Not all trade restrictions are created equally

Matthew Cole

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Abstract: There has been great focus in the recent trade theory literature on the introduction of firm heterogeneity into trade models. This introduction has highlighted the importance of the entry/exit decision of firms in response to changes in trade barriers. However, it is typical in many of these models to use iceberg transport costs as a general form of trade barriers that can be interchangeable with ad valorem tariffs. I show that this is not always an appropriate conclusion. Specifically, I illustrate that profit for an exporter is more elastic in response to tariffs than iceberg transport costs, which affects the entry/exit decision of firms. This has implications for welfare analysis and empirical specifications.

Keywords: Intra-industry trade; Trade policy; Firm heterogeneity; Monopolistic competition; F10; F12; F13 (search for similar items in EconPapers)
Date: 2011-02-01
Note: View the original document on HAL open archive server: https://hal.science/hal-00665003
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Citations: View citations in EconPapers (11)

Published in Review of World Economics, 2011, 147 (3), pp.411-427. ⟨10.1007/s10290-011-0090-1⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-00665003

DOI: 10.1007/s10290-011-0090-1

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