Working Paper: NBER ID: w19692
Authors: Timothy J. Kehoe; Jack M. Rossbach; Kim J. Ruhl
Abstract: This paper develops a methodology for predicting the impact of trade liberalization on exports by industry (3-digit ISIC) based on the pre-liberalization distribution of exports by product (5-digit SITC). Using the results of Kehoe and Ruhl (2013) that much of the growth in trade after trade liberalization is in products that are traded very little or not at all, we predict that industries with a higher share of exports generated by least traded products will experience more growth. Using our methodology, we develop predictions for industry-level changes in trade for the United States and Korea following the U.S.-Korea Free Trade Agreement (KORUS). As a test for our methodology, we show that it performs significantly better than the applied general equilibrium models originally used for the policy evaluation of the North American Free Trade Agreement (NAFTA).
Keywords: trade reform; new products margin; industry-level impact; KORUS; NAFTA
JEL Codes: F13; F14; F17
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| methodology outperforms standard general equilibrium models (D58) | causal advantage of their approach (C22) |
| share of least traded products (F19) | growth in exports (F10) |
| higher share of least traded products (F14) | greater growth post-liberalization (O25) |
| growth in exports (F10) | modeled as a linear function of share of least traded products (F16) |
| positive coefficient for least traded products (F14) | direct causal relationship (C22) |