“What is the impact on trade flows by leaving the Andean Trade Promotion and Drug Eradication Act?”
This paper examines how leaving the Andean Trade Promotion and Drug Eradication Act (ATPDEA), affected the trade flows between Bolivia and the United States of America. To perform the empirical analysis, a natural experiment set up is used with Bolivia and Ecuador serving as the respective treatment and control group, over the time period from 2001-2013. HS six-digit product code panel data on USA imports, have been used to conduct a high dimensional fixed effects model. The Poisson-Pseudo Maximum Likelihood (PPML) estimator has been applied to account for zero trade flows. The theoretical base of this research paper is given by the gravity model. Previous research has found that entering a trade agreement leads to an increase in trade volumes between partner countries. Thus, a decrease is expected when leaving such an agreement. This research paper provides insight on the effect of breaking up a chosen trade agreement on import volumes. This paper finds that for a one percent increase in the tariff rate, which is due to leaving the ATPDEA, the import volume is expected to decrease by 16.30%. Furthermore, a one percent decrease of the exporting country’s currency, results in a significant increase of imports by 6.21%. This paper finds significant effects when breaking up a chosen trade agreement.