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Impact of Free Trade Agreement Utilisation on Import Prices

Impact of Free Trade Agreement Utilisation on Import Prices

We examine the impact of free trade agreement (FTA) utilisation on import prices. For this analysis, we employ establishment-level import data with information on tariff schemes, that is, the FTA and most-favoured-nation schemes used for importing. Unlike previous studies in this literature, we estimate the effects of FTA utilisation on prices by controlling for the differences in importing firms' characteristics. Our main findings are as follows. First, the effect of FTA use is overestimated when not controlling for the importing firm-related fixed effects. Second, the average effect of the tariff reduction induced by FTA utilisation is a 3.6-6.7 percent rise in import prices. Third, in general, we do not find a price rise resulting from the costs of compliance with the rules of origin. Fourth, we also find several other factors that affect import prices in the case of FTA utilisation.

ERIA-DP-2016-24

Date

31 August 2016

Category

Competitiveness , Trade

Author

Kazunobu Hayakawa, Nuttawut Laksanapanyakul, Hiroshi Mukunoki, Shujiro Urata

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