Trade Liberalization, IMF Conditionality and Policy Substitution in Developing Countries

Abstract

Substantial tariff reductions and increased usage of non-tariff measures (NTMs) have been key dynamics of global trade policy in recent decades. We use highly disaggregated data on tariffs, NTMs, and trade to investigate how IMF conditionality as a form of external pressure to reduce tariffs contributed to this dynamic in developing countries. Our results show that tariff conditionality was an effective tool in reducing tariffs without increasing the usage of NTMs. Furthermore, we show that tariff conditionality was more effective in initiating tariff cuts for countries without greater globalization efforts previously, rather than being a “catalyst” for ongoing liberalization efforts.