Trade in the Triad: How Easy is the Access to Large Markets?

Abstract

We identify in this Paper the level of trade integration between the three largest economic powers of the world, often called the Triad: The United States, the EU and Japan. We focus on measuring possible asymmetries in market access between members of the Triad using border effects between each of those partners. We investigate trends of bilateral trade openness and show notably that there has been a deterioration of the relative access of Japanese exporters on both the American and EU markets in the 1990s. Results also show which industries have the most asymmetric market access among the different combinations of those partners. We finally provide explanations for the estimated border effects using proxies for bilateral observed protection (tariffs and NTBs), home bias of consumers, product differentiation and levels of FDI. Tariffs still matter in shaping trade patterns even in cases where those tariffs are low in magnitude. The explanations related to actual protection, home bias and substitutability of goods put together explain a large part of the border effect between blocs of the triad, although they do not explain the whole of the border effect puzzle.

Keywords: Market access, triad, border effects, gravity, European Union, United States, Japan

JEL Classification: F12, F15