This article sheds light on the restrictive nature of rules of origin (ROO) and on the role of
diagonal cumulation in mitigating the protectionist content of ROO. Empirical evidence
suggests that diagonal cumulation has beneficial effects on trade—particularly among spoke
countries. We show that these patterns can be reconciled with a theoretical setting where
heterogeneous firms buy intermediate inputs from domestic and foreign sources. The model
finds that switching from bilateral to diagonal cumulation relaxes the restrictiveness of the …

We analyse the impact of relaxing rules of origin (ROOs) in a simple setting with
heterogeneous firms that buy intermediate inputs from domestic and foreign sources. In
particular, we consider the impact of switching from bilateral to diagonal cumulation when
using preferences (instead of paying the MFN tariff) involving the respect of rules of origin.
We find that relaxing the restrictiveness of the ROOs leads the least productive exporters to
stop exporting. The empirical part confirms these results. We use the most recent techniques …