When tariff cuts don't boost import variety

Shalah M. Mostashari

Economic Letter, 2010, vol. 5, issue dec, No 13

Abstract: Sustained growth of international trade since World War II has coincided with an array of trade agreements and gradual reduction of tariffs. How much declining tariffs boosted commerce and the impact of liberalized trade rules on a country's standard of living have been a central focus of trade-policy economic research. The welfare effects of trade liberalization can be quite different when viewed from either of two perspectives--from the intensive margin, where liberalizing countries import more of the same goods, or from the extensive margin, where countries import a greater variety of items. If a trade policy's impact on the extensive margin is significant, the benefits of liberalization, or the costs of protection, are potentially much higher. ; The distinction between intensive and extensive margins is quite important since countries' exports vary across industries and among trading partners, with commercial patterns changing over time. The range of goods countries trade tended to increase substantially following implementation of some preferential trading agreements that eliminated barriers. However, the actual contribution of lower tariffs may be, in fact, quite modest relative to growth in the variety of exports constituting the extensive margin. ; The range of goods exported to the U.S. has increased substantially, with little evidence that tariff liberalization is a primary cause. While these findings may be specific to the U.S. and the small tariff decreases in recent years, other factors related to productivity and economic growth appear to be more important in explaining increased export variety.

Keywords: International trade; Tariff; Imports (search for similar items in EconPapers)
Date: 2010
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