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Trade Liberalization And The Extensive Margin

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  • Purba Mukerji

Abstract

Trade barriers can lead to the disappearance of products and impose huge costs. Allowing for the realistic possibility that imported products are substituted by domestic varieties this paper finds that the cost of protection that allows for disappearance of products, the ‘Romer cost,’ is higher below a tariff threshold. This threshold depends on the substitutability of domestic for foreign products. This is important for developing countries where inferior technology leads to poor substitutability and traditional calculations underestimate the cost. Analysis of new varieties trade after the Indian liberalization supports the findings in the context of a developing country.

Suggested Citation

  • Purba Mukerji, 2009. "Trade Liberalization And The Extensive Margin," Scottish Journal of Political Economy, Scottish Economic Society, vol. 56(2), pages 141-166, May.
    • Handle: RePEc:bla:scotjp:v:56:y:2009:i:2:p:141-166
    DOI: 10.1111/j.1467-9485.2009.00478.x
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    References listed on IDEAS

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    1. Timothy J. Kehoe & Kim J. Ruhl, 2013. "How Important Is the New Goods Margin in International Trade?," Journal of Political Economy, University of Chicago Press, vol. 121(2), pages 358-392.
    2. Schmitt, Nicolas & Yu, Zhihao, 2001. "Economies of scale and the volume of intra-industry trade," Economics Letters, Elsevier, vol. 74(1), pages 127-132, December.
    3. Romer, Paul, 1994. "New goods, old theory, and the welfare costs of trade restrictions," Journal of Development Economics, Elsevier, vol. 43(1), pages 5-38, February.
    4. Elhanan Helpman & Marc J. Melitz & Stephen R. Yeaple, 2004. "Export Versus FDI with Heterogeneous Firms," American Economic Review, American Economic Association, vol. 94(1), pages 300-316, March.
    5. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November.
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    Citations

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    Cited by:

    1. Dalton, John T., 2014. "The new goods margin in Japanese–Chinese trade," Japan and the World Economy, Elsevier, vol. 31(C), pages 8-13.
    2. Sekkat, Khalid, 2016. "Exchange rate misalignment and export diversification in developing countries," The Quarterly Review of Economics and Finance, Elsevier, vol. 59(C), pages 1-14.
    3. Purba Mukerji & Arvind Panagariya, 2019. "Investigating the composition of product-level specialization," Indian Economic Review, Springer, vol. 54(1), pages 3-18, June.
    4. Cho, Sang-Wook (Stanley) & Díaz, Julián P., 2018. "The dynamics of trade margins: Evidence from the European integration," Economics Letters, Elsevier, vol. 167(C), pages 90-96.
    5. Chingunjav Amarsanaa & Yoshinori Kurokawa, 2021. "The Extensive Margin of International Trade in a Transition Economy: The Case of Mongolia," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 63(4), pages 648-673, December.
    6. Daniel M. Bernhofen & Zouheir El‐Sahli & Richard Kneller, 2021. "The impact of technological change on new trade: Evidence from the container revolution," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 54(2), pages 923-943, May.
    7. Kyle Bagwell & Robert W. Staiger, 2013. "Can the Doha Round Be a Development Round? Setting a Place at the Table," NBER Chapters, in: Globalization in an Age of Crisis: Multilateral Economic Cooperation in the Twenty-First Century, pages 91-124, National Bureau of Economic Research, Inc.
    8. Ana Paula Cusolito & Claire H. Hollweg, 2015. "Trade Policy Barriers: An Obstacle to Export Diversification in Eurasia," Journal of Banking and Financial Economics, University of Warsaw, Faculty of Management, vol. 2(4), pages 91-129, June.
    9. John T. Dalton, 2017. "EU Enlargement and the New Goods Margin in Austrian Trade," Open Economies Review, Springer, vol. 28(1), pages 61-78, February.
    10. Atolia, Manoj & Kurokawa, Yoshinori, 2016. "The impact of trade margins on the skill premium: Evidence from Mexico," Journal of Policy Modeling, Elsevier, vol. 38(5), pages 895-915.
    11. Lincoln, William F. & McCallum, Andrew H., 2018. "The rise of exporting by U.S. firms," European Economic Review, Elsevier, vol. 102(C), pages 280-297.
    12. Soumendra Nath Banerjee & Boishampayan Chatterjee, 2015. "European Union: Characterising India’s Exports to the U.S.: The Post Liberalisation Dynamics," Global Economic Observer, "Nicolae Titulescu" University of Bucharest, Faculty of Economic Sciences;Institute for World Economy of the Romanian Academy, vol. 3(1), pages 10-20, May.
    13. Pierre-Guillaume Méon & Khalid Sekkat, 2013. "FDI and Exports Diversification in Arab Countries," Working Papers 816, Economic Research Forum, revised Dec 2013.
    14. repec:sgm:jbfeuw:v:2:y:2015:i:4:p:39 is not listed on IDEAS
    15. Purba Mukerji, 2013. "Distance to Frontier and New Import Growth," Scottish Journal of Political Economy, Scottish Economic Society, vol. 60(4), pages 390-411, September.
    16. Purba Mukerji & John Struthers, 2021. "Armington Elasticity and Development," Journal of Industry, Competition and Trade, Springer, vol. 21(1), pages 59-79, March.

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