Protectionism, how stupid is this? The causal effect of free trade for the world’s poorest countries: Evidence from a quasi-experiment in Switzerland

Abstract

Against the background of a possible revival of protectionism, we study a quasi-experimental situation in Switzerland to estimate the causal effect of free market access on agro-food exports of least-developed countries. We show that due to this setup our study is not suffering from selection and attrition issues plaguing existing studies. To estimate the causal effect of a unilateral trade liberalization we implement a difference-in-differences model based on synthetic control methods. We find that on average agro-food exports of least-developed countries to Switzerland were about 80% higher due to the introduction of free market access. In other words, if Switzerland had followed the path of protectionism, least-developed countries’ agro-food exports would have been almost half of what they are under free trade.