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Tariffs and Firm-Level Heterogeneous Fixed Export Costs

  • Jørgensen Jan Guldager


    (University of Southern Denmark)

  • Schröder Philipp J. H.


    (Aarhus School of Business and DIW Berlin)

This paper presents a two-country intra-industry trade model with bilateral ad valorem tariffs and fixed export costs that are heterogeneous across firms. In this model not all firms will choose to export. We examine the effects of reciprocal changes in the tariff and the fixed export barrier on the number of firms, firm profits, tariff revenue and consumer welfare. We show that both types of trade barriers reduce (increase) the number of exporting (pure domestic) firms. However, the sum of available home and foreign varieties increases for small tariffs. Firm profits are falling in both tariff and fixed export cost barriers. Tariff revenue falls when fixed export costs increase whereas we have a Laffer curve effect for the tariff. Welfare falls when fixed export costs increase and increases for small tariffs and falls for large tariffs, i.e. there exists a welfare maximizing tariff.

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Article provided by De Gruyter in its journal The B.E. Journal of Economic Analysis & Policy.

Volume (Year): 5 (2006)
Issue (Month): 1 (July)
Pages: 1-17

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Handle: RePEc:bpj:bejeap:v:contributions.5:y:2006:i:1:n:18
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  1. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November.
  2. Baldwin, Richard & Forslid, Rikard, 2004. "Trade Liberalization with Heterogenous Firms," CEPR Discussion Papers 4635, C.E.P.R. Discussion Papers.
  3. Fukushima, Takashi & Kim, Namdoo, 1989. "Welfare improving tariff changes : A case of many goods and countries," Journal of International Economics, Elsevier, vol. 26(3-4), pages 383-388, May.
  4. Catia Montagna, 1998. "Efficiency Gaps, Love of Variety and International Trade," Dundee Discussion Papers in Economics 090, Economic Studies, University of Dundee.
  5. Anthony Venables, 1994. "Integration and the export behaviour of firms: Trade costs, trade volumes and welfare," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 130(1), pages 118-132, March.
  6. Krugman, Paul, 1980. "Scale Economies, Product Differentiation, and the Pattern of Trade," American Economic Review, American Economic Association, vol. 70(5), pages 950-59, December.
  7. repec:rus:hseeco:122439 is not listed on IDEAS
  8. Kar-yiu Wong & Ben Lockwood, 1997. "Specific and Ad Valorem Tariffs are not Equivalent in Trade Wars," Discussion Papers in Economics at the University of Washington 0081, Department of Economics at the University of Washington.
  9. Yeaple, Stephen Ross, 2005. "A simple model of firm heterogeneity, international trade, and wages," Journal of International Economics, Elsevier, vol. 65(1), pages 1-20, January.
  10. Schmitt, Nicolas & Yu, Zhihao, 2001. "Economies of scale and the volume of intra-industry trade," Economics Letters, Elsevier, vol. 74(1), pages 127-132, December.
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