Do Free Trade Agreements Affect Tariffs of Nonmember Countries? A Theoretical and Empirical Investigation
American Economic Journal: Applied Economics
vol. 10,
no. 3, July 2018
(pp. 128-70)
(Complimentary)
Abstract
We investigate the effects of free trade agreements (FTAs) on tariffs of non-member countries. In our multi-country model, the formation of an FTA leads members to reduce their exports to the rest of the world. Such external trade diversion weakens the ability of non-members to manipulate their terms of trade vis-a-vis FTA members, a mechanism that induces them to lower their tariffs on FTA members. We empirically confirm this insight using industry-level trade data for 192 importing and 253 exporting countries, along with information on all FTAs formed in the world during 1989-2011.Citation
Saggi, Kamal, Andrey Stoyanov, and Halis Murat Yildiz. 2018. "Do Free Trade Agreements Affect Tariffs of Nonmember Countries? A Theoretical and Empirical Investigation." American Economic Journal: Applied Economics, 10 (3): 128-70. DOI: 10.1257/app.20150360Additional Materials
JEL Classification
- F13 Trade Policy; International Trade Organizations
- F14 Empirical Studies of Trade
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