Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/59597
Authors: 
Felbermayr, Gabriel
Jung, Benjamin
Larch, Mario
Year of Publication: 
2012
Series/Report no.: 
University of Tübingen Working Papers in Economics and Finance 41
Abstract: 
Arkolakis, Costinot and Rodriguez-Clare (ACR, 2012) prove that, conditional on the change in openness, the welfare gains from foreign trade reforms are quantitatively identical across single-sector trade models with radically different micro-foundations. We generalize this result to domestic and multilateral trade reforms. And we extend it to cover revenue generating import tariffs. This gives rise to a new type of welfare isomorphisms across models and liberalization scenarios and allows deriving a structurally identical optimal tariff formula. In contrast to the case of iceberg trade costs, welfare formulas based on tariff reforms are highly nonlinear and build on different types of trade elasticities and openness indices. Most importantly, the ACR iceberg formula necessarily underestimates the gains from trade. A stylized calibration of the model shows that the underestimation can be large.
Subjects: 
Gravity Equation
Monopolistic Competition
Heterogeneous Firms
Armington Model
International Trade
Trade Policy
Gains from Trade
JEL: 
F12
R12
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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