Trade Agreements: What Do Governments Maximize?

• In Event: Trade Agreements, Negotiations, and Institutional Design (Pre-Recorded)

Abstract

The traditional political economy view of trade is that governments choose tariffs to maximize a weighted sum of producer and consumer surplus, with relative weights capturing the influence of producer lobbies. Such weights determine both the level of tariffs and their relationship with comparative advantage. To partially identify these weights, we use data on Preferential Trade Agreements (PTAs) and the associated changes in tariffs on agricultural imports. We exploit plausibly exogenous variation in comparative advantage as induced by rainfalls during the growing season within and across countries in the years prior to the final signature to identify its impact on the extent of tariff reduction across crops. We find that when comparative advantage in producing a given crop increases governments decrease tariffs on imports of that crop to a smaller extent. These results suggest that during trade negotiations governments attach a high weight on producers relative to consumers in their objective function.

Authors

• Francesco Amodio, McGill University

• Leonardo Baccini, McGill University