Variable demand elasticities and tariff liberalization

Alan Spearot

Journal of International Economics, 2013, vol. 89, issue 1, 26-41

Abstract: This paper examines tariff liberalization within an environment of heterogeneous demand elasticities. Varieties produced at a lower cost (a) are imported at lower absolute demand elasticities and (b) earn higher revenues. By virtue of larger demand elasticities, low revenue varieties benefit the most from tariff liberalization. Further, if varieties are substitutable, low revenue varieties benefit at the expense of high revenue varieties. These predictions are confirmed using a case study of US Uruguay Round ad-valorem tariff cuts, where within exporter-industry groups, low revenue varieties experienced large gains, and high revenue varieties experienced negligible gains. Further, I find evidence suggesting that these effects were also relevant for other trade shocks, such as exchange rates and specific tariffs.

Keywords: Firm heterogeneity; Variable elasticities; Trade liberalization; Non-discrimination (search for similar items in EconPapers)
JEL-codes: F12 F13 F14 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (49)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:inecon:v:89:y:2013:i:1:p:26-41

DOI: 10.1016/j.jinteco.2012.05.012

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