Yi (2003) argues that, since average tariff rates have fallen from about 15 percent in 1960
to 5 percent in 1990, incorporating policy changes into the new trade theory cannot account for
the increase in trade unless we assume very high elasticities of substitution in varieties. He
presents a model in which it is increases in international vertical integration, induced by changes
in trade policy, that account for the increase in the ratio of trade to product. It must be pointed
out, however, that a large number of non-tariff barriers to trade have been increasingly used
since the 1960s. To the extent that these trade barriers have fallen significantly, a version of the
new trade model that emphasizes trade policy may be capable of explaining large increases in the
ratio of trade to income. Yet, the evidence with respect to their quantitative importance as a
barrier to trade is mixed, as shown, for example, by Harrigan (1993), Hummels (1990), and Laird
and Yeats (1990).