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What Goes Around Comes Around: Export-Enhancing Effects of Import-Tariff Reductions

Author

Listed:
  • Kazunobu Hayakawa

    (Institute of Developing Economies (IDE-JETRO))

  • Jota Ishikawa

    (Faculty of Economics, Hitotsubashi University and the Research Institute of Economy, Trade and Industry (RIETI))

  • Nori Tarui

    (Department of Economics, University of Hawaii at Manoa and the University of Hawaii Economic Research Organization (UHERO))

Abstract

In international trade, transportation requires a round trip for which a transport firm has to commit to shipping capacity that is sufficient to meet the maximum shipping volume. This may cause the “backhaul problem.” Trade theory suggests that, facing the problem, transport firms with market power adjust their freight rates strategically when import tariffs change. As a consequence, a country reducing its import tariffs may experience an increase in exports as well as imports. Using worldwide data covering 1995-2007, we find evidence that supports these predictions: a 1% reduction in an importer’s tariffs increases the import freight rates by around 0.8%; decreases the export freight rates by around 1.1%; and increases the export quantity by 0.6% to 1%. These findings indicate a new mechanism through which import-tariff reductions lead to export expansions.

Suggested Citation

  • Kazunobu Hayakawa & Jota Ishikawa & Nori Tarui, 2020. "What Goes Around Comes Around: Export-Enhancing Effects of Import-Tariff Reductions," Working Papers 202009, University of Hawaii at Manoa, Department of Economics.
  • Handle: RePEc:hai:wpaper:202009
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    References listed on IDEAS

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    More about this item

    Keywords

    Transport firm; freight rates; tariffs; backhaul problem;
    All these keywords.

    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
    • R40 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - General

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