Trade Restrictiveness Indices in Presence of Externalities: An Application to Non-Tariff Measures

We extend the trade restrictiveness indices (TRIs) approach to the case of market failures and domestic regulations addressing them, in presence of arbitrary tariffs and other domestic price policy distortions. We focus on standard-like non-tariff measures (NTMs) affecting cost of production and potentially enhancing domestic demand by increasing product quality or reducing negative externalities. The impact of NTMs on trade is ambiguous depending on the relative strength of the supply cost and demand enhancing effects. We apply the framework to the NTM database of Kee, Nicita, and Olarreaga (2009) and derive ad valorem equivalents for NTMs and other policy distortions. These equivalents are then used to compute TRIs. 10% of the NTM ad valorem equivalents at the 6-digit level of the Harmonized System are negative indicating a net trade-enhancing effect of these NTMs in those sectors. Consequently, TRIs computed without a protectionist presumption are smaller than their constrained counterparts not allowing for trade enhancements effects of NTMs. Accounting for externalities and anti-protective effects significantly reduces the measure of trade policy restrictiveness for most countries.


Issue Date:
2012-11
Publication Type:
Working or Discussion Paper
PURL Identifier:
http://purl.umn.edu/142386
Total Pages:
40
JEL Codes:
F13
Series Statement:
IATRC
WP12-02




 Record created 2017-04-01, last modified 2017-04-26

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