Integration Agreements and Firm Internationalization
An analysis of the effects of different trade policy instruments on the internationalization of Dutch firms over the period 2008-2018.
Economic Integration Agreements (EIAs) can be powerful instruments for countries to stimulate the international activity of their firms. We combine micro data on the international trade and investment activities of Dutch firms as well as the presence of tariff and non-tariff measures over the period 2008-2018 with macro data on the presence of preferential trade (PTAs), bilateral investment (BITs) and double taxation treaties (DTTs). During this period, we show that non-tariff measures have been increasing while the decrease in tariff reductions has stagnated. In addition, we show that PTAs are positively associated with the extensive and intensive margin of trade and investment flows, while the results for BITs and DTTs are more diffuse. We exploit the granularity of our firm level data to show that larger firms, already facing on average higher tariffs, are more negatively affected by such tariffs than smaller firms. On the other hand, SMEs are more affected by non-tariff measures. Given the important role that SMEs play in distributing the gains of globalization to the wider society, a tentative policy recommendation would be to focus further on deepening trade agreements and streamline non-tariff measures.