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Complements Or Substitutes? Preferential And Multilateral Trade Liberalization At The Sectoral Level

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Executive Summary

This paper explores the relationship between preferential and multilateral trade liberalization at the sectoral level using a unique dataset that includes data on Most Favored Nation (MFN) and bilateral preferential tariffs at the 4-digit ISIC level for 11 Latin American countries over the period 1985 - 2005. The authors find evidence of heterogeneity across sectors. While in some industries, complementary effects between both kinds of trade liberalization are observed, in others no significant links are detected and - in a few cases - even substitutability seems to prevail. Variation across sectors appears to be systematically related to both import demand elasticity's and countries' sectoral comparative advantages.

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