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Market Access Through Bound Tariffs

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Author Info

  • Davide Sala
  • Philipp J. H. Schröder
  • Erdal Yalcin

Abstract

WTO negotiations deal predominantly with bound - besides applied - tariff rates. But, how can reductions in tariffs ceilings, i.e. tariff rates that no exporter may ever actually be confronted with, generate market access? The answer to this question relates to the effects of tariff bindings on the risk that exporters face in destination markets. The present paper formalizes the underlying interaction of risk, fixed export costs and firms’ market entry decisions based on techniques known from the real options literature; doing so we highlight the important role of bound tariffs at the extensive margin of trade. We find that bound tariffs are more effective with higher risk destination markets, that a large binding overhang may still command substantial market access, and that reductions in bound tariffs generate effective market access even when bound rates are above current and long-term applied rates.

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Bibliographic Info

Article provided by Scottish Economic Society in its journal Scottish Journal of Political Economy.

Volume (Year): 57 (2010)
Issue (Month): s1 (07)
Pages: 272-289

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Handle: RePEc:bla:scotjp:v:57:y:2010:i:s1:p:272-289

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References

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  1. Ottaviano, Gianmarco & Melitz, Marc, 2008. "Market Size, Trade, and Productivity," Scholarly Articles 3229096, Harvard University Department of Economics.
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  4. Mohamed Hedi Bchir & Sébastien Jean & David Laborde, 2005. "Binding Overhang and Tariff-Cutting Formulas," Working Papers 2005-18, CEPII research center.
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Citations

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Cited by:
  1. Davide Sala & Erdal Yalcin, 2012. "Export Experience of Managers and the Internationalization of Firms," Ifo Working Paper Series Ifo Working Paper No. 139, Ifo Institute for Economic Research at the University of Munich.
  2. Kyle Handley & Nuno Limão, 2012. "Trade and Investment under Policy Uncertainty: Theory and Firm Evidence," NBER Working Papers 17790, National Bureau of Economic Research, Inc.
  3. Handley, Kyle, 2012. "Exporting under Trade Policy Uncertainty: Theory and Evidence," Working Papers 634, Research Seminar in International Economics, University of Michigan.

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