Tariff Escalation and Vertical Market Structure

Hong Hwang, Chao†Cheng Mai and Shih†Jye Wu

The World Economy, 2017, vol. 40, issue 8, 1597-1613

Abstract: Many empirical studies have shown that most countries in the world reveal a specific form of tariff structure, referred to as tariff escalation, which is defined as tariff rates for final products being higher than those for intermediate goods, and the latter are higher than those for raw materials. However, trade theorists have paid scant attention to the causes of tariff escalation. To fill this gap, we set up a vertically related market model with n stages of successive monopolies. We find that a tariff on an imported good can be used to extract not only the profit of the foreign monopolist supplying this good, but also the rents acquired by all the foreign upstream monopolists through its effects on the prices of the upstream intermediate goods. Thus, as the number of production stages in the foreign country increases, the amount of rent captured by the foreign upstream producers rises and a higher tariff rate is therefore needed to extract the rent. This provides a theoretical explanation to the cause of tariff escalation.

Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
https://doi.org/10.1111/twec.12414

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:worlde:v:40:y:2017:i:8:p:1597-1613

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=0378-5920

Access Statistics for this article

The World Economy is currently edited by David Greenaway

More articles in The World Economy from Wiley Blackwell
Bibliographic data for series maintained by Wiley Content Delivery ().