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Market Access through Bound Tariffs

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  • 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

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2858.

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Date of creation: 2009
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Handle: RePEc:ces:ceswps:_2858

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Keywords: bound tariffs; Doha Round; WTO; heterogeneous firms; entry; dynamics; tariff bindings;

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References

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  1. Sanghamitra Das & Mark J. Roberts & James R. Tybout, 2001. "Market Entry Costs, Producer Heterogeneity, and Export Dynamics," NBER Working Papers 8629, National Bureau of Economic Research, Inc.
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  8. Peter Walkenhorst & Nora Dihel, 2003. "Tariff Bindings, Unused Protection and Agricultural Trade Liberalisation," OECD Economic Studies, OECD Publishing, vol. 2003(1), pages 231-249.
  9. Mohamed Hedi Bchir & Sébastien Jean & David Laborde, 2006. "Binding Overhang and Tariff-Cutting Formulas," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 142(2), pages 207-232, July.
  10. Evenett, Simon J., 2007. "The Trade Policy Jungle: A Survival Guide for Academic Economists," Commissioned Papers 7309, Canadian Agricultural Trade Policy Research Network.
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Cited by:
  1. Sala, Davide & Yalcin, Erdal, 2012. "Export experience of managers and the internationalization of firms," Discussion Papers of Business and Economics 18/2012, Department of Business and Economics, University of Southern Denmark.
  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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