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Tariff pass‐through in the middle products model

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  • Eric W. Bond

Abstract

I use the middle products model of Sanyal and Jones to study the pass‐through of a tariff on the price of non‐traded final goods. I extend their analysis by comparing the short‐run effect of the tariff, when all factors are immobile, with the effects when labor is mobile between all sectors. It is shown that the short‐run pass‐through may vary from zero to a magnified effect on the price of the final product, depending on the elasticities of substitution in consumption and production. The relative magnitude of these elasticities determines whether the pass‐through with labor mobility is greater or less than the short‐run pass‐through.

Suggested Citation

  • Eric W. Bond, 2021. "Tariff pass‐through in the middle products model," International Journal of Economic Theory, The International Society for Economic Theory, vol. 17(1), pages 20-30, March.
    • Handle: RePEc:bla:ijethy:v:17:y:2021:i:1:p:20-30
    DOI: 10.1111/ijet.12293
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    References listed on IDEAS

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    1. Alberto Cavallo & Gita Gopinath & Brent Neiman & Jenny Tang, 2021. "Tariff Pass-Through at the Border and at the Store: Evidence from US Trade Policy," American Economic Review: Insights, American Economic Association, vol. 3(1), pages 19-34, March.
    2. Pablo D Fajgelbaum & Pinelopi K Goldberg & Patrick J Kennedy & Amit K Khandelwal, 2020. "The Return to Protectionism," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 135(1), pages 1-55.
    3. Aaron Flaaen & Ali Hortaçsu & Felix Tintelnot, 2020. "The Production Relocation and Price Effects of US Trade Policy: The Case of Washing Machines," American Economic Review, American Economic Association, vol. 110(7), pages 2103-2127, July.
    4. Kalyan K. Sanyal & Ronald W. Jones, 2018. "The Theory of Trade in Middle Products," World Scientific Book Chapters, in: International Trade Theory and Competitive Models Features, Values, and Criticisms, chapter 13, pages 203-231, World Scientific Publishing Co. Pte. Ltd..
    5. Ronald W. Jones, 2018. "The Structure of Simple General Equilibrium Models," World Scientific Book Chapters, in: International Trade Theory and Competitive Models Features, Values, and Criticisms, chapter 4, pages 61-84, World Scientific Publishing Co. Pte. Ltd..
    6. Ronald W. Jones, 1961. "Comparative Advantage and the Theory of Tariffs: A Multi-Country, Multi-Commodity Model," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 28(3), pages 161-175.
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