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Import demand elasticities and trade distortions

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

Abstract

To study the effects of tariffs on gross domestic product (GDP), one needs import demand elasticities at the tariff line level that are consistent with GDP maximization. These do not exist. The authors modify Kohli's (1991) GDP function approach to estimate demand elasticities for 4,625 imported goods in 117 countries. Following Anderson and Neary (1992, 1994) and Feenstra (1995), they use these estimates to construct theoretically sound trade restrictiveness indices, and GDP lossesassociated with existing tariff structures. Countries are revealed to be 30 percent more restrictive than their simple or import-weighted average tariffs would suggest. Thus, distortion is nontrivial. GDP losses are largest in China, Germany, India, Mexico, and the United States.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 3452.

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Date of creation: 01 Nov 2004
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Handle: RePEc:wbk:wbrwps:3452

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Keywords: Environmental Economics&Policies; Consumption; Economic Theory&Research; Markets and Market Access; Information Technology; Environmental Economics&Policies; Economic Theory&Research; Access to Markets; Markets and Market Access; TF054105-DONOR FUNDED OPERATION ADMINISTRATION FEE INCOME AND EXPENSE ACCOUNT;

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  1. Feenstra, Robert C., 1995. "Estimating the effects of trade policy," Handbook of International Economics, Elsevier, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 30, pages 1553-1595 Elsevier.
  2. James E. Anderson & J. Peter Neary, 1998. "The Mercantilist Index of Trade Policy," Boston College Working Papers in Economics, Boston College Department of Economics 416, Boston College Department of Economics.
  3. Gallaway, Michael P. & McDaniel, Christine A. & Rivera, Sandra A., 2003. "Short-run and long-run industry-level estimates of U.S. Armington elasticities," The North American Journal of Economics and Finance, Elsevier, Elsevier, vol. 14(1), pages 49-68, March.
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  13. Anderson, James E & Neary, J Peter, 1994. "Measuring the Restrictiveness of Trade Policy," World Bank Economic Review, World Bank Group, World Bank Group, vol. 8(2), pages 151-69, May.
  14. James E Anderson & J Peter Neary, 2004. "Welfare versus Market Access - The Implications of Tariff Structure for Tariff Reform," Working Papers, School Of Economics, University College Dublin 200423, School Of Economics, University College Dublin.
  15. Kei-Mu Yi, 2003. "Can Vertical Specialization Explain the Growth of World Trade?," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 111(1), pages 52-102, February.
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  18. Robert C. Feenstra, 1992. "How Costly Is Protectionism?," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 6(3), pages 159-178, Summer.
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