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Heterogeneous Effects of Tariff and Non-tariff Trade-Policy Barriers in Quantitative General Equilibrium

Peter Egger () and Katharina Erhardt ()

No 13602, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Structural quantitative work in international economics typically treats trade policy as log-linearly related to trade costs and as exogenous. This paper proposes a structural approach that allows for a non-parametric relationship and treats tariff and non-tariff trade-policy variables as potentially endogenous in log-linear estimation. We document that the data reject the assumption of log-linearity of trade costs in both the tariff- and the non-tariff-policy domains. Specifically, the partial impact of a change in tariffs is strongest for low policy barriers and medium levels of tariffs but generally decreases in the level of both non-tariff barriers and tariff barriers. To give a relevant illustration, we assess the effects of a unilateral increase of US tariffs on Chinese imports by 10 percentage points and document that the estimated effects on real bilateral trade-flow changes would be largely underestimated by standard approaches.

Keywords: Generalized propensity scores; Gravity models; Non-parametric methods; Semi-parametric methods; trade policy (search for similar items in EconPapers)
JEL-codes: C14 F13 F14 (search for similar items in EconPapers)
Date: 2019-03
New Economics Papers: this item is included in nep-int
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