Not all trade restrictions are created equally

Matthew Cole

No 201009, Working Papers from School of Economics, University College Dublin

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 has implications for total product variety. One such implication is the possibility for there to be an anti-variety effect associated with lower transport costs while there also being a pro-variety effect associated with lower tariffs.

Keywords: Intra-industry trade; Trade policy; Firm heterogeneity; Monopolistic competition; Intra-industry trade--Econometric models; Commercial policy; Monopolistic competition (search for similar items in EconPapers)
JEL-codes: F10 F13 F15 (search for similar items in EconPapers)
Date: 2010-04
New Economics Papers: this item is included in nep-int
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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http://hdl.handle.net/10197/2642 First version, 2010 (application/pdf)

Related works:
Journal Article: Not all trade restrictions are created equally (2011)
Working Paper: Not all trade restrictions are created equally (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:ucn:wpaper:201009

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