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A welfare ranking of multilateral reductions in real and tariff trade barriers when firms are heterogenous

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  • Philipp J.H. Schröder

    (Department of Economics and Business, Aarhus University, Denmark)

  • Allan Sørensen

    () (Department of Economics and Business, Aarhus University, Denmark)

Abstract

Trade liberalization comes about through reductions in various types of trade costs. This paper introduces, apart from real variable (i.e. iceberg) and fixed export costs, two partially redistributed tariffs into a Melitz (2003) model. We present comparable results for welfare effects and changes in industry structure by analyzing the different liberalization channels for an equal effect on openness. The welfare ranking is sensitive to the degree of efficiency in tariff redistribution, e.g. the share of tariff revenues wasted on rent-seeking activities. Ad valorem tariff cuts switch from the least to the most preferred mode of liberalization as the fraction of tariffs wasted moves from zero to unity. Apart from a situation with no tariff redistribution, reductions in iceberg trade costs are preferred to reductions in real fixed trade costs which again are preferred to cuts in unit tariffs.

Suggested Citation

  • Philipp J.H. Schröder & Allan Sørensen, 2011. "A welfare ranking of multilateral reductions in real and tariff trade barriers when firms are heterogenous," Economics Working Papers 2011-18, Department of Economics and Business Economics, Aarhus University.
  • Handle: RePEc:aah:aarhec:2011-18
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    References listed on IDEAS

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    Cited by:

    1. Felbermayr, Gabriel & Jung, Benjamin & Larch, Mario, 2013. "Icebergs versus tariffs: A quantitative perspective on the gains from trade," University of Tuebingen Working Papers in Economics and Finance 53, University of Tuebingen, Faculty of Economics and Social Sciences.
    2. Tibor Besedeš & Matthew T. Cole, 2017. "Distorted Trade Barriers: A Dissection of Trade Costs in a “Distorted Gravity” Model," Review of International Economics, Wiley Blackwell, vol. 25(1), pages 148-164, February.
    3. Felbermayr, Gabriel & Jung, Benjamin & Larch, Mario, 2013. "Optimal tariffs, retaliation, and the welfare loss from tariff wars in the Melitz model," Journal of International Economics, Elsevier, vol. 89(1), pages 13-25.
    4. Felbermayr, Gabriel & Jung, Benjamin & Larch, Mario, 2015. "The welfare consequences of import tariffs: A quantitative perspective," Journal of International Economics, Elsevier, vol. 97(2), pages 295-309.

    More about this item

    Keywords

    Real Trade Costs; Non-Tariff Barriers; Tariffs; Frictional Trade Costs; Iceberg Costs; Integration;

    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
    • F15 - International Economics - - Trade - - - Economic Integration

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