The Impact of FTA on Extensive and Intensive Margins: The Case of Japan-Mexico FTA
27 Pages Posted: 22 Feb 2016
Date Written: February 20, 2016
This study examines the impacts of Japan-Mexico FTA (JMXFTA) on Japanese exports to Mexico. The authors construct a theoretical trade model of heterogeneous firms based on the Melitz-Chaney model, and derive the theoretical relationship of the impacts of tariff changes on extensive and intensive trade margins. Applying this model, the authors estimate the impacts of JMXFTA on product-level extensive and intensive margins of Japan’s exports to Mexico by using the most detailed commodity trade data. The results show that the tariff reduction due to JMXFTA increases the intensive margin while no clear evidence is found regarding the effect on extensive margin. This indicates that in the short-run, the JMXFTA exerted more favorable effect on the existing exporters than on new export market entrants.
Keywords: Free trade agreements, Extensive and intensive trade margins, Tariffs
JEL Classification: F14, F15
Suggested Citation: Suggested Citation