Do Rules of Origin Constrain Export Growth? Firm-Level Evidence from Colombia

Apr 2014
This paper estimates empirically the effect of preference utilization on export growth at the level of the firm using a unique transaction-level dataset of Colombia's imports from Argentina, Peru and Uruguay over 2000-2011, a period during which Colombia granted improved market access to Argentina and Uruguay. We show that preference utilization induces sorting among exporters on the basis of size and intermediates sourcing. We also show that preference utilization correlates strongly with export growth after controlling for firm-specific, time-variant unobservables through a powerful array of firm-year and product-year fixed effects. Our results suggest that the cost of complying with rules of origin is higher for larger firms because those tend to source internationally their intermediates.