Tariff Elasticity in Korea’s Imports: A Structural Gravity Approach Using Micro-Level Data

This paper estimates Korea’s tariff elasticity using 2014 transaction-level customs data covering about 7.5 million import records from 230 exporters and 10,557 HS10 products. Using the structural gravity framework of Fontagné et al. (2022), we employ PPML with alternative fixed-effect structures to address endogeneity. Tariff elasticities range from 5 to 10 in absolute value when exporter—product fixed effects are excluded, but fall sharply once these fixed effects are included, largely because limited within-year identifying variation constrains estimation rather than indicating that tariff effects are economically small. Elasticities differ across products: consumer goods are highly elastic, homogeneous goods such as minerals display very large elasticities, and several HS sections show no significant estimates. These results highlight substantial heterogeneity across products and the risks of relying on a single aggregate elasticity. We also show that non-tariff trade costs matter: freight and insurance charges vary more than tariffs and remain strongly elastic under extensive fixed effects. Tariff and transport-cost elasticities are statistically similar when exporter—product fixed effects are excluded but diverge once detailed controls are added. Robustness checks using log-linear OLS and bias-corrected PPML support the qualitative patterns.