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Direct and Relative Effects of the Import Tariff: Method and Application Using the Industrial Level Data

Author

Listed:
  • Miao, Zhuang
  • Wu, Xiaokang
  • Yu, Jinping

Abstract

The importing country usually imposes heterogeneous import tariff rates based on the national origins of the products. Reducing the tariff rates on the products from one origin country not only increases the import flows from this country, but also decreases the import flows from the other trade partners of the importing country. (Direct and relative effects of the import tariff) This paper constructs a variation of the conventional gravity model to analyze the direct and relative effects of the import tariff on international trade flows at the industrial level. Based on our theoretical framework, we compute a new indicator to measure the relative effect and estimate both effects using the Chinese industrial level data. Our empirical findings are consistent with our theoretical predictions: (i) if the tariff rates are reduced towards one origin country, the importing country will import more from this country but reduce the imports from the other origins; (ii) the relative effect is more effective at the industry or country where the importing penetration ratio is relatively high; and (iii) omission of the import penetration ratio will lead to the underestimation of the effects of the multilateral resistance terms on trade performances. Our research contributes to the existing literature by introducing a manipulable method to compute the direct and relative effects of the trade cost at the industrial level, which takes the heterogeneity among industries and countries into account.

Suggested Citation

  • Miao, Zhuang & Wu, Xiaokang & Yu, Jinping, 2018. "Direct and Relative Effects of the Import Tariff: Method and Application Using the Industrial Level Data," MPRA Paper 86779, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:86779
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    File URL: https://mpra.ub.uni-muenchen.de/88056/1/MPRA_paper_88056.pdf
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    References listed on IDEAS

    as
    1. Gordon H. Hanson & Chong Xiang, 2004. "The Home-Market Effect and Bilateral Trade Patterns," American Economic Review, American Economic Association, vol. 94(4), pages 1108-1129, September.
    2. Joseph Francois & Bernard Hoekman & Miriam Manchin, 2006. "Preference Erosion and Multilateral Trade Liberalization," World Bank Economic Review, World Bank Group, vol. 20(2), pages 197-216.
    3. Peter Egger & Douglas Nelson, 2011. "How Bad Is Antidumping? Evidence from Panel Data," The Review of Economics and Statistics, MIT Press, vol. 93(4), pages 1374-1390, November.
    4. Antoni Estevadeordal & Caroline Freund & Emanuel Ornelas, 2008. "Does Regionalism Affect Trade Liberalization Toward Nonmembers?," The Quarterly Journal of Economics, Oxford University Press, vol. 123(4), pages 1531-1575.
    5. Fugazza, Marco & Nicita, Alessandro, 2013. "The direct and relative effects of preferential market access," Journal of International Economics, Elsevier, vol. 89(2), pages 357-368.
    6. Elhanan Helpman & Marc Melitz & Yona Rubinstein, 2008. "Estimating Trade Flows: Trading Partners and Trading Volumes," The Quarterly Journal of Economics, Oxford University Press, vol. 123(2), pages 441-487.
    7. Jon D. Haveman & Usha Nair-Reichert & Jerry G. Thursby, 2003. "How Effective are Trade Barriers? An Empirical Analysis of Trade Reduction, Diversion, and Compression," The Review of Economics and Statistics, MIT Press, vol. 85(2), pages 480-485, May.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    International trade; Gravity equation; Industrial heterogeneity; China;

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F15 - International Economics - - Trade - - - Economic Integration

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