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Distorted Trade Barriers
Author(s)
Date Issued
2011-02
Date Available
2015-02-20T11:51:55Z
Abstract
Since firm heterogeneity has been introduced into international trade models, the importance of firm entry and exit (the extensive margin) has been highlighted. In fact, Chaney (2008) illustrates how accounting for this extensive margin and heterogenous
firms alters the standard gravity equation; thereby reversing the previously predicted effect the elasticity of substitution has on the elasticity of trade flows. Furthermore, Cole (forthcoming) points out that ad valorem tariffs affect the extensive margin quite differently than the commonly used iceberg transport cost. In this paper, I show that the elasticity of trade flows with respect to tariffs is more elastic than that of iceberg transport costs. Thus, elasticity estimates derived from variables such as distance may underestimate the effect caused by a change in tariffs.
Type of Material
Working Paper
Publisher
University College Dublin. School of Economics
End Page
1
Series
UCD Centre for Economic Research Working Paper Series
WP11/05
Classification
F12
F13
F17
Web versions
Language
English
Status of Item
Not peer reviewed
This item is made available under a Creative Commons License
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