Barriers to Trade

Accurate comparisons of how trade policies differ across nations are vital for research in several important fields of scholarship examining the effects of trade openness on economic growth, income inequality, and politics, and for research on the political-economic origins of protection. Unfortunately, developing accurate cross-national indexes of trade policies has proven to be extremely difficult. The measures that are most commonly adopted in cross-national empirical research (including averages of tariff rates, counts of non-tariff barriers, and openness ratios) all have profound limitations that are now routinely acknowledged with much frustration and some despair.

We derive general, cross-national measures of trade policy orientations by using fixed country-year effects in a gravity model estimated with data on bilateral trade flows for a large sample of nations between 1960 and 2010. This approach provides an attractive alternative to existing methods for estimating general levels of trade openness (or trade restrictions) for a wide array of nations over a substantial period of time. We have adapted and extended the approach to build on the Anderson-van Wincoop general equilibrium model of trade. The new measure is theoretically grounded in a general, fully-specified model of trade, and can be calculated using available data for a broad range of countries and years.