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Variable demand elasticities and tariff liberalization

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  • 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.

Suggested Citation

  • Spearot, Alan C., 2013. "Variable demand elasticities and tariff liberalization," Journal of International Economics, Elsevier, vol. 89(1), pages 26-41.
    • Handle: RePEc:eee:inecon:v:89:y:2013:i:1:p:26-41
    DOI: 10.1016/j.jinteco.2012.05.012
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    More about this item

    Keywords

    Firm heterogeneity; Variable elasticities; Trade liberalization; Non-discrimination;
    All these keywords.

    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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