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

Author(s): Peter Egger and Katharina Erhardt

Publication Date: March 2019

Keyword(s): Generalized propensity scores, Gravity models, Non-parametric methods, Semi-parametric methods and trade policy

Programme Area(s): International Trade and Regional Economics

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.

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Bibliographic Reference

Egger, P and Erhardt, K. 2019. 'Heterogeneous Effects of Tariff and Non-tariff Trade-Policy Barriers in Quantitative General Equilibrium'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=13602