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Import Demand Elasticities and Trade Distortions

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Author Info
Kee, Hiau Looi
Nicita, Alessandro
Olarreaga, Marcelo

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Abstract

To study the effects of tariffs on GDP one needs import demand elasticities at the tariff line level that are consistent with GDP maximization. These do not exist. We modify Kohli’s (1991) GDP function approach to estimate demand elasticities for 4625 imported goods in 117 countries. Following Anderson and Neary (1992, 1994) and Feenstra (1995), we use these estimates to construct theoretically-sound trade restrictiveness indices (TRIs) and GDP losses associated with existing tariff structures. Countries are revealed to be 30% more restrictive than their simple or import-weighted average tariffs would suggest. Thus, distortion is nontrivial. GDP losses are the largest in the United States, China, India, Mexico and Germany.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4669.

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Date of creation: Oct 2004
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Handle: RePEc:cpr:ceprdp:4669

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Related research
Keywords: deadweight loss; GDP function; import demand elasticities; trade restrictiveness;

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Find related papers by JEL classification:
F10 - International Economics - - Trade - - - General
F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations

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  3. Feenstra, R.C., 1995. "Estimating the Effects of Trade Policy," Papers 95-10, California Davis - Institute of Governmental Affairs.
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  4. Panagariya, Arvind & Shah, Shekhar & Mishra, Deepak, 2001. "Demand elasticities in international trade: are they really low?," Journal of Development Economics, Elsevier, vol. 64(2), pages 313-342, April. [Downloadable!] (restricted)
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  5. Winters, L. Alan, 1984. "Separability and the specification of foreign trade functions," Journal of International Economics, Elsevier, vol. 17(3-4), pages 239-263, November. [Downloadable!] (restricted)
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  9. Riedel, James, 1988. "The Demand for LDC Exports of Manufactures: Estimates from Hong Kong," Economic Journal, Royal Economic Society, vol. 98(389), pages 138-48, March. [Downloadable!] (restricted)
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  12. Gallaway, Michael P. & McDaniel, Christine A. & Rivera, Sandra A., 2003. "Short-run and long-run industry-level estimates of U.S. Armington elasticities," The North American Journal of Economics and Finance, Elsevier, vol. 14(1), pages 49-68, March. [Downloadable!] (restricted)
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  14. Marquez, Jaime, 1999. "Long-Period Trade Elasticities for Canada, Japan, and the United States," Review of International Economics, Blackwell Publishing, vol. 7(1), pages 102-16, February.
  15. Feenstra, Robert C, 1992. "How Costly Is Protectionism?," Journal of Economic Perspectives, American Economic Association, vol. 6(3), pages 159-78, Summer. [Downloadable!] (restricted)
  16. Kei-Mu Yi, 2003. "Can Vertical Specialization Explain the Growth of World Trade?," Journal of Political Economy, University of Chicago Press, vol. 111(1), pages 52-102, February. [Downloadable!] (restricted)
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  17. James Harrigan, 1996. "Technology, Factor Supplies and International Specialization: Estimating the Neoclassical Model," NBER Working Papers 5722, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  18. Anderson, James E & Neary, J Peter, 1994. "Measuring the Restrictiveness of Trade Policy," World Bank Economic Review, Oxford University Press, vol. 8(2), pages 151-69, May.
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