Are All Trade Protection Policies Created Equal? Empirical Evidence for Nonequivalent Market Power Effects of Tariffs and Quotas

Blonigen, Bruce A.; Liebman, Benjamin H.; Pierce, Justin; Wilson, Wesley W.

doi:10.2139/ssrn.1688331

Cited by 6 publications

(11 citation statements)

References 33 publications

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“…Consistent with this class of models, we also show that PTM is more prevalent for large firms in our sample, a finding that echoes those of Berman et al (2012) and Amiti et al (2014). 12 The remainder of the paper is structured as follows. The next section presents our conceptual framework and testable predictions.…”

Section: Introductionsupporting

confidence: 77%

“…This might be due to the fact that tariffs vary more, as they are de facto bilateral, contrary to NTMs. In general, our instruments are not very strong because of the insignificance of the NTM interaction in the first stage; as it turns out, the values of the F-stat of the first stage increase to [10][11][12][13][14][15][16][17][18] (and the second stage results are qualitatively similar) when only tariffs are considered as instruments.…”

Section: Role Of Import Sharesmentioning

confidence: 94%

“…Hence, more performant (large/more productive firms) face a lower elasticity of demand and adjust more their markups following exchange rate changes: they price 11 See Burstein and Gopinath (2014) for a detailed discussion of these models. 12 See also the Chatterjee et al (2013) or Li et al (2015). 13 Incomplete pass-through and pricing-to-market can be obtained in other models.…”

Section: Market Power and Pricing-to-marketmentioning

confidence: 99%

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Trade Policy and Market Power: Firm-Level Evidence

Asprilla¹,

Berman²,

Cadot³

et al. 2019

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This paper identifies the effect of trade policy on market power through new data and a new identification strategy. It uses a large data set containing export values and quantities by product and destination for all exporting firms in 12 developing and emerging countries over several years, merged with destination-product-specific information on tariffs and non-tariff barriers. Market power is identified by observing how exporting firms price discriminate across markets in reaction to variations in bilateral exchange rates.Pricing-to-market is prevalent in all regions of the sample, even among small firms, although it is increasing in firm size, in accordance with theory. More importantly, the effect of non-tariff measures is not isomorphic to that of tariffs: the observed pricing-to-market behavior suggests that, although tariffs reduce the market power of foreign firms through classic rent-shifting effects, non-tariff measures alter market structure and reinforce the market power of non-exiting firms, domestic and foreign ones alike.We derive two main testable predictions, respectively related to non-tariff measures and to tariffs. Specifically, we show that NTMs applied in a non-discriminatory fashion -that is, in compliance with the WTO's "national treatment" clause, whereby imported and domestically-produced products must be treated alike -raise market power and PTM for incumbents if they induce the exit of smaller firms, e.g. through higher fixed costs. 4 Import tariffs, on the other hand, decrease the sales of incumbents but also induce the exit of small firms, leading to an ambiguous impact on market power. However, given their discriminatory nature, tariffs are more likely to displace foreign firms in favor of domestic ones, implying that the intensive margin effect dominates and in net tariffs reduce the market shares of exporters and thus their incentive to engage in PTM. 5 We then test these predictions using a large multi-country firm-level data set obtained from customs administrations in twelve developing countries, ranging from low income to middle income. We combine the firm-level data with destination-product specific data on bilateral applied tariffs as well as non-tariff measures. The latter cover a wide range of measures ranging from sanitary and phytosanitary measures to technical barriers to trade. Pooling together firm-level data from several developing countries allows us to provide evidence on the extent of exchange rate pass-through for countries and regions that have received little attention so far. It also allows us to explore more systematically the impact of trade policy on competition and market power using a sample of countries facing different trade policy arrangements, in particular preferential tariffs. Importantly, the high dimensionality of the data enables us to account for unobserved heterogeneity and for a large set of confounding influences at the level of both the firm and the market using a powerful array of fixed effects. The fact that our unit of observation is the ...

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Section: Introductionsupporting

confidence: 77%

Section: Role Of Import Sharesmentioning

confidence: 94%

Section: Market Power and Pricing-to-marketmentioning

confidence: 99%

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Trade Policy and Market Power: Firm-Level Evidence

Asprilla¹,

Berman²,

Cadot³

et al. 2019

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“…For a discussion of the US safeguard on steel, and a comparison to the similarities on prior US use of antidumping and countervailing duties products during the 1990-2003 period, see . On the other hand, Blonigen et al (2013) use the US steel industry to examine the nonequivalent market power effects of quotas and tariffs arising in the industry, some of which arose through TTB policies.…”

Section: Temporary Trade Barriers Of Antidumping Countervailing Dutimentioning

confidence: 99%

The Empirical Landscape of Trade Policy

Bown

Crowley

2016

Handbook of Commercial Policy

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This chapter surveys empirically the broad features of trade policy in goods for 31 major economies that collectively represented 83 percent of the world's population and 91 percent of the world's GDP in 2013. We address five questions: Do some countries have more liberal trading regimes than others? Within countries, which industries receive the most import protection? How do trade policies change over time? Do countries discriminate among their trading partners when setting trade policy? Finally, how liberalized is world trade? Our analysis documents the extent of cross-sectional heterogeneity in applied commercial policy across countries, their economic sectors, and their trading partners, over time. We conclude that substantial trade policy barriers remain as an important feature of the world economy.

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“…Furthermore, there are numerous theoretical and empirical papers indicating that quotas increase monopoly power and collusion compared to tariffs (See Bhagwati (), Feenstra (), Krishna (), and Blonigen et al. ()). However, even if quotas do enhance market power more than tariffs, it is not clear that this would result in greater investment…”

Section: Empirical Model and Datamentioning

confidence: 99%

Trade Liberalisation and Capital Spending by US Manufacturers

Liebman

Reynolds

2015

World Economy

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This is the first paper to study the impact of long‐term tariff reductions on capital spending by US manufacturers. We investigate fluctuations in investment for approximately 400 different four‐digit industries during the period 1974–2005. Our results indicate that the dismantling of tariff and quota protection has had a stimulatory effect on US manufacturing investment, despite the relatively low average tariff rate that existed at the start of our sample period. However, our findings reveal that reductions in input tariffs rather than output tariffs were the source of this effect, suggesting that better access to foreign inputs rather than increased foreign competition at the output level served as the primary stimulus for increased US manufacturing investment.

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Are All Trade Protection Policies Created Equal? Empirical Evidence for Nonequivalent Market Power Effects of Tariffs and Quotas

Cited by 6 publications

References 33 publications

Trade Policy and Market Power: Firm-Level Evidence

Trade Policy and Market Power: Firm-Level Evidence

The Empirical Landscape of Trade Policy

Trade Liberalisation and Capital Spending by US Manufacturers

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