Andrey Stoyanov

The Effect of the Canada-US Free Trade Agreement on Canadian Multilateral Trade Liberalization

In this paper show that the Canada-US Free Trade Agreement (CUSFTA) tariff preferences have triggered a decline in Canadian external tariffs, explaining a two percentage point reduction in the average tariff between 1989 and 1998. Next, we found that industries that generate the least export rent to the US firms experienced deeper tariff cuts in Canada; this result provides evidence of cooperation in trade policies between the US and Canada. Finally, we estimate the effect of the CUSFTA on the intensity of industrial lobbying for trade policy in Canada and find no relationship between preferential trade liberalization and lobbying activity.

Tariff evasion and rules of origin violations under the Canada-U.S. Free Trade Agreement

Using product‐level data on trade between Canada and the U.S., this paper presents evidence of tariff evasion and violation of the rules of origin occurring under the Canada‐U.S. Free Trade Agreement (CUSFTA). It shows that more imports go unreported at the destination country when tariffs are higher. Consistent with the tariff evasion hypothesis, this result implies that the trade creation effect of a free trade agreement may in fact be due to less underreporting. Further, this paper shows that the larger Canadian tariff preference margin for the U.S. is associated with more goods originating in third countries being transshipped through the U.S. territory for re‐export. The preference margin is also positively correlated with the value of excess imports from the U.S., which qualify for preferential treatment. Both results suggest the presence of persistent violations of CUSFTA’s rules of origin.A l’aide de donnees au niveau des produits sur les flux de commerce entre le Canada et les Etats‐Unis, on montre qu’il y a evitement de tarif et violation des regles d’origine dans les operations de l’accord de libre echange Canada‐Etats‐Unis. On montre que davantage d’importations ne sont pas declarees au point de destination quand les tarifs sont eleves. Dans l’esprit meme de l’hypothese d’evitement de tarif, ce resultat implique que l’effet de creation de commerce d’un accord de libre echange peut en fait etre attribuable a moins de sous‐declaration. De plus, le texte montre que les plus grandes marges preferentielles des tarifs avec les Etats‐Unis sont associees a davantage de biens en provenance de tiers pays et convoyes a travers le territoire americain pour re‐exportation. La marge preferentielle est aussi positivement co‐reliee avec la valeur des importations excedentaires en provenance des Etats‐Unis qui se qualifient pour un traitement preferentiel. Ces deux ensembles de resultats suggerent la presence persistante de violations des regles d’origine de l’Accord de libre echange Canada‐Etats‐Unis.

Endogenous Free Trade Agreements and Foreign Lobbying

This paper assesses the political viability of free trade agreements (FTAs) in the presence of lobbying by organized foreign interest groups. The assessment is based on a model in which external tariffs and the decision to form an FTA are endogenously determined. The findings demonstrate that, in the presence of an organized lobby group in a prospective partner country, an FTA may initiate an increase in the level of protection against imports from third countries and impede trade with non-member countries. Further, this study finds that a foreign lobby may encourage the local government to enter a welfare-reducing trade-diverting FTA. Finally, this paper shows that an FTA increases the lobbying power of the organized lobby groups of the member countries, which can potentially obstruct the viability of welfare-improving multilateral trade liberalization.

The Role of Export Market Participation in the Choice of Organizational Form of Production Technology

This paper shows that the reason for a higher capital–labour ratio, observed for exporting firms, is a higher capital intensity of their production technology. Exporters choose to use different organizational forms of their production process, in which the share of capital and intermediate inputs in the final output is higher than that of non-exporters. The organization of the production process is part of the firms organizational strategy, which generates within-industry heterogeneity in factor intensities and production technologies. The results of this study indicate that the decision to export is preceded by a process of restructuring production technology, which then has the effect of increasing a firms’ productivity and in so doing prepares them for competition in the global market.

Olley and Pakes-Style Production Function Estimators with Firm Fixed Effects

We show that control function estimators (CFEs) of the firm production function, such as Olley-Pakes, may be biased when productivity evolves with a firm-specific drift, in which case the correctly specified control function will contain a firm-specific term, omitted in the standard CFEs. We develop an estimator that is free from this bias by introducing firm fixed effects in the control function. Applying our estimator to the data, we find that it outperforms the existing CFEs in terms of capturing persistent unobserved heterogeneity in firm productivity. Our estimator involves minimal modification to the standard CFE procedures and can be easily implemented using common statistical software.

Output Volatility, Composition of Trade, and Transmission of Economic Shocks Across Countries

In this paper we investigate how supply and demand shocks in one country affect output volatility in other countries. While the evidence for cross-country transmission of demand shocks is mixed, we find that volatile supply in one country leads to larger imports and output volatility in other countries. As a result, the effect of trade openness on output volatility is highly heterogeneous across countries and depends on the composition of their trade. Those countries whose imports originate in economies with volatile supply experience a greater impact of trade on output volatility.

Regional Trade Agreements and Cross‐Border Lobbying: Empirical Evidence from the Canada–US Free Trade Agreement Negotiations

This paper documents participation of special interest groups in negotiations of the Canada-US Free Trade Agreement. Using data on the tari§ reduction schedules mandated by the agreement, it shows that industries represented by strong lobby groups were faced with more favorable tari§ reduction paths in both countries: phase-out periods were longer at home and shorter in the partner country. This result provides evidence on the involvement of industry lobbying in negotiation of regional trade agreements and suggests that countries negotiating trade agreements are responsive to the interests of lobbying groups from across the border. Both results provide important implications for the political economy theory of trade agreements.