In investigations on the role of tariff rates in the gravity equation, applied tariff rates (i.e., the lowest available rates) are often introduced. However, not all exporters use the lowest available rates, especially when some cost is incurred in using those rates. This implies that it is not prudent to introduce only the applied tariffs into the gravity equation. Accordingly, this study discusses how to deal with tariff variables in the gravity estimation. Specifically, it empirically demonstrates that when multiple tariff schemes are available, omitting tariffs in either scheme creates a remarkable bias in the estimates. When we control for other tariffs by explicit variables or fixed effects defined at an appropriate level (e.g., importer-product-year fixed effects), the use of applied tariffs can be justified.
権利
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雑誌名
IDE Discussion Paper
雑誌名(英)
IDE Discussion Paper
巻
796
発行年
2020-08
出版者
Institute of Developing Economies (IDE-JETRO)
著者版フラグ
publisher
JEL分類
JEL:F15 - Economic Integration
JEL:F53 - International Agreements and Observance • Internat …
Tariff rates in gravity
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