On the proper computation of Ad Valorem equivalent of non-tariff measures

Duc Bao Nguyen, Antoine Bouët and Fousseini Traoré

Applied Economics Letters, 2022, vol. 29, issue 4, 298-302

Abstract: In all the previous studies evaluating the Ad Valorem Equivalent (AVE) of Non-Tariff Measures (NTMs) based on a gravity equation, Jensen’s inequality is not considered. Yet the issue of estimating the impact of dummy or count variables in semi-log or related equations has been raised since the early eighties. In this article, we illustrate the bias associated with the omission of Jensen’s inequality and show that when it is not considered, the estimation of AVEs can be significantly biased. This omission leads to a significant underestimation of the restrictive impact of NTMs and can even change the sign of the AVE.

Date: 2022
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DOI: 10.1080/13504851.2020.1864273

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