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Import Demand Elasticities and Trade Distortions

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  • Kee, Hiau Looi
  • Nicita, Alessandro
  • Olarreaga, Marcelo

Abstract

To study the effects of tariffs on GDP one needs import demand elasticities at the tariff line level that are consistent with GDP maximization. These do not exist. We modify Kohli’s (1991) GDP function approach to estimate demand elasticities for 4625 imported goods in 117 countries. Following Anderson and Neary (1992, 1994) and Feenstra (1995), we use these estimates to construct theoretically-sound trade restrictiveness indices (TRIs) and GDP losses associated with existing tariff structures. Countries are revealed to be 30% more restrictive than their simple or import-weighted average tariffs would suggest. Thus, distortion is nontrivial. GDP losses are the largest in the United States, China, India, Mexico and Germany.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4669.

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Date of creation: Oct 2004
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Handle: RePEc:cpr:ceprdp:4669

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Keywords: deadweight loss; GDP function; import demand elasticities; trade restrictiveness;

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