Icebergs versus Tariffs: A Quantitative Perspective on the Gains from Trade

Benjamin Jung, Gabriel Felbermayr and Mario Larch

VfS Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order from Verein für Socialpolitik / German Economic Association

Abstract: We derive a simple equation for the welfare gains from trade when tariffs are liberalized or iceberg trade costs fall. Covering various one-sector trade models that may or may not feature extensive margins and imperfect competition, we generalize the analysis of Arkolakis, Costinot and Rodriguez-Clare (2012) to encompass revenue-generating import tariffs. Our formula permits easy quantification based on countries' observed degrees of openness, their tariff revenues, and gravity elasticities. We show analytically that an analysis based on iceberg costs necessarily underestimates the welfare gains from trade relative to autarky. Our quantitative exercise for 41 countries suggests that the bias can be numerically significant. For countries with relatively high status quo tariffs, our formula predicts 30-60\% larger gains from trade than the icebergs only approach.

JEL-codes: F10 F11 F12 (search for similar items in EconPapers)
Date: 2013
New Economics Papers: this item is included in nep-int
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Citations: View citations in EconPapers (11)

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Related works:
Working Paper: Icebergs versus Tariffs: A Quantitative Perspective on the Gains from Trade (2013)
Working Paper: Icebergs versus tariffs: A quantitative perspective on the gains from trade (2013)
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