The reaction of French firms to the decrase of foreign tariffs

Abstract

We estimate the reaction of French firms to the drop in tariffs that has occurred in the late 1990s, mainly as a consequence of the Uruguay Round Agreement. To perform this estimation, we use data from the French customs and tariff rates provided by the TRAINS data base. Like in Buono and Lalanne (2009), we take advantage of the variations in tariffs over time. It allows us to exploit the panel structure of the data, which is not possible when using distance instead of tariffs. The results and the estimated reaction of firms to changes in variable export costs are strongly affected. From a cross-section, we find that the effect of tariffs on exports channels evenly through the number of exporting firms - the extensive margin - and through the exports per firm - the intensive margin. When using the panel structure, only the intensive margin reacts to tariff reductions. To understand what underlies this result, we study the role played by incumbent exporters. The latter are responsible for 95 % of the response of French exports to tariff reductions. Finally, we find that firms respond to these lower export costs by increasing their amounts exported by product rather than by exporting new products.Tariffs, Trade margins, Uruguay Round