Publication

Trade liberalization can boost trade at the intensive margin, that is between countries that were trading before the liberalization occurred, and at the extensive margin in the sense that trade can be induced by liberalization between countries that were not trading with each other before the liberalization took place.  This study examines the effects of tariff liberalization on the probability of establishing new trading relationships in meat commodities. Because tariffs on agricultural products are on average much higher than on non-agricultural products, intensive margin effects can be important.  However, non-tariff barriers are also important in agriculture and can neutralize the effects of tariff reductions.  Because the effects of tariff reductions can vary across pairs of exporting and importing countries, we allow tariff reductions to interact with observable factors like distance and the level of development and non-observable factors whose effects are captured by an estimated parameter. Our results confirm that there is much heterogeneity in the effect of tariff reductions on the probability of observing trade flows.  Our results also indicate that the effects of tariff reductions decrease with distance, but increase with the level of development. The probabilities of trade increase at an increasing rate with the size of tariff reductions thus justifying calls for ambitious liberalization schemes. Canada and Mexico are the NAFTA countries that are most likely to export in response to EU tariff reductions on bovine and poultry meats, while Brazil and Argentina emerge as the MERCOSUR countries most likely to penetrate the EU bovine meat market after EU tariff reductions. Uruguay's probability to export poultry meat is most responsive to EU tariff reductions.