The author thanks Richard Baldwin, David von Below, Marius Bruhlhart, Ron Davies, Marco Fugazza, Torfinn Harding, Marcelo Olarreaga, Pierre Picard, Frédéric Robert-Nicoud, Matthias Rieger, Tony Venables, as well as seminar participants in Geneva, Luxembourg, Nottingham and Lausanne for very helpful comments.
Race-to-the-bottom Tariff Cutting
Article first published online: 5 MAY 2014
© 2014 John Wiley & Sons Ltd
Review of International Economics
Volume 22, Issue 3, pages 444–458, August 2014
How to Cite
Vézina, P.-L. (2014), Race-to-the-bottom Tariff Cutting. Review of International Economics, 22: 444–458. doi: 10.1111/roie.12135
- Issue published online: 30 JUN 2014
- Article first published online: 5 MAY 2014
Unilateral tariff liberalization accounts for the lion's share of trade liberalization since the 1980s and has accompanied the most successful trade-led development model of the past 50 years, “Factory Asia”. Understanding what drove this liberalization is therefore crucial to our grasp of the process of economic development. This paper provides empirical evidence for seven Asian emerging economies from 1988 to 2006 consistent with a tariff race to the bottom driven by a competition for foreign direct investment (FDI). The identification is two-pronged. First, it is shown that tariffs on parts and components, intermediates and capital goods, crucial locational determinants for assembly firms, are correlated in competitive space, i.e. across countries at a similar level of development, but not across all countries. Second, it is shown that the tariff correlation in competitive space is significantly higher for inputs than consumer goods.