Preferences, rent destruction and multilateral liberalization: The building block effect of CUSFTA

Free Trade Agreements and the Consolidation of Democracy

“…17 There is robust empirical evidence that the formation of free trade areas in developing countries (largely the focus of our analysis) leads to declining external tariffs (see Estevadeordal, Freund, and Ornelas 2008 for evidence from Latin America and Calvo-Pardo, Freund, and Ornelas 2011 for evidence from Southeast Asia), although the evidence is mixed for developed countries (see Limão 2006 andKetterer, Bernhofen, andMilner 2013). While measuring protectionist rents directly is very difficult, the level of tariffs provides a good proxy for them; see Freund and Ornelas (2010) for a general discussion.…”

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

“…By focusing on Japan, we extend the existing literature to a clear-cut PTA -MTL policy context of nonreciprocal trade preferences granted by a large industrialised country to a set of developing countries, in which significant intra-bloc competition following the PTA formation is likely to have been rather limited. In this paper, and in other work (Ketterer et al, 2014), we argue that the impact of preferences is likely to be affected by the type of trading partner or partners the preferences have been offered to and the associated policy context. Compared to previous evidence on Canada, the European Union and the United States, where trade preferences have often been simultaneously granted to less competitive (developing) and also highly competitive trading partners, Japan represents a quite distinctive policy setting given its exclusive focus on unilateral GSP preferences granted to smaller trading partners before the start of the 21 st century.…”

“…∑ i w i k ∆t i k /t i k ). Recognizing that that Japan might have 11 This specification can also be found in Limão (2006) and Ketterer et al (2014). 12 We have excluded products characterized by a zero MFN tariff prior to the Uruguay Round and also excluded agricultural products because of the prevalence of non-tariff barriers to trade in that sector.…”

“…Because we continued to find a statistically significant building block effect, we did not report the results in the paper. 14 Our specification follows Ketterer et al (2014).…”

“…In order to estimate the impact of GSP preferences on MFN tariff changes, we use tariff changes on non-GSP goods as the counterfactual for tariff changes in the absence of GSP. Since this identification is the same as in Limão (2006), Karacaovali and Limão (2008) and Ketterer et al (2014), one can explain differences in results by differences in policy contexts.…”