Average tariff level and degree of economic development or GDP per capita in the CPTPP member countries.



As Dani Rodrik[1] has stated: The only systematic relationship is that countries dismantle trade restrictions as they get richer when referring to the relation between a country’s average level of tariff and its subsequent economic growth rate.

Bearing this in mind, let us do a simple regression analysis exercise among the CPTPP member countries using as dependent variable their simple average MFN applied tariff levels and as independent variable the level of economic development or the GDP per capita using 2017 data.

According to the World Bank classification of economies by income[2], three groups of member countries exist within CPTPP: the high-income countries which their GDP per capita is of US$12,056 dollars or more (Chile,
Brunei Darussalam,  Japan, New Zealand, Canada, Australia and Singapore), the upper-middle-income countries which their GDP per capita is between US$3,896 and US$12,055 dollars (Peru, Mexico and Malaysia) and the lower-middle-income countries which their GDP per capita is between US$996 and US$3,895 dollars (Vietnam).

The regression analysis exercise confirms the negative relationship between both variables for this CPTPP sample just as many other empirical studies have found previously for other country settings; therefore, as a CPTPP country gets richer, its level of MFN applied tariff is reduced accordingly (See Chart 1). The fitting MFN applied tariff for a lower-middle-income CPTPP country would be 8.7%, on average, 5.6% for an upper-middle income within CPTPP, and 2.5% for a high-income CPTPP economy, using our estimate regression line. A country which is located above the estimate regression line might be consideredas a CPTPP underperformer in terms of its MFN applied tariff, likewise a country located below the regression line would be called a CPTPP overperformer. In this train of thought, for example, Peru would be a CPTPP tariff-overperformer, because its actual MFN applied tariff is only 2.4% and its tariff estimate by regression in accordance with its economic development should be around 5.6%.

Chart 1. Relation between economic development and tariff levels of CPTPP member countries.

When using GDP per capita as proxy for economic development, the CPTPP member countries could be classified in three broad groups: the low GDP per capita (Vietnam, Peru, Mexico, Malaysia and Chile), the medium-high GDP per capita (Brunei Darussalam, Japan, New Zealand and Canada) and the high GDP per capita members (Australia and Singapore). It is worth mentioning that there are no CPTPP member countries with GDP per capita between $16,000 and $26,000 dollars.

As in the previous regression, this fitted linear relation has also a negative slope between GDP per capita and the simple average MFN applied tariff, namely, -0.0975; thus, an increase of US$1,000 dollars in CPTPP GDP per capita is consistent with a reduction of 0.0975 percentage point (or 9.75 basis points) in the MFN applied tariff, ceteris paribus. This estimate regression implies that only Peru, Brunei Darussalam, New Zealand, and Singapore are tariff-overperformers in the CPTPP context. Of course, when agricultural products are at stake and seen separately, even for some of the most advanced economies, high tariffs show deep sensitivities that need to be addressed properly and are part of the balances in the trade negotiations (See Chart 2).

Chart 2. Relation between GDP per capita and tariff levels of CPTPP member countries.

A better adjustment for the same set of information is provided by fitting a semilog regression line as shown by Chart 3 by doing that the R2 improved from 0.4647 to 0.5592, that is, a 20.3% improvement. In other words, this new regression seems to indicate that at the earlier stages of economic development small improvements in the GDP per capita of a country are being reflected in large reductions in the level of MFN applied tariffs, while when a country is positioned itself in the high income status, its level of applied tariffs is less sensitive to income increases. Therefore, there is a huge incentive for all the participants in the Multilateral Trading System to take the low and medium income countries to better living conditions, because that will get a sizeable reduction in the applied tariffs of this group of countries (See Chart 3). 

Chart 3. Relation between GDP per capita and tariff levels of CPTPP member countries: New semilog regression.


[1] Rodrik, D. (2007) One Economics – Many Recipes: Globalization, Institutions, and Economic Growth. Princeton University Press, Princeton New Jersey.

[2] The World Bank, https://datahelpdesk.worldbank.org/knowledgebase/articles/906519-world-bank-country-and-lending-groups, accessed 18 December 2018.

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