Measuring Trade Protection: How to Infer Worldwide Industry-Level Trade Barriers

• In Event: The Political Economy of Trade Revisited

Abstract

Protectionist trade policies affect many core aspects of economic activity including production patterns, investment and innovation decisions, or the socio-economic status of citizens. In times of growing anti-globalist sentiments, understanding these relationships is more pressing than ever, yet any such investigation hinges on the availability of valid data on trade barriers. In this paper, I present an approach to estimate worldwide industry-level non-tariff-barriers to trade (NTBs). This is timely and important a) because NTBs make up the bulk of applied trade protection given that tariff-policies are increasingly regulated by international obligations; and b) because systematic and reliable data on NTBs is not available due to the complexity of existing regulations and the largely non-mandatory international reporting standards for these measures. Instead of relying on official data sources that may contain biased reporting, I therefore estimate the size of trade barriers from observable trade frictions. Specifically, I use information on trade elasticities along with observed trade frictions to uniquely identify the size of unobserved trade barriers. As a consequence of this indirect estimation method, my data are not affected by the self-selection and coverage problems prevalent in existing data sources on NTBs. My data cover 160 countries and more than 200 industries. Expressed in terms of ad valorem tariff-equivalents, the data provide a comprehensive overview of the pattern of applied trade protection around the world. I show that my NTB data strongly outperform other trade protection data in predicting depressed trade flows. In a substantive application study, I further illustrate the value of my data by investigating how trade protection relates to industry-level wages, employment, and voting behavior.

Author

• Marco Martini, University of Zurich