The World Bank has supported the preparation of a new, theoretically sound, set of indices of trade restrictiveness. Descriptions of the methodology, and the data sets, are here: Overall Trade Restrictiveness Indices. Here is the abstract of the 2006 methodological description:
The objective of this paper is to provide indicators of trade restrictiveness that include both measures of tariff and nontariff barriers for 91 developing and industrial countries.
For each country, the authors estimate three trade restrictiveness indices. The first one summarizes the degree of trade distortions that each country imposes on itself through its own trade policies. The second one focuses on the trade distortions imposed by each country on its import bundle. The last index focuses on market access and summarizes the trade distortions imposed by the rest of the world on each country's export bundle. All indices are estimated for the broad aggregates of manufacturing and agriculture products.
Results suggest that poor countries (and those with the highest poverty headcount) tend to be more restrictive, but they also face the highest trade barriers on their export bundle. This is partly explained by the fact that agriculture protection is generally larger than manufacturing protection. Nontariff barriers contribute more than 70 percent on average to world protection, underlying their importance for any study on trade protection.
The authors, Haiu Looi Kee, Alessandro Nicita, and Marcelo Olarreaga, have posted a discussion of their work, the difficulties, and its significance, over at VoxEU: Estimating trade restrictiveness (July 18, 2007). They are interested in the aggregation problems associated with measuring trade restrictiveness (how to aggregate across a wide range of disparate barriers, and many different goods), and in coming up with empirical measures of theoretically sound aggregation procedures:
They draw on the work of James Anderson and Peter Neary:
James Anderson and Peter Neary tackle these problems using a theoretically sound aggregation procedure that answers very clear and precise questions regarding the trade distortions imposed by each country's trade policies on itself and on its trading partners. One important conclusion emerging from their work is that one single indicator cannot provide a measure of the trade distortions a country imposes on itself while simultaneously capturing the trade distortions imposed on its trading partners.
And develop three measures to address different questions:
- When interested in the welfare distortions that the country imposes on itself, the aggregation procedure answers the following question: What is the uniform tariff that, if applied to imports instead of the current structure of protection, would leave home welfare at its current level? This corresponds to Anderson and Neary's Trade Restrictiveness Index (TRI).
- When interested in the extent to which trade distortions limit imports from the rest of the world, the aggregation procedure should answer the following question: What is the uniform tariff that, if imposed on home imports instead of the existing structure of protection, would leave aggregate imports at their current level? This second indicator is Anderson and Neary's (2003) MTRI, and it is here labelled Overall Trade Restrictiveness Index (OTRI) to account for differences in methodologies.
- Finally, if one is interested in the barriers faced by each country exporters when selling in the rest of the world, the relevant question is: What is the uniform tariff that, if imposed by all trading partners on exports of country C instead of their current structure of protection, would leave exports of country C at their current level?...
Their contribution is empirical:
Anderson and Neary's main contribution is conceptual. The contribution of our recent research is empirical – we apply the concepts developed by Anderson and Neary to a vast multi-country data set on tariffs and non-tariff barriers. We follow an econometric intensive approach within a simpler and empirically tractable trade model that allows us to capture the restrictiveness of trade policy at the most disaggregated level. The result is two databases. The first includes estimates of ad-valorem equivalents of NTBs and agricultural subsidies at the tariff line level. The second database provides estimates of trade restrictiveness indices as described above.
I've reformatted their text somewhat. There's lots more in this great post.
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