Trade restrictiveness indices in the presence of externalities: An application to non-tariff measures

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Canadian Journal of Economics/Revue canadienne d'économique, ISSN: 0008-4085, Vol: 48, Issue: 4, Page: 1513-1536

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John Christopher Beghin; Anne-Célia Disdier; Stéphan Marette
Wiley-Blackwell; Iowa State University Digital Repository
Economics, Econometrics and Finance; non-tariff measures; externalities; ad valorem equivalents; trade restrictiveness indices; Economics
article description
We extend the trade restrictiveness index approach to the case of market imperfections and domestic regulations addressing them. We focus on standard-like non-tariff measures (NTMs) affecting cost of production and potentially enhancing demand by reducing negative externalities. We apply the framework to the database of Kee et al. () and derive ad valorem equivalents (AVEs) for technical measures. About 39% of the product lines affected by NTMs exhibit negative AVEs, indicating a net trade-facilitating effect of these measures. Accounting for these effects significantly reduces previous measures of countries' trade policy restrictiveness obtained while constraining these NTMs to be trade-reducing.