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saggi-et-al-2018-do-free-trade-agreements-affect-tariffs-of-nonmember-countries-a-theoretical-and-empirical.pdf (1.09 MB)

Do Free Trade Agreements Affect Tariffs of Nonmember Countries? A Theoretical and Empirical Investigation

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posted on 2024-03-07, 20:12 authored by Kamal Saggi, Andrey Stoyanov, Halis YildizHalis Yildiz

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.
 

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