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Non-Equivalent Ad Valorem Equivalents and Gravity

Author

Listed:
  • Larue, Bruno
  • Kotchoni, Rachidi
  • Pouliot, Sébastien

Abstract

Specific tariffs are more commonly applied in agriculture than in the rest of the economy. We argue that the volatility of agricultural commodity markets is a contributing factor by showing that higher expected welfare can be achieved with the optimal specific tariff than with its ad valorem counterpart in the presence of volatile market conditions in the exporting countries. Contrary to popular wisdom, more volatility does not warrant higher tariffs unless the distribution of the foreign autarky price is negatively skewed. For arbitrary specific tariffs, the transformation into ad valorem equivalents may decrease or increase the volume of trade and the world price. We also show that countries with more restrictive specific tariffs are less likely to pursue tariff simplification. We estimate a gravity model about beef trade and find that specific tariffs have a small reducing effect, beyond the effect stemming from their ad valorem equivalent rate.

Suggested Citation

  • Larue, Bruno & Kotchoni, Rachidi & Pouliot, Sébastien, 2013. "Non-Equivalent Ad Valorem Equivalents and Gravity," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 150471, Agricultural and Applied Economics Association.
  • Handle: RePEc:ags:aaea13:150471
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    File URL: http://purl.umn.edu/150471
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    References listed on IDEAS

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    More about this item

    Keywords

    Agricultural Finance; Financial Economics; F13; F14; Q17; Q11;

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • Q17 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agriculture in International Trade
    • Q11 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Aggregate Supply and Demand Analysis; Prices

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