Tariff Reductions, Entry, and Welfare: Theory and Evidence for the Last Two Decades / Lorenzo Caliendo, Robert C. Feenstra, John Romalis, Alan M. Taylor.

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Caliendo, Lorenzo

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Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w21768.Publication details: Cambridge, Mass. National Bureau of Economic Research 2015.Description: 1 online resource: illustrations (black and white)Subject(s):

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Abstract: We show in a multi-sector, heterogeneous-firm trade model that the effect of tariffs on entry, especially in the presence of production linkages, can reverse the traditional positive optimal tariff argument. We then use a new tariff dataset, and apply it to a 189-country, 15-sector version of our model, to quantify the trade, entry, and welfare effects of trade liberalization over the period 1990-2010. We find that the impact on firm entry was larger in Advanced relative to Emerging and Developing countries; that slightly more than three-quarters of the total gains from trade are a consequence of the reductions in MFN tariffs (the Uruguay Round), with two-thirds of the remainder due to preferential trade agreements and one third due to the hypothetical movement to free trade; and that free trade would bring gains for some Emerging and Developing countries, in particular. Ten economies in our sample - including China, Hong Kong, India, Israel, Vietnam, and five more remote countries - would have benefited from going beyond free trade to subsidizing their imports in 1990, since their optimal tariffs are negative.

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Item type	Home library	Collection	Call number	Status	Date due	Barcode	Item holds
Working Paper	Biblioteca Digital	Colección NBER	nber w21768 (Browse shelf(Opens below))	Not For Loan

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December 2015.

We show in a multi-sector, heterogeneous-firm trade model that the effect of tariffs on entry, especially in the presence of production linkages, can reverse the traditional positive optimal tariff argument. We then use a new tariff dataset, and apply it to a 189-country, 15-sector version of our model, to quantify the trade, entry, and welfare effects of trade liberalization over the period 1990-2010. We find that the impact on firm entry was larger in Advanced relative to Emerging and Developing countries; that slightly more than three-quarters of the total gains from trade are a consequence of the reductions in MFN tariffs (the Uruguay Round), with two-thirds of the remainder due to preferential trade agreements and one third due to the hypothetical movement to free trade; and that free trade would bring gains for some Emerging and Developing countries, in particular. Ten economies in our sample - including China, Hong Kong, India, Israel, Vietnam, and five more remote countries - would have benefited from going beyond free trade to subsidizing their imports in 1990, since their optimal tariffs are negative.