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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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    References listed on IDEAS

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    Citations

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    Cited by:

    1. 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.
    2. repec:bla:jindec:v:64:y:2016:i:4:p:835-874 is not listed on IDEAS
    3. repec:spr:weltar:v:154:y:2018:i:1:d:10.1007_s10290-017-0303-3 is not listed on IDEAS
    4. Bas, Maria & Mayer, Thierry & Thoenig, Mathias, 2017. "From micro to macro: Demand, supply, and heterogeneity in the trade elasticity," Journal of International Economics, Elsevier, vol. 108(C), pages 1-19.
    5. 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.
    6. 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.
    7. Lionel Fontagné & Gianluca Orefice & Roberta Piermartini & Nadia Rocha, 2015. "Product Standards and Margins of Trade: Firm-Level Evidence Product Standards and Margins of Trade: Firm-Level Evidence," PSE - Labex "OSE-Ouvrir la Science Economique" hal-01299757, HAL.
    8. Diez, Federico J. & Mora, Jesse & Spearot, Alan C., 2016. "Firms in international trade," Working Papers 16-25, Federal Reserve Bank of Boston.
    9. 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.

    More about this item

    Keywords

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

    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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