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CEP discussion paper
Does Regionalism Affect Trade Liberalization Towards Non-Members?
Antoni Estevadeordal, Caroline Freund and Emanuel Ornelas
May 2008
Paper No' CEPDP0868:
Full Paper (pdf)

JEL Classification: F13; F15

Tags: regionalism; external tariffs; trade liberalization

We examine the effect of regionalism on unilateral trade liberalization using industry-level data on applied MFN tariffs and bilateral preferences for ten Latin American countries from 1990 to 2001. We find that preferential tariff reduction in a given sector leads to a reduction in the external (MFN) tariff in that sector. External liberalization is greater if preferences are granted to important suppliers. However, these “complementarity effects” of preferential liberalization on external liberalization do not arise in customs unions. Overall, our results suggest that concerns about a negative effect of preferential liberalization on external trade liberalization are unfounded.