Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/339387 
Year of Publication: 
2026
Series/Report no.: 
CITP Working Paper No. 031
Publisher: 
Centre for Inclusive Trade Policy (CITP), University of Sussex Business School, Brighton
Abstract: 
Most empirical estimates of the trade elasticity exploit tariff variation generated by Preferential Trade Agreements (PTAs). Because firms only partly utilize preferential tariffs, standard regressions identify an eligible-tariff elasticity rather than the structural elasticity with respect to tariffs actually paid that is required for quantitative trade models. I model PTA tariff cuts as a treatment with partial compliance and estimate the effective-tariff elasticity using an instrumental variable approach that explicitly accounts for preference utilization. The effective-tariff elasticity lies between 10 and 12, roughly three times larger than eligible-tariff estimates around 3.5. I show that the eligible-tariff elasticity varies with the tariff preference utilization of the estimation sample and is therefore not portable across policy environments, while the effective-tariff elasticity identifies a policy-invariant elasticity that can be used for quantitative modelling.
Document Type: 
Working Paper

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