The Effect of the Uruguay Round on the Intensive and Extensive Margins of Trade

42 Pages Posted: 2 Sep 2010

See all articles by Ines Buono

Ines Buono

Bank of Italy

Guy Lalanne

National Institute of Statistics and Economic Studies (INSEE)

Date Written: February 22, 2010

Abstract

Do tariffs inhibit trade flows by limiting the entry of exporting firms ('extensive margin') or by restricting the average volume exported by each firm ('intensive margin')? Using a gravity equation approach, we analyze how the decrease in tariffs promoted during the 1990s by the Uruguay Round multilateral trade agreement affected the trade margins of French firms across 57 sectors and in 147 countries, from 1993 to 2002. Our main contribution is to estimate the elasticity of trade for both margins, controlling for the unobserved heterogeneity of trade flows thanks to a three-dimensional panel and to time-varying tariffs as a measure of variable trade costs. Our results show that the number of firms exporting in a given sector to a given destination is related to the level of tariffs. But they also show that the decrease in tariffs determined by the implementation of the Uruguay Round did not lead more firms to export and instead, only encouraged incumbent exporters to increase their shipments. We control for two problems that may affect our basic specification: tariff changes may be endogenous and zero flows are not included. Our results are confirmed - even when the extensive margin is significant, its contribution is very small.

Keywords: tariffs, trade margins, Uruguay Round

JEL Classification: F10, F13, F14

Suggested Citation

Buono, Ines and Lalanne, Guy, The Effect of the Uruguay Round on the Intensive and Extensive Margins of Trade (February 22, 2010). Bank of Italy Temi di Discussione (Working Paper) No. 743, Available at SSRN: https://ssrn.com/abstract=1669983 or http://dx.doi.org/10.2139/ssrn.1669983

Ines Buono (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Guy Lalanne

National Institute of Statistics and Economic Studies (INSEE) ( email )

18, Boulevard Adolphe-Pinard
92244 Malakoff Cedex
France

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