Terms-of-Trade Impacts of Trade Agreements and the Choice of Trade Policy

This paper studies the impacts and determinants of trade policy. I use data on applied tariff protection of world countries over 2001-2007 to estimate sector-level trade elasticities. I then calibrate a structural gravity model of world trade. I compute the impacts of trade agreements which were implemented and of those which were not. I find that expected real income gains predict the signing of PTAs. Decomposing these gains shows that domestic mill price increases, reflecting market access gains, have a larger impact than the impact on the consumer price index. I also find that larger expected gains from multilateral liberalization reduce the probability to engage in preferential agreements.