NTMs, Preferential Trade Agreements, and Prices: New Evidence

Abstract

This paper combines price data from the CEPII bilateral Unit Values with a new database on non-tariff measures (NTMs) to estimate their effect on consumer prices for selected 4500 products in 60 countries. Results based on panel regressions on 270,000 country-product pairs suggest that, after controlling for tariffs, systematic cross-country cost-of-living and factor endowment differences, origin country-specific and product-specific unobservables, NTMs increase trade unit values in two thirds of the product lines. However, we also find that, in Preferential Trade Agreements (PTA) with deep-integration clauses, harmonization and mutual recognition of standards or conformity assessment substantially reduce the this price-raising effect, suggesting that the compliance-cost component of the price rise is reduced by “deep integration” clauses in PTAs.

Keywords: ad-valorem equivalents, economic integration agreement, free-trade agreements, harmonization, non-tariff measures, regionalism, trade

JEL Classification: F13, F15, O19