Price and Quality Changes in Outsiders of Regional Trade Agreements

Toshiyuki Matsuura, Kazunobu Hayakawa, Nuttawut Laksanapanyakul and Yuta Watabe

No e084, Working Papers from Tokyo Center for Economic Research

Abstract: Countries excluded from a regional trade agreement face disadvantages in tariffs when exporting to member countries. In this context, previous studies found that such excluded countries, i.e., outsiders, lower their export prices. In contrast, this study aims to examine not only prices but also the quality of outsiders' exports. Specifically, we first estimate the quality of products exported from each country to Thailand under certain tariff schemes. In addition to our estimates on cross-price elasticity, we use this measure to compute the potential magnitude of trade diversion for outsiders. Then, we investigate the relationship between this trade diversion and changes in the quality of exports from outsiders. Consequently, we found that only outsiders exporting higher quality products exhibited a greater improvement in quality to decrease the negative effect of tariff disadvantages.

Pages: 22 pages
Date: 2014-10
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