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Brownbag Seminars: Revisiting the Trade-Creating Effects of Non-Tariff Barriers

Wednesday, February 8, 2023, 12:00 pm – 1:00 pm

Abstract: Modern regional trade agreements (RTAs) focus on promoting bilateral exchange mostly
by lowering non-tariff barriers to trade (NTBs). But do existing RTAs actually deliver
what they promise? We argue that existing results in the literature are upward-biased
because of measurement error in a crucial control variable: tariffs rates. Using a novel
data set of high-quality tariff information, we show that, on average, NTB reductions in
deep RTAs boost services trade but not goods trade. Estimating separate NTB effects for
each RTA reveals strong heterogeneity: only 20% of all RTAs seem to lower NTBs, for
most we cannot find any significant effect, while 9% appear to even reduce trade, possibly
a more balanced regulation evens out comparative advantages. Trade agreements
that foster trade the most are the ones including non-discriminatory trade policy changes.