Heterogeneous Trade Agreements and Adverse Implications of Restrictive Rules of Origin : Evidence from Apparel Trade

We revisit the heterogeneous effects of regional trade agreements (RTAs) using a PPML gravity model and comparing apparel and total trade. The politically-sensitive apparel sector has specialized, usually restrictive, rules of origin (ROOs) clauses that vary considerably across RTAs. Our RTA estimates have a significantly higher variance for apparel trade than total trade, and ending temporary exceptions to apparel ROOs in U.S. trade agreements is associated with less apparel trade. We further illustrate how RTAs can be effective development policy instruments. For example, updating ROOs in the Dominican Republic-Central America Free Trade Agreement (CAFTA-DR) can significantly reduce Central American emigration