We examine the effect of regionalism on unilateral trade liberalization using industry-level data on applied most-favored nation (MFN) tariffs and bilateral preferences for ten Latin American countries from 1990 to 2001. We find that preferential tariff reduction in a given sector leads to a reduction in the external (MFN) tariff in that sector. External liberalization is greater if preferences are granted to important suppliers. However, these "complementarity effects" of preferential liberalization on external liberalization do not arise in customs unions. Overall, our results suggest that concerns about a negative effect of preferential liberalization on external trade liberalization are unfounded.

The ratio of world trade to output was a mere 2% in 1800, but it then rose to 10% in 1870 to 17% in 1900 and 21% in 1913. It then fell back to 14% in 1929 and only 9% in 1938. The period 1870-1913 thus marks the birth of the first great era of trade globalization, the period 1914-39 its death. What caused the trade boom and bust? The textbook interpretations offer a variety of narratives, but few precise answers. We use an augmented gravity model of trade to examine the gold standard, tariffs, and transport costs as determinants of trade. In the nineteenth century the gold standard was much more important than tariff policy, and just as important as transport costs as a trade-creating force. In the 1920s, the slowdown in trade was driven by a rise in transport costs, though trade barriers other than tariffs might have been important. In the 1930s, the final collapse of the gold standard, persistently high transport costs, and the expansion of other barriers drove trade volumes even lower.

All preferential trading agreements (PTAs) short of a customs union use rules of origin (ROO) to prevent trade deflection. ROO raise production costs and create administrative costs. This paper argues that in the case of the recent wave of North-South PTAs, the presence of ROO virtually limits the market access that these PTAs confer to the Southern partners. In the case of NAFTA, we find average compliance costs around 6% in ad valorem equivalent, undoing the tariff preference (4% on average) for a large number of tariff lines. Administrative costs amount to 47% of the preference margin. These findings are coherent with the view that North-South PTAs could well be viewed like a principal-agent problem in which the Southern partners are just about left on their participation constraint

The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent.

Rose, and seminar participants at the Harvard Business School BGIE group. All errors are ours. The views expressed herein are those of the author(s) and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peerreviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.