Trade Restrictiveness Indices in Presence of Externalities: An Application to Non-Tariff Measures
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We extend the trade restrictiveness index approach to the case of market imperfections
and domestic regulations addressing them. We focus on standard-like non-tariff measures
(NTMs) affecting cost of production and potentially enhancing demand by reducing negative
externalities. We apply the framework to the database of Kee et al. (2009) and derive ad valorem
equivalents (AVEs) for technical measures. About 39% of the product lines affected by NTMs
exhibit negative AVEs, indicating a net trade-facilitating effect of these measures. Accounting
for these effects significantly reduces previous measures of countries’ trade policy restrictiveness
obtained while constraining these NTMs to be trade reducing.