Abstract
AbstractThis paper uncovers new stylized facts on the relation between economic integration and world trade prices. Using free on board export price data for the universe of manufacturing products, we show that a country's membership in the WTO (World Trade Organization) or in a PTA (Preferential Trade Agreement) is associated with an increase in export prices of differentiated goods. For the WTO, this effect is captured by the countries that were subject to rigorous WTO accession procedures. We also exploit the importance of the depth of a PTA and of its different provisions. Whereas the effect of the depth per se is not significant, individual provisions evoke distinct effects on prices. In particular, we find that PTAs with provisions on investments are associated with higher export prices. The results are consistent with theoretical models that relate competition to the innovation behavior of firms.
Highlights
A large empirical literature has investigated the trade promoting effects of membership in the WTO and in PTAs.1 Over the first twenty years of its existence, thirty-two developing countries have joined the WTO and hundreds of PTAs have been signed across countries
Despite the large interest and discussion concerning the trade promoting effects of membership in multilateral trade agreements, little is known about the effect of membership on world trade prices
Using the most comprehensive data available on fob export prices for world trade flows at the 6-digit product level, we show that membership in trade agreements is associated with an increase in export prices of differentiated goods, which are likely goods closer to the technology frontier
Summary
A large empirical literature has investigated the trade promoting effects of membership in the WTO and in PTAs. Over the first twenty years of its existence, thirty-two developing countries have joined the WTO and hundreds of PTAs have been signed across countries. Membership in trade agreements lowers trade barriers on imported goods, which decreases export prices through a cost-reducing effect. The aggregate data at the product level hides important composition effects (we discuss composition effects ), our main results constitute evidence consistent with innovation and quality upgrading following trade liberalization. Concerning the second stylized fact, the positive price effect for PTAs with provisions related to investment is likely associated with quality upgrading. The literature has shown at least two mechanisms by which lower trade barriers promote innovation and access to better inputs, which leads to quality upgrading and higher prices. Fan et al (2015) show that lower import tariffs following China’s WTO membership are associated with higher export prices, as exporters gain access to higher quality inputs. Further details concerning the data analysis are shown in the data appendix
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