Essays on trade policy

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Ornelas, Emanuel
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Trade negotiations have been a great success since the 1950s and today virtually every country in the world is part of at least one trade treaty. Nowadays, there is widespread participation in multilateral trade agreements, with members of the World Trade Organization accounting for more than 95% of world trade. Also, there is widespread membership in preferential trade agreements, with each member of the WTO joining on average twenty other trade agreements that allow for deeper integration between countries. This dissertation investigates the causes and consequences of this phenomenon. The first chapter examines what motivates trade agreements. I challenge the view that trade treaties are necessary because countries have an incentive to unilaterally impose import tariffs to manipulate their terms-of-trade and obtain welfare gains at the expense of partners. This is a mainstream argument in economics, the so-called terms of trade theory. I evaluate whether predictions of this theory are consistent with the data by asking what import tariffs countries would choose if multilateral trade negotiations were designed according to its logic. Motivated by empirical evidence on tariffs and a theory of trade negotiations, I pursue this goal in the context of a quantitative gravity model that simulates partial cooperation inside the WTO. Matching the model to the data of 15 countries during the Uruguay Round, I find that counterfactual average tariffs are consistent with real negotiated outcomes for the EU, Japan, and the US, the main trade negotiators at the time. For other economies, tariff choices do not imply a sizable trade externality that can promote cooperation. The second chapter looks at the consequences of the rules of the world trading system for developing countries. It investigates the effects of the Generalized System of Preferences, a form of nonreciprocal tariff cuts which apply over exports from developing economies. I use an empirical gravity equation approach to study how those nonreciprocal preferences affect the exports of the beneficiary nations. In line with existing studies, I find that the average trade effect stemming from nonreciprocal preferences is highly unstable across econometric specifications. However, once I allow for heterogeneous effects, results become robust and economically important. Specifically, non-reciprocal preferences have a strong effect on the exports of beneficiaries when they are members of the World Trade Organization and are very poor. Not-so-poor beneficiaries also expand foreign sales, but only if they are not WTO members. For all others, the average export effects of NRTPs are mute.

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