DP4669 Import Demand Elasticities and Trade Distortions

Author(s): Hiau Looi Kee , Alessandro Nicita , Marcelo Olarreaga

Publication Date: October 2004

Keyword(s): import demand elasticities , GDP function , trade restrictiveness , deadweight loss

JEL(s): F10 , F13

Programme Areas: International Trade and Regional Economics

Link to this Page: www.cepr.org/pubs/dps/DP4669.asp

To study the effects of tariffs on GDP one needs import demand elasticities at the tariff line level that are consistent with GDP maximization. These do not exist. We modify Kohli’s (1991) GDP function approach to estimate demand elasticities for 4625 imported goods in 117 countries. Following Anderson and Neary (1992, 1994) and Feenstra (1995), we use these estimates to construct theoretically-sound trade restrictiveness indices (TRIs) and GDP losses associated with existing tariff structures. Countries are revealed to be 30% more restrictive than their simple or import-weighted average tariffs would suggest. Thus, distortion is nontrivial. GDP losses are the largest in the United States, China, India, Mexico and Germany.