Title

Preferential Trade Agreements and MFN Tariffs: Global Evidence

Document Type

Working Paper

Publication Date

2019

JEL Codes

F13, F14

Working Paper Number

2019-02

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.

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