Trade Creation Effects of Regional Trade Agreements: Tariff Reduction versus Non‐tariff Barrier Removal

• Author: Kazunobu Hayakawa,Tadashi Ito,Fukunari Kimura
• Date: 01 February 2016
• DOI: http://doi.org/10.1111/rode.12208
• Published date: 01 February 2016

Trade Creation Effects of Regional Trade

Agreements: Tariff Reduction versus Non-tariff

Barrier Removal

Kazunobu Hayakawa, Tadashi Ito, and Fukunari Kimura*

Abstract

This study uses the most disaggregated tariff line-level trade data in a large number of countries in the

world to empirically decompose the trade creation effects of regional trade agreements (RTAs) into

those owing to tariff reduction and those owing to non-tariff barrier (NTB) removal. Specifically, utilizing

our detailed dataset, we employ the standard gravity equation and identify those effects by estimating the

trade creation effects of RTAs for ineligible and eligible products for RTA preferential schemes

separately. Our major findings are as follows. First, for the whole sample, there are significantly positive

trade creation effects owing to tariff reduction while the effects for NTB removal are weak. Second, the

trade creation effects of tariff reduction and NTB removal are substantially large in the case of trade

among low-income countries but weak among high-income countries.

1. Introduction

Regional trade agreements (RTAs) are expected to increase trade among member

countries by lowering not only tariff rates but also non-tariff barriers (NTBs).

Although the elimination of tariffs should always be a core part of RTAs, policy

discussions have also emphasized their role in removing various types of NTBs.

From the 1990s, RTAs have tended to include provisions for various policy aspects

such as the mobility of natural persons, standard and conformance,

1

government

procurement, competition policy and intellectual property rights protection. These

provisions may play a significant role in increasing intra-RTA trade. For example,

the intellectual property rights provision may contribute toward strengthening the

protection of intellectual property, thereby increasing trade in goods that

incorporate high technology and creative content among member countries. This

study regards such overall trade-enhancement effects of RTAs as the trade creation

effects owing to the removal of NTBs.

Although many empirical studies have been conducted on RTA effects on trade,

it is unclear if such effects arise mainly from tariff reduction or the removal of

NTBs. Existing studies often estimated gravity equations for bilateral trade. Recent

examples include the studies by Baier and Bergstrand (2007) and Medvedev (2010).

*Kimura: Faculty of Economics, Keio University, 2-15-45, Mita, Minato-ku, Tokyo, 108-8345, Japan. Tel:

+81-3-5427-1290; Fax: +81-3-5427-1578; E-mail: fkimura@econ.keio.ac.jp. Hayakawa: Bangkok Research

Center, Institute of Developing Economies, 16th Fl., Nantawan Building, 161 Rajadamri Road,

Pathumwan, Bangkok, 10330, Thailand. Ito: Inter-disciplinary Studies Center, Institute of Developing

Economies, Wakaba 3-2-2, Mihamaku, Chiba, Chiba Prefecture, 261-8545, Japan. This research was

conducted as part of a project of the Economic Research Institute for ASEAN and East Asia

“Comprehensive Analysis on Free Trade Agreements in East Asia.” The authors would like to thank an

anonymous referee for invaluable comments. This work was also supported by JSPS KAKENHI Grant

No. 26285058.

Review of Development Economics, 20(1), 317–326, 2016

DOI:10.1111/rode.12208

©2016 John Wiley & Sons Ltd