HETEROGENEOUS EFFECTS OF TRADE AGREEMENTS ON TRADE

Many studies consider the potential for preferential trade agreements (PTAs) to have differing effects on trade. Kohl (2014) and Baier et al. (2019) show that some PTA’s promote trade while the majority of PTAs have no significant effect. Some even lower trade. Why do these differing cases arise? One possibility is that the effects of trade agreements depend on specific provisions – provisions that differ across agreements. Another possibility is the potential for PTAs to impact trade differently depending on the presence of certain bilateral characteristics between trading nations such as physical distance or metaphorical types of distance such as culture or language. In my dissertation, “Heterogeneous Effects of Trade Agreements on Trade,” we explore these two avenues separately.In the first chapter we consider if differences in the prevalence of corruption between members of a PTA make trade agreements more or less effective at boosting trade. Such differences could create more uncertainty that limits the potential for trade even if a trade agreement lowers barriers, implying that such agreements will not boost trade. On the other hand, trade agreements could be most effective in such disparate countries. Not only might trade agreements remove barriers used by corrupt officials to extort firms, but a trade agreement could reduce the uncertainty of operating in a different business environment by establishing rules and regulations. Results in this paper are allowed to differ across several dimensions, including extensive versus intensive margin, whether the exporter or importer is more corrupt, and between South-South and South-North trade. Using a gravity model of trade spanning a panel of countries from 1996 to 2017, we find that PTAs increase trade more along the intensive margin when importing countries are more corrupt but boost trade more along the extensive margin when exporting countries are more corrupt. Results are stronger for trade between South-South (S-S) countries than between North-South (N-S) countries. Chapter two examines how specific provisions within trade agreements – particularly, provisions regarding environmental standards – affect trade between members and non-members. While there is a rising trend to incorporate different types of environmental provisions in preferential trade agreements (PTAs), few studies took explicit steps to assess the trade consequences of environmental provisions in PTAs. This paper employs a gravity model over the period from 1984 to 2016 and uses a new detailed dataset on a broad range of environmental provisions in PTAs to fill the gap in the literature by looking at possible trade diversion effects from trade agreements with deep environmental clauses. We follow Mattoo et al. (2017) and construct an index that captures importers’ average depth of trade agreements with the rest of the world where depth is taken as the extent that environmental provisions are covered. The inclusion of this depth variable allows us to see if any trade diversion effect arises from trade agreements with deep environmental provisions. We specifically focus on exporters with low environmental standards, as those are the countries that are likely to “host” trade in environmentally unsustainable goods. We also differentiate between different types of environmental policies and concentrate on trade in “dirty” products. Our results suggest that environmental provisions in PTAs are an effective tool of promoting environmentally sustainable trade in the world, as these types of policies tend to reduce “dirty” trade even with non-member nations. Finally, the third chapter considers the heterogeneous design of PTA’s more broadly, looking at the trade effects of different policy areas within trade agreements, while differentiating their impact on trade in new product varieties of goods versus trade in existing products. We specifically focus on 18 “core” provisions that Hofmann et al. (2019) mark as most economically relevant policies. We further distinguish three types of policies within the “core” group of provisions, namely: i) provisions that directly liberalize trade through either reduction in tariffs or simplification of standards, ii) policies that enable signatory nations to compete on equal grounds, and iii) provisions that specify the rules of investment. Previous studies that consider the effects of trade agreements on the margins of trade have either focused on the effects of different types of PTAs, rather than specific policies, or used limited data and outdated methodologies. We are contributing to the literature by assessing the impact of different groups of policies on the margins of international trade using a highly disaggregated dataset covering a large number of countries and years. We also employ Factor Analysis to check robustness of our findings using regular count indices. Our results indicate that provisions that tend to reduce barriers to trade through either simplification of standards or reduction in monetary charges tend to increase trade in existing varieties of goods, while the effect of investment provisions is either insignificant or might actually lower trade