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American Economic Review: Vol. 98 No. 5 (December 2008)

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Optimal Tariffs and Market Power: The Evidence

Article Citation

Broda, Christian, Nuno Limao, and David E. Weinstein. 2008. "Optimal Tariffs and Market Power: The Evidence." American Economic Review, 98(5): 2032-65.

DOI: 10.1257/aer.98.5.2032

Abstract

We find that prior to World Trade Organization membership, countries set import tariffs 9 percentage points higher on inelastically supplied imports relative to those supplied elastically. The magnitude of this effect is similar to the size of average tariffs in these countries, and market power explains more of the tariff variation than a commonly used political economy variable. Moreover, US trade restrictions not covered by the WTO are significantly higher on goods where the United States has more market power. We find strong evidence that these importers have market power and use it in setting noncooperative trade policy. (JEL F12, F13)

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Authors

Broda, Christian (U Chicago)
Limao, Nuno (U MD)
Weinstein, David E. (Columbia U)

JEL Classifications

F12: Models of Trade with Imperfect Competition and Scale Economies
F13: Trade Policy; International Trade Organizations


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