The Effects of Vertical Markets on Trade Policy Reform

Steve McCorriston and Ian Sheldon

Oxford Economic Papers, 1996, vol. 48, issue 4, 664-72

Abstract: Typically, analysis of trade liberalization ignores the impact that intermediate stages in the production and distribution system may have on the pass-through of changes in tariffs to final goods' prices. Using a model of a multistage system, this paper shows that both the number of vertical stages and the degree of imperfect competition at any specific stage can affect the degree of tariff pass-through. Simulation of the model with respect to recent changes in the European Union banana regime suggests that ignoring vertical market structure is likely to overestimate the benefits to consumers of trade liberalization. Copyright 1996 by Royal Economic Society.

Date: 1996
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