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Preferential Trade Agreements and MFN Tariffs: Global Evidence

Author

Listed:
  • David J. Kuenzel

    (Department of Economics, Wesleyan University)

  • Rishi R. Sharma

    (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.

Suggested Citation

  • David J. Kuenzel & Rishi R. Sharma, 2019. "Preferential Trade Agreements and MFN Tariffs: Global Evidence," Wesleyan Economics Working Papers 2019-004, Wesleyan University, Department of Economics.
    • Handle: RePEc:wes:weswpa:2019-004
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    Cited by:

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    2. Kimsanova, Barchynai & Herzfeld, Thomas, 2022. "Policy analysis with Melitz-type gravity model: Evidence from Kyrgyzstan," Journal of Asian Economics, Elsevier, vol. 80(C).
    3. David J. Kuenzel, 2023. "Non‐tariff measures: What's tariffs got to do with it?," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 56(1), pages 133-163, February.
    4. Herghelegiu, Cristina & Martin, Fernando, 2023. "Is the European Union providing a regulatory model for other countries?," Single Market Economics Papers WP2023/15, Directorate-General for Internal Market, Industry, Entrepreneurship and SMEs (European Commission), Chief Economist Team.

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    More about this item

    Keywords

    Trade Agreements; GATT/WTO; Tariffs;
    All these keywords.

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

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