Trade-creating regime-wide rules of origin: a quantitative analysis

Abstract

Regime-wide rules of origin (ROO), such as diagonal cumulation, de minimis and self-certification requirement, can be applied to reduce additional administrative and compliance costs for verifying restrictive ROO. However, empirical evidence related to the trade effect of various regime-wide ROOs is very few. We quantitatively investigate the trade effect of regime-wide ROOs by estimating the modified gravity equation with panel data on 36238 country pairs covering 151 countries for 16 years from 1990 to 2005 at 5 year intervals. From our empirical experiments, we find that implementation of regime-wide ROOs such as diagonal cumulation and de minimis generate more trade between members of free trade agreements (FTAs). However, we also find that certification requirement does not produce positive trade effects. In addition, we confirm the effectiveness of the Poisson pseudo-maximum likelihood (PPML) estimator dealing with the zero trade issue and the presence of heteroscedasticity compared to the traditional log-linearized model estimation.