On Estimating the Static Effects of Preferential Tariffs

Dennis Beckmann

Eastern Economic Journal, 1987, vol. 13, issue 4, 389-397

Abstract: It is shown that the estimates of trade creation, trade diversion, and the erosion of GSP benefits derived from the well-known methodology of Robert Baldwin and Tracy Murray (1977) are biased for two reasons. First, the estimates neglect an intercommodity substitution and secondly, the estimates are based on free on board values of imports rather than the values actually paid by consumers in the donor country. Acknowledging these biases results in the overestimation of the aforementioned aggregate effects by 9 percent, 57 percent, and 54 percent respectively. The implicit own- and cross-price elasticities of demand of the corrected methodology are also reported.

Date: 1987
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