The Protection Effects of Rules of Origin and Outsourcing Decision
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This paper looks into the protection effect of preferential ROO present in Korea’s FTAs. A two‐stage procedure is used for the estimation purpose. A Probit equation is estimated in the first-stage, whose estimates are substituted into a parameterized gravity equation in the second-stage. The Probit equation estimation addresses the biases associated with sample selection and unobserved firm‐heterogeneity. The Probit estimation results show that ROO influence the decision on whether to participate in trade in the first place. They also show that ROO compliance costs have changing marginal effects, so that the probability of trading would decrease rapidly once ROO restrictiveness surpasses a threshold point. The gravity equation is estimated to see if ROO work as tariffs on intermediate goods and if ROO change the pattern of outsourcing across countries. The gravity equation estimation results cannot show with statistical significance that ROO negatively influence trade flows in both intermediate and final goods. Yet they indicate that the presence of ROO does not negatively affect the outsourcing or “off-shoring” patterns. In sum, it can be maintained that the presence of ROO only “indirectly” cancels out the liberalization effect of FTAs.
Abstract
This paper looks into the protection effect of preferential ROO present in Korea’s FTAs. A two‐stage procedure is used for the estimation purpose. A Probit equation is estimated in the first-stage, whose estimates are substituted into a parameterized gravity equation in the second-stage. The Probit equation estimation addresses the biases associated with sample selection and unobserved firm‐heterogeneity. The Probit estimation results show that ROO influence the decision on whether to participate in trade in the first place. They also show that ROO compliance costs have changing marginal effects, so that the probability of trading would decrease rapidly once ROO restrictiveness surpasses a threshold point. The gravity equation is estimated to see if ROO work as tariffs on intermediate goods and if ROO change the pattern of outsourcing across countries. The gravity equation estimation results cannot show with statistical significance that ROO negatively influence trade flows in both intermediate and final goods. Yet they indicate that the presence of ROO does not negatively affect the outsourcing or “off-shoring” patterns. In sum, it can be maintained that the presence of ROO only “indirectly” cancels out the liberalization effect of FTAs.
참고문헌 (14)
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