Firm-level Impact of Free Trade Agreements on Import Prices

Abstract

We examine the firm-level impact of the use of free trade agreement (FTA) schemes on import prices by employing firm-level import data that enables us to identify the use of different tariff schemes, such as FTA schemes and most favoured nation (MFN) schemes. Unlike the previous studies, we estimate the firm-level effects of FTA use on import prices by controlling for firms' characteristics. We find that, on average, the use of FTA schemes raises (tariff-exclusive) import prices by 3 percent in total. Interestingly, the use of FTA schemes raises import prices even if FTA rates are same as MFN rates. We also find that the large-sized firms in terms of import values reduce the positive effects of the use of FTA schemes on import prices.

ERIA-DP-2015-33