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Bilateral Import Demand Elasticities and Balanced Trade Protection

Author

Listed:
  • Hiau Kee

    (The World Bank)

  • Cristina Neagu

    (The World Bank)

  • Yoto Yotov

    (Center for Global Policy Analysis, Drexel University)

Abstract

We propose a theory-based tariff index - the Balanced Trade Tariff Index (BTTI) - a uniform tariff that results in balanced bilateral trade. The BTTI decomposes into a preference-adjusted tariff term and a trade deficit term. Constructing the BTTI requires bilateral product-level import demand elasticities, which we estimate via a translog GDP function with US data, 2010-2023. The elasticities are heterogeneous across products, trade partners, and depending on the direction of trade, with broader implications for quantifying the gains from trade. The resulting BTTIs are significantly smaller than the 'Liberation Day' tariffs for most countries, and incurring less deadweight losses.

Suggested Citation

  • Hiau Kee & Cristina Neagu & Yoto Yotov, 2026. "Bilateral Import Demand Elasticities and Balanced Trade Protection," Working Papers 202604, Center for Global Policy Analysis, LeBow College of Business, Drexel University.
    • Handle: RePEc:drx:wpaper:202604
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    File URL: https://www.lebow.drexel.edu/sites/default/files/2026-02/cgpa_paper_2026_04.pdf
    File Function: First version, 2026
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    More about this item

    Keywords

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    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions

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