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Alternative measures for trade restrictiveness. A gravity approach

Carmen Fillat-Castejon () and Eva Pardos ()

Documentos de Trabajo from Facultad de Ciencias Económicas y Empresariales, Universidad de Zaragoza

Abstract: We show that it is possible to estimate the cost of protection in terms of the trade loss for the protected country using a widely accepted and theory-based specification of the gravity model in combination with descriptive trade policy indicators. Data and implementation requirements are lower than in CGE models and this permits estimations with wider samples of countries and years. The outcome can be interpreted as the uniform tariff that synthesizes both the direct effect of trade barriers and the indirect effect of import substitution. The estimated tariff equivalents confirm the underestimation of protection costs by more than 40% when using weighted average tariffs, in accordance with previous literature, with a greater measurement error for less developed countries. Furthermore, substitution elasticities are shown to be a key mechanism for the restrictiveness of tariff policies

Keywords: Tariff policy; cost of protection; foreign trade; gravity equation; tariff equivalent (search for similar items in EconPapers)
JEL-codes: F13 C23 (search for similar items in EconPapers)
Date: 2007-02
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