Are nontariff measures and tariffs substitutes? Some panel data evidence

Using new estimates of ad valorem equivalent of nontariff measures (NTMs) over time, this paper examines NTMs and tariffs’ relationship for a sample of 70 economies for 4,949 products at the 6-digit harmonized system level over the period 2003–2015. A panel data methodology models the lagged adjustment of NTMs to tariffs, consistent with a causal relationship. Trade policy substitution is found when the models are estimated in both levels and changes; with this holding for both OECD and non-OECD countries, but not for the agriculture sector in OECD countries. Overall, there is a fairly complete substitution between policy instruments in absolute terms.