INSTITUT DE HAUTES ETUDES INTERNATIONAL ET DU DEVELOPPEMENT GRADUATE INSTITUTE OF INTERNATIONAL AND DEVELOPMENT STUDIES Econometric Analysis of Free Trade Agreements THESIS submitted at the Graduate Institute in fulfilment of the requirements of the PhD degree in International Studies (International Economics) by Vivek JOSHI (India) Thesis N 862 Geneva 2010
Contents 1 An Econometric Analysis of India-Sri Lanka FTA 15 1.1 Introduction 15 1.2 Assessment of Trade under the ISLFTA 17 1.3 Literature Review. 19 L4 Methodology for Analysis for ISLFTA 22~ 1.5 Theoretical Framework and Empirical Strategy 23 1.6 Data, Sources and its Characteristics 27 UU Tariff Data 27~ 1.6.2 Trade Data 29 1.7 Estimation of Results and Discussion 30 L8 Conclusion 33~ L9 References 34~ Figures Figure 1 Free Trade Agreements in Asia -Cumulative Status 36 Figure 2 India's Average Applied MFN and Preferential Tariffs 37 Figure 3 Sri Lanka's Average Applied MFN and Preferential Tariffs 37 Figure 4 Growth in India's Imports from Sri Lanka and Rest of the World 38 Figure 5 Growth in Sri Lanka's Imports from India and Rest of the World "* 38 Figure 6 Share of Sri Lankan Goods to India and China's Total Imports 39 Figure 7 Share of Some Major Exporters and Sri Lanka to India's Total Imports 39 Figure 8 Sri Lanka's Share of India's Total Imports on Items Under Different List of ISLFTA 40~ Tables Table 1 Trade Diversion/Creation Effects from India Sri Lanka FTA 4T Table 2 Hausman Test for Choosing between Fixed Effects and Random Effects 44 I ISLFTA - Commitment of Member Countries in Brief 45 11
II Control Countries 2 Preferential Tariff Formation - The Case of the European Union Tables 2.1 Introduction 2.2 The EU's Tariff Structure 2.2.1 MFN Tariff Structure 2.2.2 Tariff Preferences 2.3 Literature Review 2.3.2 Theoretical Literature 2.3.3 Empirical Literature 2.4 Theoretical Considerations 2.5 Data 2.4.1 Relation with the previous empirical papers 2.4.2 Econometric Model 2.4.3 Extensions 2.5.1 Data Requirement 2.5.2 Data Sources 2.5.2.1 The EU Related Data 2.5.2.2 Partner Related Data - Constructing the measure of Reciprocity 2.6 Key Econometric Issues 2.6.1 Endogenity - MFN and preferential tariffs 2.6.2 Endogenity - Reciprocity variable and preferential tariffs 2.7 Empirical Results 2.7.1 Estimation Results 2.7.2 Extensions and Additional Results 2.7.3 Sensitivity Analysis 2.8 Conclusion 2.9 References Table 1 The Determinants of the EU's Preferential Tariff (all partners, 1995-2007) Table 2 The Determinants of the EU' s Preferential Tariff (all partners, 1995-2007, product-wise) Table 3 The Determinants of the EU's Preferential Tariff (DCs, 1998-2007) Table 4 The Determinants of the EU's Preferential Tariff (DCs, 1998-2007, product-wise) 46 47 47 48 48 49 51 51 52 53 53 54 56 60 60 62 62 63 65 65 68 70 «72 73 75 77 79 81 12
Figure Figure 1 Breakdown of EU's Applied MFN Tariffs, 2006 83 I Typology of the EU's regional agreements, May 2004 84 II Structure of the EU's MFN tariff, 2004 and 2006 85 III Structure of the EU MFN tariff by WTO sector, 2006 86 IV Summary analysis of EU applied MFN tariffs, 2006 87 V MFN and preferential tariff averages, 2006 88 VI The EU's Tariff Preferential Regime - Data on WITS (TRAINS) 90 VII The EU's Partners' Tariff and Import Data Availability on WITS 92 VIII Data description 95 IX Summary Statistics 98 3 Preferential Tariff Formation - The Case of the United States 99 3.1 Introduction 99 3.2 The US's Tariff Structure 101 3.2.1 MFN Tariff Structure 101 3.2.2 Preferential Tariff Structure 102 3.3 Literature Review 103 3.4 Theoretical Considerations 103 3.4.1 Relation with the previous empirical papers 103 3.4.2 Econometric Model 104 3.4.3 Extensions 106 3.5 Data 109 3.5.1 Data Requirement 109 3.5.2 Data Sources 110 3.5.2.1 The US Related Data 110 3.5.2.2 Partner Related Data - Constructing the measure of Reciprocity 111 3.6 Key Econometric Issues 112 3.6.1 Endogenity - MFN and preferential tariffs 112 3.6.2 Endogenity - Reciprocity variable and preferential tariffs 113 3.7 Empirical Results 114 3.7.1 Estimation Results 114 3.7.2 Extensions and Additional Results 118 13
Tables 3.8 3.9 Table 1 Table 2 Table 3 Table 4 I II III IV V VI VII 3.7.3 Sensitivity Analysis Conclusion References The Determinants of the US's Preferential Tariff (all partners, 1995-2007) The Determinants of the US's Preferential Tariff (all partners, 1995-2007, product-wise) The Determinants of the US's Preferential Tariff (DCs, 1998-2007) The Determinants of the US's Preferential Tariff (DCs, 1998-2007, product-wise) Structure of the Tariff Schedule Summary analysis of the MFN tariffs, 2007 Tariff according to US Preferential Agreements, 2006 Availability of the United States Preferential Tariff on WITS (TRAINS) The US's Partners' Tariff and Import Data Availability on WITS Data description Summary Statistics 121 124 126 127 129 131 133 135 136 137 138 139 143 145 14