The optimal tariff in the presence of trade-induced productivity gains

Michael Hübler and Frank Pothen

No 13-103, ZEW Discussion Papers from ZEW - Leibniz Centre for European Economic Research

Abstract: We scrutinize the impact of international productivity gains (spillovers) induced by imports and exports on optimal tariffs. First, we solve a stylized 2x2 trade model of a large open economy and show that (a) productivity gains via exports and imports both reduce the strategically optimal tariff, (b) there exists a certain strength of productivity gains such that the incentive to manipulate the terms of trade strategically vanishes, (c) the welfare gain that can be achieved via a tariff is lower in the presence of productivity gains than in their absence, and (d) these results even hold without power on international markets. Second, we apply this model to a panel data set covering 40 countries, 29 sectors and the years 1995 to 2009. We find that importdriven productivity gains are stronger than export-driven productivity gains. Third, we extend our 2x2 model to a multi-region, multi-sector model that we calibrate to the data set used in the econometric analysis and to the econometrically estimated productivity gains. Optimal tariffs are reduced by 17% for the US and China and 40% for Brazil when taking trade-induced productivity gains into account. The USA are the only model region that gains from European optimal tariff policy. Thus, trade-induced productivity gains have empirically relevant effects on optimal tariffs.

Keywords: trade; optimal tariff; productivity gains; technology spillovers (search for similar items in EconPapers)
JEL-codes: F12 F14 F17 O33 O40 (search for similar items in EconPapers)
Date: 2013
New Economics Papers: this item is included in nep-eff and nep-int
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Working Paper: The Optimal Tariff in the Presence of Trade-Induced Productivity Gains (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:zewdip:13103

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