Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/30480
Authors: 
Sala, Davide
Schröder, Philipp J. H.
Yalcin, Erdal
Year of Publication: 
2009
Series/Report no.: 
CESifo Working Paper 2858
Abstract: 
WTO negotiations deal predominantly with bound - besides applied - tariff rates. But, how can reductions in tariffs ceilings, i.e. tariff rates that no exporter may ever actually be confronted with, generate market access? The answer to this question relates to the effects of tariff bindings on the risk that exporters face in destination markets. The present paper formalizes the underlying interaction of risk, fixed export costs and firms' market entry decisions based on techniques known from the real options literature; doing so we highlight the important role of bound tariffs at the extensive margin of trade. We find that bound tariffs are more effective with higher risk destination markets, that a large binding overhang may still command substantial market access, and that reductions in bound tariffs generate effective market access even when bound rates are above current and long-term applied rates.
Subjects: 
bound tariffs
Doha Round
WTO
heterogeneous firms
entry
dynamics
tariff bindings
JEL: 
F12
F13
F15
Document Type: 
Working Paper

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