The Effects Of Trade Policy - NBER

NBER WORKING PAPER SERIESTHE EFFECTS OF TRADE POLICYPinelopi K. GoldbergNina PavcnikWorking Paper 21957http://www.nber.org/papers/w21957NATIONAL BUREAU OF ECONOMIC RESEARCH1050 Massachusetts AvenueCambridge, MA 02138February 2016Prepared for the Handbook of Commercial Policy, edited by Kyle Bagwell and Robert Staiger. Wethank seminar participants at the Dartmouth-SNU conference and the Handbook Conference at Dartmouth,especially Bruce Blonigen, Woan Foong Wong, and Peter Schott, for comments. We thank Carla Larinand Konrad von Moltke for research assistance. The views expressed herein are those of the authorsand do not necessarily reflect the views of the National Bureau of Economic Research.NBER working papers are circulated for discussion and comment purposes. They have not been peerreviewed or been subject to the review by the NBER Board of Directors that accompanies officialNBER publications. 2016 by Pinelopi K. Goldberg and Nina Pavcnik. All rights reserved. Short sections of text, notto exceed two paragraphs, may be quoted without explicit permission provided that full credit, including notice, is given to the source.

The Effects of Trade PolicyPinelopi K. Goldberg and Nina PavcnikNBER Working Paper No. 21957February 2016JEL No. F10,F13,F14,F63,F68,L11ABSTRACTThe last two decades have witnessed a shift in the focus of international trade research from trade policyto other forms of trade frictions (e.g., transportation, information and communication costs). Implicitin this development is the widespread view that trade policy no longer matters. We confront this viewby critically examining a large body of evidence on the effects of trade policy on economically importantoutcomes. We focus on actual as opposed to hypothetical policy changes. We begin with a discussionof the methodological challenges one faces in the measurement of trade policy and identification ofits causal effects. We then discuss the evidence on the effects of trade policy on a series of outcomesthat include: (1) aggregate outcomes, such as trade volumes (and their price and quantity subcomponents),the extensive margin of trade, and static, aggregate gains from trade; (2) firm and industry performance,i.e., productivity, costs, and markups; (3) labor markets, i.e., wages, employment, and wage inequality;(4) long-run aggregate growth and poverty, secondary distortions and misallocation, uncertainty. Weconclude that the perception that trade policy is no longer relevant arises to a large extent from theinability to precisely measure the various forms of non-tariff barriers that have replaced tariffs as theprimary tools of trade policy. Better measurement is thus an essential prerequisite of policy-relevantresearch in the future. Despite measurement challenges and scant evidence on the impact of actualpolicy changes, existing evidence when properly interpreted points to large effects of trade policyon economically relevant outcomes, especially when trade policy interacts with other developments,e.g., technological change. We point to areas and opportunities for further research and draw lessonsfrom the past to apply to future studies.Pinelopi K. GoldbergYale UniversityDepartment of Economics37 Hillhouse Ave.P.O. Box 208264New Haven, CT 06520-8264and NBERpenny.goldberg@yale.eduNina PavcnikDepartment of Economics6106 Rockefeller CenterDartmouth CollegeHanover, NH 03755and NBERnina.pavcnik@dartmouth.edu

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Cambridge, MA 02138 February 2016 Prepared for the Handbook of Commercial Policy, edited by Kyle Bagwell and Robert Staiger. We thank seminar participants at the Dartmouth-SNU conference and the Handbook Conference at Dartmouth, especially Bruce Blonigen, Woan Foong Wong, and Peter Schott, for comments. We thank Carla Larin