Measuring preferential market access

One consequence of the proliferation of preferential trade agreements is that an increasing share of international trade is not subject to most favored nation tariffs, but rather enters markets through preferential access. The objective of this paper is to better investigate to what extent preferential market access affects bilateral trade. In doing so, the paper first provides two indices of market access conditions that take into account the complex structure of tariff preferences. One index summarizes direct market access conditions (the overall tariff faced by exports), while the other measures relative market access conditions (the overall tariff faced by exports relative to that faced by foreign competitors). Then, the paper explores the effects of preferential access on international trade by estimating a gravity model augmented by the two indices. The results indicate that both direct and relative market access conditions affect bilateral trade. Although a large majority of countries benefits from the system of preference because of improved direct market access, some countries see part of their benefits eroded, sometimes substantially, by the deterioration in their relative market access conditions.