral tariff reductions, whereas the latter studies find evidence for the opposite. In addition, using a crosssectional regression approach Bohara et al (2004) estimate the influence of Brazil's exports to Argentina on the latter's external tariffs in the presence of Mercosur and find that increasing preferential imports resulted in lower Argentine external tariffs.…”

Brazilian endogenous trade policy: 1991-1998

“…There was no statistically significant difference for the weight of welfare function in both periods. Bohara, Gawande, and Sanguinetti (2004) pursued to empirically identify the Argentinean and Brazilian sectors presented in the list of exceptions to the Common External Tariff (CET). They adapted Helpman's model (1995a, 1995b), an extension of the PS model.…”