Essays on the economics of trade agreements
Title: Essays on the economics of trade agreements
Author: GNUTZMANN-MKRTCHYAN, Arevik
Citation: Florence : European University Institute, 2014
Series/Number: EUI PhD theses; Department of Economics
The world trading system is governed through an ever expanding web of trade agreements, which subtly but powerfully determine the terms of market competition and how rents are distributed between countries, firms and consumers. This thesis studies two such agreements: firstly, Customs Unions regional agreements with a wide coverage of goods and a common external tariff and secondly the Information Technology Agreement, a plurilateral agreement to eliminate import tariffs on a narrow range of goods. The Silent Success of Customs Unions, the first chapter, joint work with Hinnerk Gnutzmann, studies theoretically the incentives of governments which may be subject to lobbying to form bilateral trade agreements, considering both exceptions to the MFN principle permitted under GATT/WTO rules: namely, the Free Trade Area, where partner countries liberalise internal tariffs to zero but retain independent in their external policy, and a Customs Union, which goes beyond FTA by requiring the countries to adopt a harmonised common external tariff. We show that it is always a political equilibrium to implement CU. Crucially, while CUs may be formed because of lobbying, we show that they improve the welfare of member countries as long as trade with the rest of the world remains positive. In line with these results, we show empirically that CUs are much more important to world trade in terms trade volume and membership scope than so far acknowledged in the literature. Surprisingly little is known empirically about the effect of Customs Unions on tariff policy. In my second chapter, Determining the Common External Tariff in a Customs Union: Evidence from the Eurasian Customs Union, I seek to fill the void. Using a large panel data set from the Eurasian Customs Union (ECU), established from 2010 between Russia, Belarus and Kazakhstan, I demonstrate the importance of mutual protectionism: member states user their bargaining power to spill over to CU partners high tariffs for those goods which were previously strongly protected nationally. There is little evidence of the reverse 3 4 CONTENTS effect, i.e. tariffs being negotiated down for lines that were previously handled liberally in national tariff policy. This effect is demonstrated using three methodologies: analysis of variance using unique explanatory power of each variable, determining Shapley value from analysis of variance and OLS regression. The chapter also develops a simple model to rationalise the effect. Trade facilitation, the reduction of administrative and other barriers barriers, has become a key policy priority. Customs Unions may eliminate internal border controls. But how strongly can such measures bene t trade? In the ECU, the elimination of borders proceeded in two stages, which allows me to study the Trade Impact of Non Tariff Trade Costs in chapter 3. I control for tariff changes and other factors to show that the growth in internal trade between the ECU member countries can be attributed to reduced trade costs, rather than trade diversion due to tariff increases. The natural experiment of border removal thus allows more precise estimates of trade costs than approaches that capture non tariff costs merely as a residual. Finally, The Layers of the Information Technology Agreement Impact joint work with Christian Henn turns to plurilateral agreements. We show how the WTO's Information Technology Agreement (ITA) affected trade flows and value chain participation in the IT sector. We show that this agreement did not only lead to increased imports, but by reducing the cost of intermediate goods ITA members were also able to increase their exports of final goods. Our estimation strategy is based on the plausibly exogenous entry of late signatories to the agreement, who ratified the ITA as part of a broader policy objective. Using product level data, we are able to take into account the various layers of ITA impact, dissecting the impact of tariff reduction, tariff elimination to zero, and over and above tariff reductions, including through firm relocation via intermediate goods channel. We find that having zero tariffs is associated with more imports of intermediate than final goods, and with participation in global value chains. This finding also supports the line of thought that trade policy certainty attracts investment.
LC Subject Heading: Investments -- Econometric models; Tariff preferences; Trade blocs
Defence date: 6 October 2014; Examining Board: Professor Piero Gottardi, European University Institute (Supervisor); Professor Bernard Hoekman, European University Institute; Professor Marcelo Olarreaga, University of Geneva; Professor Natalya Volchkova, New Economic School, Moscow.; Originally published under unmarried name MKRTCHYAN, Arevik.
Type of Access: openAccess