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On Estimating the Static Effects of Preferential Tariffs

  • Dennis G. Beckmann
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    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.

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    File URL: http://college.holycross.edu/RePEc/eej/Archive/Volume13/V13N4P389_397.pdf
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    Article provided by Eastern Economic Association in its journal Eastern Economic Journal.

    Volume (Year): 13 (1987)
    Issue (Month): 4 (Oct-Dec)
    Pages: 389-397

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    Handle: RePEc:eej:eeconj:v:13:y:1987:i:4:p:389-397
    Contact details of provider: Postal: c/o Dr. Alexandre Olbrecht, The Anisfield School of Business 205, Ramapo College, 505 Ramapo Valley Road, Ramapo, New Jersey 07430, USA
    Phone: (201) 684-7346
    Web page: http://www.ramapo.edu/eea/journal.html
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    1. 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.
    2. Clague, Christopher, 1971. "Tariff Preferences and Separable Utility," American Economic Review, American Economic Association, vol. 61(2), pages 188-94, May.
    3. 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.
    4. 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.
    5. 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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