Reducing Export Uncertainty: The Impact of the US-Colombia Free Trade Agreement

Abstract In an era of geopolitical instability and weakening multilateral trade regimes, the institutionalization of trade preferences influences the export behavior of firms. This paper examines the impact of the 2012 US-Colombia Free Trade Agreement (FTA) on the export margins of Colombian companies. Prior to the FTA, most Colombian exports already enjoyed duty-free access under temporary preferential programs, but these could be extended and suspended without notice, leading to considerable trade policy uncertainty. Using detailed firm-product-destination export data from the Colombian National Export Registry, we perform a triple-difference estimation of the impact of the FTA on exports that exploits variation over time, product coverage, and destinations. A key contribution is a measure of policy uncertainty at the product level based on the difference between Most Favored Nation tariffs and past preferential tariffs. We find that the FTA has significantly increased exports of treated products to the US, primarily by reducing uncertainty. There is also evidence of modest indirect effects. The results underscore the importance of stable, credible trade policy frameworks for promoting export growth and investment at the firm level.