The effect of removing non-tariff barriers on trade - a synthetic control analysis; Did the implementation of the Comprehensive Economic and Trade Agreement (CETA) in 2017 increase real pharmaceutical export values from the EU to Canada?

Sammanfattning

This paper examines whether the implementation of the Comprehensive Economic and Trade Agreement between the European Union and Canada in 2017 increased EU pharmaceutical exports to Canada. Since pharmaceutical exports from the EU to Canada already faced a zero tariff prior to CETA, any estimated effect can be attributed to the removal of non-tariff barriers, making this a particularly clean setting for isolating the impact of technical barrier reductions. To estimate this effect, the Synthetic Control Method is used, constructing a weighted combination of five OECD countries to create a data-driven counterfactual for Canada in the absence of the agreement. The results suggest a positive treatment effect from 2017 to 2019 with an average gap of 24.6% throughout this period. However, the period from 2020 to 2023 cannot clearly be interpreted due to the confounding effects of the Covid-19 pandemic. Robustness checks including an in-space placebo test, a leave-one-out analysis and a covariate sensitivity analysis generally support the main findings though do not allow for strong statistical conclusions. Due to the small donor pool and Covid distortions, we cannot confirm that the estimated effect is statistically significant. The paper therefore concludes that while the results suggest a positive effect of non-tariff barrier removal, the evidence is insufficient to rule out that the observed gap is due to chance or an unobserved confounding factor.