Trade Policy Substitution: Theory and Evidence
Geneva School of Economics and Management Working Paper Series WPS 14-12-2
25 Pages Posted: 18 Dec 2014 Last revised: 19 Dec 2014
Date Written: December 1, 2014
We build a political-economy model of 'trade policy substitution' – namely, substitution of tariffs with non-tariff measures – as a function of differentials between domestic and foreign firms in the costs of complying with product standards. Our model suggests trade policy substitution in developed countries, where the costs of compliance are relatively low, but not in developing economies. We test and validate empirically the predictions of the model using a database on NTMs that identifies actual trade restrictions. For the subset of developed countries, we use the end of the Multifibre Arrangement (MFA) as a 'quasi- experiment' to examine the protectionist use of trade policy substitution.
Keywords: Import, International Trade Agreements, Non Tariff, Tariff, WTO
JEL Classification: F13, F14
Suggested Citation: Suggested Citation