A classification of trade barriers 1. Taxonomy 2. Breakdown of effects Equivalence and non-equivalence of tariffs & QRs 1. Perfect competition 2. Monopoly 3. World price volatility 4. QR administration: licence allocation and efficiency QRs: incidence & measurement issues 1. QR cost estimates: a few examples 2. Quality upgrading 3. Using the gravity equation to assess the effect of QRs
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A classification of trade barriers 1.Taxonomy 2.Breakdown of effects Equivalence and non-equivalence of tariffs & QRs 1.Perfect competition 2.Monopoly.
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A classification of trade barriers1. Taxonomy2. Breakdown of effects
Equivalence and non-equivalence of tariffs & QRs1. Perfect competition2. Monopoly3. World price volatility4. QR administration: licence allocation and efficiency
QRs: incidence & measurement issues1. QR cost estimates: a few examples2. Quality upgrading3. Using the gravity equation to assess the effect of QRs
Table 5b. Borrel and Bauer’s estimates Borrel-Bauer 2000
Internal price 624
External price 560
Price gap 64
Table 5c. NERA’s estimates NERA 1999 2000 2001 2002 Average
Internal price 506 538 550 488 521
External price 246 260 286 255 262
Price gap 260 278 264 233 259
The gravity model of international trade
Large country
Large country
Large country
Small country
Close by
Distant
Distant
Distant
0 1 2 3
4 5 6 7
8
ln ln ln ln
ln 1
.
ijt it jt ijt
ijt i j
ijt ijt
X Y Y d
t I I t
Q u
1 if quota applies
0 otherwiseQ
Regression estimates
ˆˆln 0.642i ii QV X Q
(1.1)
ˆ 0.642
0.642ˆ
ˆ ˆ0.526 (which implies ln 0.642)
ˆ ˆ
i ii Q
i ii Q
X
Q Q
XNQ NQ
V Vee
V Ve
Trade-reduction effect of the quota:
ˆ ˆ
1 0.526 0.474 i.e. -47%ˆ
NQ Q
NQ
V V
V
Estimating the price effect of QRs: bananas 2. Interpreting the gravity estimates: trade-reduction effect of QR
Estimating the price effect of QRs: bananas 2. Interpreting the gravity estimates: tariff equivalent of QR
Use again regression estimates
ˆˆln 1.324ln 1t i iiV X t
so
(0.1) 0
ˆln 1.324ln 1
ˆtV
tV
. Combine this with what we had from previous slide 0.642 1.324 ln 1 t
and get 0.4851 1.624t e so that t = 0.624. Thus, the estimated ad-valorem equivalent of the quota, in percentage terms, is 62.4%. Applied to a unit value of €496/ton, this gives a specific-tariff equivalent of €310 per ton.
“Tariffication” of a quota: EU bananas
Gravity estimation
Gravity regression results, 08/02/05Dep. var.: trade value Huber Huber