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Flexible and welfare-consistent tariff aggregation over exporter regions

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  • Himics, Mihály
  • Britz, Wolfgang

Abstract

In this paper we improve on existing tariff aggregation techniques in applied equilibrium models (AEM) with the aim of correcting for two sources of bias in simulated welfare results: (1) aggregation over exporter regions with significant tariff dispersion and (2) variable tariff rates determined by Tariff Rate Quota (TRQ) regimes. Both aspects seem important due to an increasing number of bilateral FTAs which drive up tariff divergence across countries and tend to apply TRQs, at least temporarily. We demonstrate that the proposed aggregation technique can handle both tariff and non-tariff barriers to trade by combining a number of tariff indexes in a modified trade balance condition in a welfare-consistent manner. Additionally, different rent-allocation shares for TRQs can be easily introduced in our methodological extension. We also address the implications of some rather strict behavioral assumptions with regard to demand that welfare consistent aggregation requires. An empirical analysis of the Korean dairy market in the EU–South Korea FTA using the proposed method shows that simulated welfare gains are largely affected by the tariff aggregation technique over regions and trade policy instruments. Based on this finding we recommend the more widespread application of welfare consistent tariff aggregation in applied modeling and further research on that topic.

Suggested Citation

  • Himics, Mihály & Britz, Wolfgang, 2016. "Flexible and welfare-consistent tariff aggregation over exporter regions," Economic Modelling, Elsevier, vol. 53(C), pages 375-387.
  • Handle: RePEc:eee:ecmode:v:53:y:2016:i:c:p:375-387
    DOI: 10.1016/j.econmod.2015.10.024
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    References listed on IDEAS

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    Cited by:

    1. Robert M'barek & Jesus Barreiro-Hurle & Pierre Boulanger & Arnaldo Caivano & Pavel Ciaian & Hasan Dudu & Maria Espinosa Goded & Thomas Fellmann & Emanuele Ferrari & Sergio Gomez Y Paloma & Celso Gorri, 2017. "Scenar 2030 - Pathways for the European agriculture and food sector beyond 2020," JRC Working Papers JRC108449, Joint Research Centre (Seville site).
    2. repec:eee:jfpoli:v:76:y:2018:i:c:p:120-129 is not listed on IDEAS
    3. Hübler, Michael & Pothen, Frank, 2017. "Trade-induced productivity gains reduce incentives to impose strategic tariffs," Economic Modelling, Elsevier, vol. 61(C), pages 420-431.
    4. Britz, Wolfgang & van der Mensbrugghe, Dominique, 2016. "Reducing unwanted consequences of aggregation in large-scale economic models - A systematic empirical evaluation with the GTAP model," Economic Modelling, Elsevier, vol. 59(C), pages 463-472.
    5. repec:eee:ecmode:v:64:y:2017:i:c:p:399-408 is not listed on IDEAS
    6. Himics, Mihaly & Listorti, Giulia & Tonini, Axel, 2017. "Advanced tariff aggregation in global trade models: dismantling tariffs on the Swiss beef market," 2017 International Congress, August 28-September 1, 2017, Parma, Italy 261284, European Association of Agricultural Economists.
    7. Countryman, Amanda M. & Narayanan, Badri G., 2017. "Price volatility, tariff structure and the special safeguard mechanism," Economic Modelling, Elsevier, vol. 64(C), pages 399-408.

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