DP4999 Rules of Origin as Export Subsidies

Author(s): Olivier Cadot, Antoni Estevadeordal, Akiko Suwa Eisenmann
Publication Date: April 2005
Keyword(s): NAFTA, regional integration, rules of Origin
JEL(s): F10, F13, F15
Programme Areas: International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=4999

The paper estimates the effect of NAFTA?s rules of origin (ROO) on Mexican access to the US market treating explicitly the endogenous determination of ROOs. The first equation determines Mexico?s NAFTA (preferential) exports to the US as a function of tariff preference and Estevadeordal?s qualitative ROO index. The second equation determines ROO strictness on the basis of a Grossman-Helpman model identifying channels through which lobbying by US intermediate-good producers leads to deep preferences and stiff rules of origin in downstream sectors. The estimates suggest that the creation of a captive market for upstream intermediate-good producers is indeed one of their political determinants.