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Tariff Reductions, Entry, and Welfare: Theory and Evidence for the Last Two Decades

Author

Listed:
  • Lorenzo Caliendo
  • Robert C. Feenstra
  • John Romalis
  • Alan M. Taylor

Abstract

In a standard multi-sector, heterogeneous-firm trade model the effect of tariffs on entry, especially in the presence of production linkages, can reverse the traditional positive optimal-tariff argument. We construct and employ a new, large, disaggregated tariff dataset and then apply a 189-country, 15-sector version of our model in order to quantify the trade, entry, and welfare effects of trade liberalization over the period 1990–2010. We find that the impact on firm entry was larger in Advanced Economies relative to Emerging and Developing Economies; that more than 90% of the gains from trade are a consequence of the reductions in MFN tariffs (the Uruguay Round); and that for some countries, particularly some Emerging and Developing Economies, there are additional gains from a further move to complete free trade. The countries which would gain from the elimination of tariffs have a strong rank correlation with those that gain from a negative optimal tariff, which comprise one-quarter of the countries in the world.

Suggested Citation

  • Lorenzo Caliendo & Robert C. Feenstra & John Romalis & Alan M. Taylor, 2015. "Tariff Reductions, Entry, and Welfare: Theory and Evidence for the Last Two Decades," NBER Working Papers 21768, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:21768
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    References listed on IDEAS

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    Cited by:

    1. Pinelopi K. Goldberg & Nina Pavcnik, 2016. "The Effects of Trade Policy," NBER Working Papers 21957, National Bureau of Economic Research, Inc.
    2. repec:eee:inecon:v:107:y:2017:i:c:p:34-59 is not listed on IDEAS
    3. Nigai, Sergey, 2017. "A tale of two tails: Productivity distribution and the gains from trade," Journal of International Economics, Elsevier, vol. 104(C), pages 44-62.
    4. Arezki, Rabah & Fetzer, Thiemo & Pisch, Frank, 2017. "On the comparative advantage of U.S. manufacturing: Evidence from the shale gas revolution," Journal of International Economics, Elsevier, vol. 107(C), pages 34-59.
    5. repec:elg:eechap:17028_2 is not listed on IDEAS
    6. repec:oup:erevae:v:44:y:2017:i:4:p:592-633. is not listed on IDEAS
    7. repec:eee:inecon:v:108:y:2017:i:c:p:260-273 is not listed on IDEAS
    8. Chang-Tai Hsieh & Nicholas Li & Ralph Ossa & Mu-Jeung Yang, 2016. "Accounting for the New Gains from Trade Liberalization," Working Papers 16-14, Center for Economic Studies, U.S. Census Bureau.
    9. Scott L Baier & Jeffrey H Bergstrand & Matthew W Clance, 2017. "Heterogeneous economic integration agreements' effects, gravity, and welfare," Discussion Papers 2017-05, University of Nottingham, GEP.
    10. Ralph Ossa, 2016. "Quantitative Models of Commercial Policy," NBER Working Papers 22062, National Bureau of Economic Research, Inc.
    11. Scott L. Baier & Amanda Kerr & Yoto V. Yotov, 2018. "Gravity, distance, and international trade," Chapters,in: Handbook of International Trade and Transportation, chapter 2, pages 15-78 Edward Elgar Publishing.
    12. Gabriel Felbermayr & Feodora Teti & Erdal Yalcin, 2018. "On the Profitability of Trade Deflection and the Need for Rules of Origin," CESifo Working Paper Series 6929, CESifo Group Munich.
    13. Jung, Benjamin & Kohler, Wilhelm, 2016. "Commercial Policies in the Presence of Input-Output Linkages," Annual Conference 2016 (Augsburg): Demographic Change 145833, Verein für Socialpolitik / German Economic Association.
    14. repec:eee:inecon:v:106:y:2017:i:c:p:20-36 is not listed on IDEAS
    15. Feng, Ling & Li, Zhiyuan & Swenson, Deborah L., 2017. "Trade policy uncertainty and exports: Evidence from China's WTO accession," Journal of International Economics, Elsevier, vol. 106(C), pages 20-36.
    16. Nuno Limão, 2016. "Preferential Trade Agreements," NBER Working Papers 22138, National Bureau of Economic Research, Inc.

    More about this item

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • 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
    • F17 - International Economics - - Trade - - - Trade Forecasting and Simulation
    • F60 - International Economics - - Economic Impacts of Globalization - - - General
    • F62 - International Economics - - Economic Impacts of Globalization - - - Macroeconomic Impacts

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