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Variable demand elasticities and tariff liberalization

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Listed author(s):
  • Spearot, Alan C.

Abstract

This paper examines tariff liberalization within an environment of heterogeneous demand elasticities. Varieties produced at a lower cost (a) are imported at lower absolute demand elasticities and (b) earn higher revenues. By virtue of larger demand elasticities, low revenue varieties benefit the most from tariff liberalization. Further, if varieties are substitutable, low revenue varieties benefit at the expense of high revenue varieties. These predictions are confirmed using a case study of US Uruguay Round ad-valorem tariff cuts, where within exporter-industry groups, low revenue varieties experienced large gains, and high revenue varieties experienced negligible gains. Further, I find evidence suggesting that these effects were also relevant for other trade shocks, such as exchange rates and specific tariffs.

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Article provided by Elsevier in its journal Journal of International Economics.

Volume (Year): 89 (2013)
Issue (Month): 1 ()
Pages: 26-41

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Handle: RePEc:eee:inecon:v:89:y:2013:i:1:p:26-41
DOI: 10.1016/j.jinteco.2012.05.012
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505552

Keywords: Firm heterogeneity; Variable elasticities; Trade liberalization; Non-discrimination;

Find related papers by JEL classification:

  • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
  • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
  • F14 - International Economics - - Trade - - - Empirical Studies of Trade

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Cited by:

  1. Fontagné, Lionel & Orefice, Gianluca & Piermartini, Roberta & Rocha, Nadia, 2015. "Product standards and margins of trade: Firm-level evidence," Journal of International Economics, Elsevier, vol. 97(1), pages 29-44.
  2. Pierola Castro,Martha D. & Fernandes,Ana Margarida & Farolec,Thomas, 2015. "The role of imports for exporter performance in Peru," Policy Research Working Paper Series 7492, The World Bank.
  3. Diez, Federico J. & Mora, Jesse & Spearot, Alan C., 2016. "Firms in international trade," Working Papers 16-25, Federal Reserve Bank of Boston.
  4. Fontagné, Lionel & Orefice, Gianluca & Piermartini, Roberta, 2016. "Making (small) firms happy: The heterogeneous effect of trade facilitation measures," WTO Staff Working Papers ERSD-2016-03, World Trade Organization (WTO), Economic Research and Statistics Division.
  5. Erik Figueiredo & Luiz Lima & Georg Schaur, 2016. "The effect of the Euro on the bilateral trade distribution," Empirical Economics, Springer, vol. 50(1), pages 17-29, February.

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