Working Paper

How Does Trade Respond to Anticipated Tariff Changes? Evidence from NAFTA

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collection.link.5
https://openknowledge.worldbank.org/handle/10986/9
collection.name.5
Policy Research Working Papers
dc.contributor.author
Khan, Shafaat Yar
dc.contributor.author
Khederlarian, Armen
dc.date.accessioned
2021-05-03T16:13:50Z
dc.date.available
2021-05-03T16:13:50Z
dc.date.issued
2021-04
dc.date.lastModified
2021-11-28T00:09:11Z
dc.description.abstract
Firms anticipate upcoming tariff changes by shifting their purchases to periods with lower costs. This paper shows that such anticipatory dynamics overstate the trade elasticity. Standard identification of the trade response to trade cost changes uses tariff variation from free trade agreements and assumes that trade flows equal their consumption. However, free trade agreements eliminate tariffs gradually through announced phaseouts. This allows firms to delay their purchases until tariff cuts are effective, while consuming their inventories. Indeed, during the North American Free Trade Agreement’s staged tariff reductions, imports experienced sizable anticipatory slumps followed by libseralization bumps. To study the behavior of consumed imports, a measure is constructed that uses inventory-to-sales ratios to smooth the trade flows. Its application to the data yields that the annual trade-flow elasticity is 56 percent larger than the trade-consumption response and that the ratio of the long- to short-run elasticity increases from 2.3 with trade flows to 3.4 with consumed imports. The measure is validated through Monte Carlo simulations of an (s,S) ordering model that reproduces the observed trade pattern.
en
dc.identifier
http://documents.worldbank.org/curated/en/377051619701752842/How-Does-Trade-Respond-to-Anticipated-Tariff-Changes-Evidence-from-NAFTA
dc.identifier.uri
http://hdl.handle.net/10986/35534
dc.language
English
dc.publisher
World Bank, Washington, DC
dc.relation.ispartofseries
Policy Research Working Paper;No. 9646
dc.rights
CC BY 3.0 IGO
dc.rights.holder
World Bank
dc.rights.uri
http://creativecommons.org/licenses/by/3.0/igo
dc.subject
ANTICIPATION
dc.subject
TRADE ELASTICITY
dc.subject
INVENTORIES
dc.subject
NAFTA
dc.subject
TARIFF PHASEOUT
dc.subject
TRADE RESPONSE
dc.subject
FREE TRADE AGREEMENT
dc.subject
PREFERENTIAL TRADE AGREEMENTS
dc.subject
NORTH AMERICAN FREE TRADE AGREEMENT
dc.title
How Does Trade Respond to Anticipated Tariff Changes? Evidence from NAFTA
en
dc.type
Working Paper
en
okr.date.disclosure
2021-04-29
okr.doctype
Publications & Research
okr.doctype
Publications & Research :: Policy Research Working Paper
okr.docurl
http://documents.worldbank.org/curated/en/377051619701752842/How-Does-Trade-Respond-to-Anticipated-Tariff-Changes-Evidence-from-NAFTA
okr.googlescholar.linkpresent
yes
okr.guid
377051619701752842
okr.identifier.doi
10.1596/1813-9450-9646
okr.identifier.externaldocumentum
090224b088547d89_1_0
okr.identifier.internaldocumentum
33036884
okr.identifier.report
WPS9646
okr.imported
true
en
okr.language.supported
en
okr.pdfurl
http://documents.worldbank.org/curated/en/377051619701752842/pdf/How-Does-Trade-Respond-to-Anticipated-Tariff-Changes-Evidence-from-NAFTA.pdf
en
okr.region.country
Canada
okr.region.country
Mexico
okr.region.country
United States
okr.statistics.combined
345
okr.statistics.dr
377051619701752842
okr.topic
International Economics and Trade :: International Trade and Trade Rules
okr.topic
International Economics and Trade :: Rules of Origin
okr.topic
International Economics and Trade :: Trade Policy
okr.topic
International Economics and Trade :: Trade and Multilateral Issues
okr.topic
International Economics and Trade :: Trade and Regional Integration
okr.topic
International Economics and Trade :: Trade and Services
okr.unit
Office of the Chief Economist, East Asia and the Pacific Region

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