Working Paper: CEPR ID: DP4669
Authors: Hiau Looi Kee; Alessandro Nicita; Marcelo Olarreaga
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.
Keywords: Deadweight loss; GDP function; Import demand elasticities; Trade restrictiveness
JEL Codes: F10; F13
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| import demand elasticities (D12) | variation across countries and products (L15) |
| homogenous goods (H41) | elastic import demand (F14) |
| differentiated goods (L15) | less elastic import demand (D12) |
| disaggregate level (HS six-digit) (L79) | more elastic import demand (D12) |
| larger countries (F55) | more elastic import demands (F14) |
| more developed countries (O57) | less elastic import demands (F14) |
| existing tariff structures (L11) | deadweight losses (H21) |
| average tariffs (F19) | underestimate restrictiveness of a country's tariff regime (F14) |
| GDP losses (F69) | larger than what average tariffs suggest (F14) |