Complements or substitutes? Preferential and multilateral trade liberalization at the sectoral level

This paper explores the relationship between preferential and multilateral trade liberalization at the sectoral level using a unique dataset that includes data on most favored nation (MFN) and bilateral preferential tariffs at the 4-digit ISIC level for 11 Latin American countries over the period 1985-2005. We find evidence of heterogeneity across sectors. While in some industries, complementary effects between both kinds of trade liberalization are observed, in others no significant links are detected and-in a few cases-even substitutability seems to prevail. Variation across sectors appears to be systematically related to both import demand elasticities and countries' sectoral comparative advantages.