Kee Neagu PDF

Taris versus Non-Tari Barriers
Hiau Looi Kee and Cristina Neagu

Development Research Group Trade, The World Bank
Oct 2011 Work in Progress and Preliminary
Kee and Neagu (World Bank)
10/11
1 / 22
Motivations
With the dramatic decline in taris through the successive rounds of multilateral negotiation and unilateral liberalizations, the main trade policy tools could be in the form of non-tari barriers (NTBs)
10/11
2 / 22
Examples on commonly used NTBs

Origin of materials and parts Import licence fees Customs inspection fees Testing requirement Inspection requirement Direct consignment requirement Requirement to pass through specied port Service charges Labelling requirements Certication requirement Processing history Systems Approach Temporary geographic prohibition for SP Conformity assessments related to SPS Traceability requirement Certication required by the exporting Storage and transports conditions Microbiological criteria on the nal p Quarantine requirement Traceability information requirements
10/11
3 / 22
Million Dollar Question
Are taris and NTBs substitutes or complements?
10/11
4 / 22
Are taris and NTBs substitutes or complements? Scant and mixed empirical evidence:
10/11
4 / 22
Complements Dean, Ludema, Signoret, Feinberg and Ferrantino (2009) based on cross country evidence of NTBs
10/11
4 / 22
Complements Dean, Ludema, Signoret, Feinberg and Ferrantino (2009) based on cross country evidence of NTBs Substitutes Kee, Nicita and Olarreaga (2009); Bown and Crowley (2009) based on time series evidence on the use of antidumping duties in India
10/11
4 / 22
What we plan to do
Exploit a newly collected dataset of NTBs by the WB on a group of developing countries
10/11
5 / 22
What we plan to do
Exploit a newly collected dataset of NTBs by the WB on a group of developing countries Estimate bilateral AVEs at detailed product level as rigorously as possible
10/11
5 / 22
What we plan to do
Exploit a newly collected dataset of NTBs by the WB on a group of developing countries Estimate bilateral AVEs at detailed product level as rigorously as possible Study the factors that inuence the level of AVEs such as country sizes, stage of development, and bilateral distance
10/11
5 / 22
What we plan to do
Exploit a newly collected dataset of NTBs by the WB on a group of developing countries Estimate bilateral AVEs at detailed product level as rigorously as possible Study the factors that inuence the level of AVEs such as country sizes, stage of development, and bilateral distance Relate the estimated AVEs to bilateral taris
10/11
5 / 22
What we plan to do
Exploit a newly collected dataset of NTBs by the WB on a group of developing countries Estimate bilateral AVEs at detailed product level as rigorously as possible Study the factors that inuence the level of AVEs such as country sizes, stage of development, and bilateral distance Relate the estimated AVEs to bilateral taris Allow the degree of substitutability or complementarity between NTBs and taris to be inuenced by the characteristics of the bilateral country pair
10/11
5 / 22
Theories
Optimal level of protection
Countries may use trade policies to inuence their terms of trade and transfer rents from their trading partners
10/11
6 / 22
Theories
Countries may use trade policies to inuence their terms of trade and transfer rents from their trading partners Level of protection depends on taris and the ad valorem equivalent (AVE) of NTBs tnij + AVEnij = Tnij
10/11
6 / 22
Theories
Countries may use trade policies to inuence their terms of trade and transfer rents from their trading partners Level of protection depends on taris and the ad valorem equivalent (AVE) of NTBs tnij + AVEnij = Tnij Lowering taris due to multilateral negotiation or unilateral liberalizations implies that NTBs will be increased to keep protection at its optimal level ==> taris and NTBs could be substitutes
10/11
6 / 22
Theories
Protection for sale
Trade policies can be inuenced by interests parties through lobbies and governments care about social welfare as well as campaign contributions
10/11
7 / 22
Theories
Protection for sale
Trade policies can be inuenced by interests parties through lobbies and governments care about social welfare as well as campaign contributions Level of protection depends on taris and NTBs tnij + AVEnij = Tnij which increases with lobby contributions ==> taris and NTBs could be complements
10/11
7 / 22
Other factors that may inuence government policy s choices
Taris are more transparent while NTBs are harder to implements, subject to corruptions
10/11
8 / 22
Taris are more transparent while NTBs are harder to implements, subject to corruptions Some NTBs such as rules of origin requirement may aect multiple industries while taris are more targeted
10/11
8 / 22
Taris are more transparent while NTBs are harder to implements, subject to corruptions Some NTBs such as rules of origin requirement may aect multiple industries while taris are more targeted Taris are under more scrutinized while NTBs are harder to monitored
10/11
8 / 22
Taris are more transparent while NTBs are harder to implements, subject to corruptions Some NTBs such as rules of origin requirement may aect multiple industries while taris are more targeted Taris are under more scrutinized while NTBs are harder to monitored Unlike NTBs, taris generate revenues which could be important for small developing countries
10/11
8 / 22
Data on NTBs
Up to now the main data source is from TRAIN, which has not been updated since 2006
10/11
9 / 22
Data on NTBs
Up to now the main data source is from TRAIN, which has not been updated since 2006 In 2010, World Bank collected detailed NTB data from about 20 developing countries
10/11
9 / 22
Data on NTBs
Up to now the main data source is from TRAIN, which has not been updated since 2006 In 2010, World Bank collected detailed NTB data from about 20 developing countries Table 1 presents the share of products of each country that are subjected NTBs and positive taris
10/11
9 / 22
Data on NTBs
Up to now the main data source is from TRAIN, which has not been updated since 2006 In 2010, World Bank collected detailed NTB data from about 20 developing countries Table 1 presents the share of products of each country that are subjected NTBs and positive taris At sample mean, 41% of products face NTBs while 68% of products face positive taris
10/11
9 / 22
Data on NTBs
Up to now the main data source is from TRAIN, which has not been updated since 2006 In 2010, World Bank collected detailed NTB data from about 20 developing countries Table 1 presents the share of products of each country that are subjected NTBs and positive taris At sample mean, 41% of products face NTBs while 68% of products face positive taris No clear correlation between the shares of products aected by NTBs vs the shares of products aected by positive taris
10/11
9 / 22
Table: Percentage of Products Aected by NTBs and Positive Taris
Code ARG BOL COL ECU EGY IDN JPN KEN LBN MEX MUS Notes:
NTB Taris Code NTB Taris 87.2 80.8 NAM 49.8 40.7 PER 6.4 51.8 6.1 85.5 7.1 88.6 PHL 20.3 91.4 PRY 25.1 88.1 43.3 73.8 91.7 77.2 SYR 86.9 86.4 42.0 73.9 TUN 22.2 68.5 TZA 5.5 59.1 37.5 28.2 83.1 56.0 UGA 94.0 59.1 12.4 55.5 URY 6.8 80.0 55.4 69.4 VEN 43.4 89.4 41.6 15.8 MEAN 41.3 67.6 Products are dened by HS6-exporter pair; There are all together 1,234,555 products.
Taris versus Non-Tari Barriers 10/11 10 / 22
Figure: Share of products aected by NTBs vs Taris

.6
UGA
EGY ARG SYR
e( NTMshare | X ) 0 .2
.4
KEN
MEX NAM MUS JPN PRY PHL COL URY BOL ECU IDN VEN
-.2
TUN LBN
-.4
PER
TZA
-.6
-.4
-.2 e( postariffshare | X )
.2
coef = -.04772611, se = .34338015, t = -.14
10/11
11 / 22
Estimating AVE of NTBs

Modify the framework of Kee, Nicita and Olarreaga (2009) to estimate bilateral AVEs
10/11
12 / 22

Modify the framework of Kee, Nicita and Olarreaga (2009) to estimate bilateral AVEs Gravity model at product level: Country i 0 s import of product n from country j (Mnij ) , depends on GDP of the two countries (Yi , Yj ), distance in kilometers (Dij ), border (Bij ), taris (tnij ) and the presence of NTB (NTBni ) ln Mnij
= n + 1 ln Yi + 2 ln Yj + 3 ln Dij + 4 Bij + 5 ln (1 + tnij ) + nij NTBni
10/11
12 / 22

Modify the framework of Kee, Nicita and Olarreaga (2009) to estimate bilateral AVEs Gravity model at product level: Country i 0 s import of product n from country j (Mnij ) , depends on GDP of the two countries (Yi , Yj ), distance in kilometers (Dij ), border (Bij ), taris (tnij ) and the presence of NTB (NTBni ) ln Mnij
= n + 1 ln Yi + 2 ln Yj + 3 ln Dij + 4 Bij + 5 ln (1 + tnij ) + nij NTBni
While NTBs are importer-product specic, the eect of NTBs on bilateral trade may depend on the characteristics of the importer and the exporter, proxied by the total imports of product n in country i from the rest of the world (MniROW ) and the total exports of product n from country j to the rest of the world (EnROWj ) nij =
exp (n + 1 ln MniROW + 2 ln EnROWj )

Taris versus Non-Tari Barriers 10/11 12 / 22
By construction nij varies by product, importer and exporter
10/11
13 / 22
By construction nij varies by product, importer and exporter Negativity constraint on nij so that NTB always decrease trade
10/11
13 / 22
By construction nij varies by product, importer and exporter Negativity constraint on nij so that NTB always decrease trade Negativity constraint on 5 when necessary
10/11
13 / 22
By construction nij varies by product, importer and exporter Negativity constraint on nij so that NTB always decrease trade Negativity constraint on 5 when necessary Estimated with non-linear LS
10/11
13 / 22
By construction nij varies by product, importer and exporter Negativity constraint on nij so that NTB always decrease trade Negativity constraint on 5 when necessary Estimated with non-linear LS The resulting AVE estimate is ( AVEnij =
if NTB = 1 , 0, if NTB = 0
exp ( nij ) 1 , nij
where nij is the country i 0 s import demand elasticity of product n from country j (from Kee, Neagu and Nicita, ReStat, forthcoming)
10/11
13 / 22
By construction nij varies by product, importer and exporter Negativity constraint on nij so that NTB always decrease trade Negativity constraint on 5 when necessary Estimated with non-linear LS The resulting AVE estimate is ( AVEnij =
if NTB = 1 , 0, if NTB = 0
exp ( nij ) 1 , nij
where nij is the country i 0 s import demand elasticity of product n from country j (from Kee, Neagu and Nicita, ReStat, forthcoming) If Mnij = 0, then use ni from Kee, Nicita and Olarreaga (ReStat, 2008)
10/11
13 / 22
Caveats
Zero in trade: s
10/11
14 / 22
Caveats
Zero in trade: s
we add 1 to all the trade variables before taking logs ==> not ideal
10/11
14 / 22
Caveats
Zero in trade: s
we add 1 to all the trade variables before taking logs ==> not ideal tried Poisson estimations but cannot introduce negativity constraints (nearly half of the estimated nij are positive) s
10/11
14 / 22
Caveats
Zero in trade: s
we add 1 to all the trade variables before taking logs ==> not ideal tried Poisson estimations but cannot introduce negativity constraints (nearly half of the estimated nij are positive) s tried non-linear LS in level but very di cult to reach convergence Mnij = Yi 1 Yj 2 Dij 3 exp 4 Bij

1 + tnij
exp nij NTBni
10/11
14 / 22
Caveats
Zero in trade: s

1 + tnij
exp nij NTBni
Endogeneity of NTB:
10/11
14 / 22
Caveats
Zero in trade: s

1 + tnij
exp nij NTBni
Endogeneity of NTB:
not as bad as it seems since the dependent variables and regression errors vary by product-importer-exporter, while NTBs only vary by product-importer
10/11
14 / 22
Caveats
Zero in trade: s

1 + tnij
exp nij NTBni
Endogeneity of NTB:
not as bad as it seems since the dependent variables and regression errors vary by product-importer-exporter, while NTBs only vary by product-importer could instrument for NTBs using a Heckman selection equation s
10/11
14 / 22
AVE Estimates
Nearly 26 millions AVEs of NTBs are estimated (21 importers exporters 5039 HS 6)
245
10/11
15 / 22
AVE Estimates
Nearly 26 millions AVEs of NTBs are estimated (21 importers exporters 5039 HS 6) The average AVE and tari is 11% and 10%
245
10/11
15 / 22
AVE Estimates
245
The average AVE when AVE is positive is 28%; it is 15% for tari
10/11
15 / 22
AVE Estimates
245
The average AVE when AVE is positive is 28%; it is 15% for tari Only about 870 thousands observations have positive trade
10/11
15 / 22
AVE Estimates
245
The average AVE when AVE is positive is 28%; it is 15% for tari Only about 870 thousands observations have positive trade Among the observations with positive trade, the average AVE and tari is 6.5% and 9.4%
10/11
15 / 22
AVE Estimates
245
The average AVE when AVE is positive is 28%; it is 15% for tari Only about 870 thousands observations have positive trade Among the observations with positive trade, the average AVE and tari is 6.5% and 9.4% If only focus on observations with NTBs, the average AVE is 15%; the average tari is 14% among observation with positive taris
10/11
15 / 22
AVE Estimates Assessment
Despite the large number of AVE being estimated, the results look reasonable
10/11
16 / 22
Despite the large number of AVE being estimated, the results look reasonable AVEs of NTBs look comparable with taris in terms of size on average
10/11
16 / 22
Despite the large number of AVE being estimated, the results look reasonable AVEs of NTBs look comparable with taris in terms of size on average When NTBs are binding, AVE is almost twice as large as tari
10/11
16 / 22
Despite the large number of AVE being estimated, the results look reasonable AVEs of NTBs look comparable with taris in terms of size on average When NTBs are binding, AVE is almost twice as large as tari Both AVE and tari are lower among trading partners
10/11
16 / 22
Despite the large number of AVE being estimated, the results look reasonable AVEs of NTBs look comparable with taris in terms of size on average When NTBs are binding, AVE is almost twice as large as tari Both AVE and tari are lower among trading partners AVE is lower than tari among trading partners
10/11
16 / 22
Figure: Distribtion of AVEs for Traded Products with NTBs

Kernel density estimate
15 Density 0 5 10
.2
.4 ave_core_nl
.6
.8
kernel = epanechnikov, bandwidth = 0.0072
10/11
17 / 22
Table: Average Estimated AVEs of NTBs and Taris Code ARG BOL COL ECU EGY IDN JPN KEN LBN MEX MUS AVEs of NTBs All > 0 Traded 24.9 1.6 2.0 5.9 23.0 11.2 18.7 34.4 2.0 16.5 5.3 30.3 25.6 28.2 14.1 26.8 27.4 49.4 44.3 17.0 31.1 13.1 12 0.5 0.6 3.1 12.8 3.3 6.9 13 1.6 5.6 3.5 Taris All 12.0 8.0 11.9 11.0 14.5 6.7 4.0 11.8 6.4 10.5 3.4
>0
13.8 8.7 12.5 14.0 17.5 8.5 13.4 19.6 10.7 14.1 20.0
Traded 11.1 6.2 10.7 9.7 12.7 5.6 4 12.1 8.3 6.1 5.7
10/11
18 / 22
Table: Average Estimated AVEs of NTBs and Taris Code NAM PER PHL PRY SYR TUN TZA UGA URY VEN MEAN AVEs of NTBs All > 0 Traded 8.1 2.3 4.4 14.9 19.8 6.2 1.2 16.1 2.6 9.2 11.0 17.8 34.3 25.5 61.6 22.7 28.3 21.9 18.2 36.7 22.6 28.4 7.6 1.1 2 2.1 17.8 2.6 0.4 34.6 0.6 4.6 6.5 Taris All 7.4 6.0 6.2 11.4 13.2 21.5 12.5 12.0 10.3 12.8 10.2
>0
17.0 10.7 6.4 12.0 14.3 27.0 19.8 18.9 12.0 13.3 14.5
Traded 6.3 6.7 6 9.4 6.4 21.9 13.1 12.2 9.6 12.3 9.4
10/11
19 / 22
Figure: Partial Correlations by Importers at Sample Mean

.2 .2
UGA UGA
.3
UGA
e( ave_core_nl | X ) 0 .1
ARG PER MUS JPN KEN SYR EGY NAM MEX URY VEN ECU PRY LBN TUN COL IDN BOL PHL TZA
ARG JPN PER EGYSYR KEN MEX VEN
e( ave_core_nl | X ) 0 .1 .2
KEN
ARG
MUS
NAM URY LBN
ECU PRY COL IDN TUN PHL BOL TZA
-.1
-.05
0 .05 e( tariff | X )
.1
-3
-2 -1 0 e( lGDPi | X )
-.1
PER EGY SYR JPN MEX MUS IDN ECU NAM PHL PRY VENURY BOLCOL LBN TZA TUN
-.1
-2
-1 0 1 e( lGDPpci | X )
coef = .07952134, se = .54985548, t = .14
coef = .01474484, se = .01579062, t = .93
coef = -.03308281, se = .02140866, t = -1.55
.2
.2
ARG MUS SYR PER EGY NAM MEX URY VEN ECUPRY LBN TUN IDN COL PHL BOL TZA JPN KEN
ARG SYR VEN NAM ECU PRY COL BOL JPN PER EGY KEN URY MEX TUN LBN IDN PHL TZA MUS
.2
UGA
UGA
UGA
SYR
-.1
-.1
-.1
ARG JPN EGY PER KEN MUS NAM LBN VEN MEX URY TUN ECU PRY IDN COL PHL BOL TZA
-.4
-.2 0 .2 e( lGDPj | X )
.4
-.2
-.1 0 .1 e( lGDPpcj | X )
.2
-.6
-.4
-.2 0 .2 e( lkm1 | X )
.4
coef = -.00840381, se = .10611599, t = -.08
coef = -.19126077, se = .22355714, t = -.86
coef = -.0553735, se = .06877168, t = -.81
10/11
20 / 22
Figure: Dependent variable: ln 1 + AVEnij

(1) (2) (3) (4) 0.006*** 0.020*** -0.024*** 0.181*** (0.002) (0.002) (0.002) (0.030) Tariff*GDPi 0.004*** (0.001) Tariff*GDPj -0.014*** (0.001) Tariff*GDPPCi 0.014*** (0.003) Tariff*GDPPCj 0.000 (0.000) Tariff*Distanceij -0.005*** (0.001) GDPi 0.008*** (0.000) GDPj -0.002*** (0.000) GDPPCi -0.012*** (0.000) GDPPCj -0.000*** (0.000) Distanceij -0.003*** (0.000) Elasticity 0.000*** (0.000) Product FE Yes Yes No Importer FE Yes No No Exporter FE Yes No No Importer-Product FE No No Yes Yes Importer-ExporterFE No No No No Tariffs at sample mean -0.025*** (0.002) Observations 850640 826563 850640 826563 Tariffs (5) (6) 0.050 0.039*** (0.042) (0.004) 0.016*** (0.002) 0.003*** (0.001) -0.060*** (0.003) -0.002* (0.001) -0.001 (0.001) (7) -0.101 (0.074) -0.003* (0.002) 0.007*** (0.002) 0.009*** (0.003) -0.002 (0.003) -0.001 (0.005) (8) 0.060 (0.085) -0.006*** (0.002) 0.006** (0.003) -0.004 (0.004) -0.005* (0.003) 0.000 (0.004)
0.000*** (0.000) Yes No No Yes No
No No No No Yes
826563
850640
0.000*** 0.000*** (0.000) (0.000) No No No No Yes 0.039*** (0.003) 826563 826563
10/11
21 / 22
Preliminary Conclusions
Taris and NTBs could be substitutes within importer-HS6 products, comparing across exporters
10/11
22 / 22
Preferential taris often come with rules of origin requirements
10/11
22 / 22
Taris and NTBs could be complements within importer-exporter pair, comparing across products
10/11
22 / 22
Taris and NTBs could be complements within importer-exporter pair, comparing across products
Products that have low tari barriers often have lower NTBs
10/11
22 / 22

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Taris versus Non-Tari Barriers

Hiau Looi Kee and Cristina Neagu

Oct 2011 Work in Progress and Preliminary

Kee and Neagu (World Bank)

Taris versus Non-Tari Barriers

Kee and Neagu (World Bank)

Taris versus Non-Tari Barriers

Examples on commonly used NTBs

Kee and Neagu (World Bank)

Taris versus Non-Tari Barriers

Million Dollar Question

Are taris and NTBs substitutes or complements?

Kee and Neagu (World Bank)

Taris versus Non-Tari Barriers

Million Dollar Question

Kee and Neagu (World Bank)

Taris versus Non-Tari Barriers

Million Dollar Question

Kee and Neagu (World Bank)

Taris versus Non-Tari Barriers

Million Dollar Question

Kee and Neagu (World Bank)

Taris versus Non-Tari Barriers

Exploit a newly collected dataset of NTBs by the WB on a group of developing countries

Kee and Neagu (World Bank)

Taris versus Non-Tari Barriers

Kee and Neagu (World Bank)

Taris versus Non-Tari Barriers

Kee and Neagu (World Bank)

Taris versus Non-Tari Barriers

Kee and Neagu (World Bank)

Taris versus Non-Tari Barriers

Kee and Neagu (World Bank)

Taris versus Non-Tari Barriers

Kee and Neagu (World Bank)

Taris versus Non-Tari Barriers

Kee and Neagu (World Bank)

Taris versus Non-Tari Barriers

Kee and Neagu (World Bank)

Taris versus Non-Tari Barriers

Kee and Neagu (World Bank)

Taris versus Non-Tari Barriers

Kee and Neagu (World Bank)

Taris versus Non-Tari Barriers

Other factors that may inuence government policy s choices

Kee and Neagu (World Bank)

Taris versus Non-Tari Barriers

Other factors that may inuence government policy s choices

Kee and Neagu (World Bank)

Taris versus Non-Tari Barriers

Other factors that may inuence government policy s choices

Kee and Neagu (World Bank)

Taris versus Non-Tari Barriers

Other factors that may inuence government policy s choices

Kee and Neagu (World Bank)

Taris versus Non-Tari Barriers

Kee and Neagu (World Bank)

Taris versus Non-Tari Barriers

Kee and Neagu (World Bank)

Taris versus Non-Tari Barriers

Kee and Neagu (World Bank)

Taris versus Non-Tari Barriers

Kee and Neagu (World Bank)