Trade Restrictiveness and Deadweight Loss in China’s Imports

China is believed to have gained immensely from its admission into to the World Trade Organization (WTO) in 2001. One of the direct gains comes from the lessening of deadweight loss (DWL) due to tariff reduction. Conventional measures for DWL, however, are too aggregate to capture the trade policies, which are determined at a much higher disaggregated level, and ignore the interactions between tariff and corresponding import demand as suggested by theories. In this paper, we first systematically estimate the import demand elasticities at a highly disaggregated level and then match them with the most detailed lines of the applied tariff for the most favored nations as reported by the WTO. Using the detailed matching data, we construct Feenstra’s (1995) simplified trade restrictiveness index (TRI), which captures the covariance of tariff and the corresponding demand elasticity. Finally, we use the TRI to compute the DWL from1997 to 2008 and find that the DWL due to the tariff barrier was reduced to 0.73% of GNI in 2008, noticeably lower than the highest previous mark of 4.58% of GNI in 2001.     

Measuring China’s trade liberalization: A generalized measure of trade restrictiveness index

Neither simple average nor import-weighted average tariff indexes are ideal measures of tariff barriers. In this paper, we propose a generalized trade restrictiveness index (GTRI) that extends Feenstra’s (1995) tariff restrictiveness index (TRI) by relaxing the crucial assumption of a small open economy. We show that the GTRI can be measured using import tariffs, import shares, and the corresponding import and foreign export elasticities. We then apply the GTRI to examine how trade restrictiveness has evolved in China from 1997 to 2008, the period in which China entered the WTO. The GTRI indicates a higher level of protection than simple and import-weighted averages, but lower than the TRI. We further show a negative correlation between tariffs and product export supply elasticity, indicating that strategic trade policy was being pursued prior to China’s WTO accession. Finally, we calculate the welfare loss and terms-of-trade gain due to tariff protection. The overall tariff pass-through increases from around 28% to almost 47% because of the WTO.     

When does tiered wholesale pricing create an incentive to reduce retail prices?

Wholesale ‘ladder pricing’ involves setting the wholesale price retailers face as a nonlinear (generally increasing) function of price chosen by retailers. This form of wholesale pricing occurred recently in UK Telecoms, and the issue became extensively debated in the law courts. A major concern in deciding the merits of the case lay with the question of whether or not the introduction of tiered wholesale pricing created incentives for retailers to actually reduce their prices. This paper examines the incentive for the case where the wholesale tariff is a non-linear continuous differentiable function. It is shown that so long as the tariff is strictly increasing, convex, and positive only for retail prices greater than the maximum retailer marginal cost, then there is indeed an incentive to reduce price, whatever the actual gradient of the tariff schedule.     

Trade Restrictiveness Benchmarks

Benchmark measures of trade restrictiveness using the Trade Restrictiveness Index stand in sharp contrast to standard measures. For a 27 country sample, trade weighted average tariffs underestimate restrictiveness measured by the 'uniform tariff equivalent' (the inverse of the TRI minus one) by an average of 50%. For a 7 case sample of changes in trade policy, the TRI and changes in average tariffs are uncorrelated. These conclusions appear to be robust with respect to missing data problems and to elasticity of substitution variation, but may be sensitive to the assumptions used to treat NTBs.     

Screening consumers through alternative pricing mechanisms

This paper addresses the optimal design of optional nonlinear tariffs. Two particular solutions commonly used in telecommunications and other industries are fully characterized. These optimal outlay schedules illustrate how the tariff design is altered when there exists a time lag between tariff choice and consumption. In this model, consumers' uncertainty is resolved in the interim, between the tariff choice and the usage decision, through changes in their types. The paper studies whether the monopolist may profit from screening consumers according to different information sets, and it shows that expected profits are higher under an ex-post tariff if the variance of the ex-ante type distribution is large enough. The paper also shows that no results regarding social efficiency may be obtained in general. Welfare comparison of optional tariffs will be very sensitive to type distributions, how types enter demand specifications, and the relative variance of the type components.I wish to thank John Panzar for his guidance on the present research and, for his many suggestions over several endless discussions on this paper. I also thank Kyle Bagwell, Robert Porter, and Daniel Spulber for helpful comments and suggestions. Financial support from the Ministerio de Educación y Ciencia, Spain, is gratefully acknowledged.     

Estimating Demand for Local Telephone Service with Asymmetric Information and Optional Calling Plans

In this paper, I study the theoretical and econometric implications of agents' uncertainty concerning their future consumption when a monopolist offers them either a unique, mandatory nonlinear tariff or a choice in advance from a menu of optional two–part tariffs. Agents' uncertainty is resolved through individual and privately known shocks to their types. In such a situation the principal may screen agents according to their ex ante or ex post type, by offering either a menu of optional tariffs or a standard nonlinear schedule. The theoretical implications of the model are used to evaluate a tariff experiment run by South Central Bell in two cities in Kentucky in 1986. The empirical approach explicitly accounts for the existence of informational asymmetries between local telephone users and the monopolist, leading to different, nested, econometric specifications under symmetric and asymmetric information. The empirical evidence suggests that there exists a significant asymmetry of information between consumers and the monopolist under both tariff regimes. All expected welfare components failed to increase with the introduction of optional tariffs for the estimated value of the parameters.     

An Extension of the Trade Restrictiveness Index to Large Economies*

The Trade Restrictiveness Index (TRI) introduced by Anderson and Neary (1994 ) provided the first theoretically satisfying measure of a country’s tariff structure by overcoming the problem of ad hoc specification of indexing weights and the related index number problem. We observe, however, that the TRI may not exist or may not be unique when countries are large. As a remedy, we propose a simple extension.     

Should Tariff Reductions be Announced? An Intertemporal Computable General Equilibrium Analysis

In this paper the macro and structural implications of three alternative tariff-reduction strategies are examined. Under the first strategy, which is similar to that adopted in Australia in 1973, the tariff cut is implemented without warning. The second strategy is consistent with the current approach of phasing in tariff cuts according to a previously announced schedule. Under the third strategy the tariff cut is implemented several years after it is announced. Our results suggest that if tariffs are to be reduced then it is preferable to implement the policy without warning.     

Optimal Tariffs under a Revenue Constraint*

This paper examines the optimal tariff structure under a revenue constraint. When a fixed level of tax revenue has to be collected from the tariff alone, no adjustment in tariff rates can achieve an efficient resource allocation, even in a small open economy. Hence, the optimal tariff problem arises under a revenue constraint. We show that the revenue‐constrained optimal tariff structure is characterized by the following two rules: (i) the optimal tariff rate is lower for the import good that is a closer substitute for the export good, and (ii) the stronger the cross‐substitutability between imports, the closer the optimal tariff is to uniformity. This provides a theoretical explanation for the finding in empirical studies that the efficiency loss from a uniform tariff structure is negligible.     

A proposal for social pricing of water supply in Côte d'Ivoire

We consider the design of a nonlinear social tariff for residential water in Côte d'Ivoire, which is a case of a monopolistic private operator supplying a population of heterogeneous consumers. The proposed optimal tariff includes an initial “social” block with a low unit price, and higher consumption blocks with a monopoly pricing rule. This optimal nonlinear tariff is calibrated using econometric estimates of a panel-data residential water demand equation. Welfare changes associated with moving from the actual tariff to approximations of the optimal pricing system are computed under different tariff scenarios. We find that gains in consumer welfare would outweigh losses in producer surplus in a majority of Ivorian local communities.     

A welfare analysis of tariffs and equivalent quotas under demand uncertainty: Implications for tariffication

Under market demand uncertainty, we show that quotas can result in a welfare advantage over tariffs for an importing country despite that its government does not capture any quota rents. Specifically, the conditions under which an equivalent quota yields higher expected welfare than a tariff are shown to depend on a set of economic variables. These variables include the initial tariff rate, the relative efficiency in production between home and foreign firms, the probability distribution of random demand shocks that make the quota binding or non-binding under uncertainty, as well as the variance of the stochastic market demand. The analysis of this paper has welfare implications for tariffication.     

A short-run econometric analysis of the demand and import supply of a horticultural good: tomatoes

This paper considers the problem of estimating the short-run effects of nominal tariff and domestic production levels on the levels of imports and final market prices of fresh tomatoes in the UK during the period 1959–1968. Prior to EEC entry, tariff production was used as the main policy instrument for horticultural support; horticultural goods being exempt from guarantee or intervention price schemes. In retrospect it would, therefore, seem useful to consider the theoretical requirements for its effective use in such a market situation. The paper consists of two parts. The first section discusses a simple comparative-static specification of a simultaneous equation market model determining the prices and import levels of a single horticultural good and goes on to derive measures of the effects of tariff rate and domestic production changes on market equilibrium. The second section presents several sets of alternative estimates of the specified market model and calculated effects for the specific case of fresh tomatoes during the period 1965–68     

Desperately Seeking θ's: Estimating the Distribution of Consumers Under Increasing Block Rates

This paper shows that increasing block rate pricing schedules usually applied by water utilities can reduce the efficiency and equity levels. To do this, we first present a two step method to estimate the demand and to recover the distribution of consumer tastes when increasing block rate pricing is used. We show that in this case the tariff induces a pooling equilibrium and customers with different taste parameters will be observed to choose the same consumption level. Second, we show that a two-part tariff that neither reduces the revenue for the firm nor increases the aggregate level of water consumption increases the welfare and equity levels in relation to an increasing block rates schedule.     

Tariff Uniformity and Growth

Theoretical ambiguity exists regarding the potential benefits of adopting a uniform tariff schedule. In this paper, we investigate the empirical evidence on this question. From cross-country growth regressions over the period 1988-97 we find a nonlinear relationship between a country's standard deviation of tariffs and its growth rate. Specifically, we find that countries with either a large degree of tariff uniformity or very little tariff uniformity tended to grow faster over this time period, controlling for other factors.     

Dynamics of economic efficiency in tariff and trade

When the efficiency losses or gains as a result of an ad valorem import tariff are accounted for, the exisiting literature compares the equilibrium states before and after the tariff. However, after the imposition of an ad valorem tariff, the cost of the foreign producer to sell in the domestic market jumps upwards by the extent of the ad valorem tariff. This affects the quantity of imports, and the market is no longer in the initial equilibrium. The market then adjusts and after some efficiency loss, a new equilibrium state is arrived at. The mechanism of price adjustment has a basis of lack of coordination among buyers and sellers at the exisiting prices. The economic efficiency loss when the market is out of equilibrium is not taken into consideration in the literature, while deriving an optimal ad valorem tariff rate. In this article, an optimal ad valorem tariff schedule has been derived. From optimality, it should be construed that the economic efficiency losses get minimised when the market is adjusting and also during the equilibrium. A revenue constraint has to be met in addition.     

新汇率体制下中国上市公司外汇风险暴露研究

本文以沪市180指数样本股作为研究对象,通过测量上市公司经营活动产生的现金流相对贸易加权汇率指数及我国主要贸易伙伴货币汇率变化的敏感度,来考察我国企业的外汇风险暴露问题。研究显示,我国上市公司总体外汇风险暴露程度比较高,公司规模与短期外汇风险成正比关系,外国控股程度的高低对风险暴露则没有明显的影响。     

Revenue-Neutral Environmental Tariff Reform, Growth, and Welfare

This paper analyzes the growth and welfare effects of revenue‐neutral tariff reform in a small open endogenous growth model with environmental externalities. As is the case in countries that depend primarily on imported energy, the employment of a foreign intermediate good causes negative environmental externalities in production. This paper shows that substituting a tariff on the foreign intermediate good for a tariff on the foreign consumption good in a revenue‐neutral way raises the growth rate and the welfare, if the environmental externality is sufficiently strong and if the elasticity of substitution between inputs lies within a certain range.     

INFANT INDUSTRY AND POLITICAL ECONOMY OF TRADE PROTECTION

Abstract.  This paper introduces infant-industry considerations in political economy determination of trade protection. I build a model where the government cares about both political contributions and national welfare. A potentially beneficial high-tech industry is not viable in the country whose initial human capital is low. In the political economy equilibrium, we find that the tariff schedule will be V-shaped: it decreases initially to maintain the viability of the industry but increases thereafter as the industry expands and gains political power. We use the model to explain both China's tariff offers in WTO negotiations and GATT/WTO rules regarding developing countries.     

PERFORMANCE CONTINGENT PROTECTION*

In this paper we ask how to construct a tariff or quota schedule which depends on the behavior of a domestic monopsonistic monopolist in order to achieve the best tradeoff between two objectives of a government. We consider various political and economic tradeoffs which could face the policy maker: aggregate welfare versus industry profits, output and imports; and trade barrier revenue versus industry profits and domestic price. In all cases considered, performance contingent protection which takes the form either of a tariff which depends on domestic output or a quota which depends on the price charged is generally superior to a fixed tariff or quota and is sufficient to achieve optimality.