On Estimating the Static Effects of Preferential Tariffs
It is shown that the estimates of trade creation, trade diversion, and the erosion of GSP benefits derived from the well-known methodology of Robert Baldwin and Tracy Murray (1977) are biased for two reasons. First, the estimates neglect an intercommodity substitution and secondly, the estimates are based on free on board values of imports rather than the values actually paid by consumers in the donor country. Acknowledging these biases results in the overestimation of the aforementioned aggregate effects by 9 percent, 57 percent, and 54 percent respectively. The implicit own- and cross-price elasticities of demand of the corrected methodology are also reported.
Volume (Year): 13 (1987)
Issue (Month): 4 (Oct-Dec)
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- Pomfret, Richard, 1986. "MFN Tariff Reductions and Developing Country Trade Benefits under the GSP: A Comment," Economic Journal, Royal Economic Society, vol. 96(382), pages 534-36, June.
- Clague, Christopher, 1971. "Tariff Preferences and Separable Utility," American Economic Review, American Economic Association, vol. 61(2), pages 188-94, May.
- Ahmad, Jaleel, 1978. "Tokyo Rounds of Trade Negotiations and the Generalised System of Preferences," Economic Journal, Royal Economic Society, vol. 88(350), pages 285-95, June.
- Rousslang, Donald & Parker, Stephen, 1984. "Cross-Price Elasticities of U.S. Import Demand," The Review of Economics and Statistics, MIT Press, vol. 66(3), pages 518-23, August.
- Baldwin, R E & Murray, Tracy, 1977. "MFN Tariff Reductions and Developing Country Trade Benefits under the GSP," Economic Journal, Royal Economic Society, vol. 87(345), pages 30-46, March.
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