TARIFF RATE PASS-THROUGH: BUYER POWER AND PRODUCT DIFFERENTIATION EFFECTS
Journal of Economics and Trade,
A key tenet of economic theory is that the economic actor who pays the tax is not necessarily the same as the actor who bears the burden of a tax. Tariffs, like any tax, result in higher domestic prices. The question is whether tariffs completely pass through to domestic prices, or whether foreign producers will bear part of the burden. This study seeks to shed light on this issue by assessing how tariff rate pass-throughs vary with product differentiation and buyer market concentration. The study covers selected manufacturing sectors from 1996 to 2015, a period when tariff rates were declining. We find that tariffs pass through incompletely to import prices in more differentiated domestic product-markets. We also find tariffs incompletely pass through in more concentrated product markets, but tariffs will completely pass through in more commodity-oriented product-markets, as buyer market concentration increases.
- market concentration
- product differentiation
- research and development.
How to Cite
Feenstra R. Systematic pass-through of tariffs and exchange rates under perfect competition: An Empirical Test: Journal of International Economics. 1981; 27:25-45.
Taylor J. Low inflation, pass-through, and the pricing power of firms. European Economic Review. 2000; 44:1389-1408.
Nakamura, Zerom. Accounting for incomplete passthrough, The Review of Economic Studies. 2000;77(3):1192–1230.
Amiti M, Redding S, Weinstein D. The Impact of the 2018 Trade War on U.S. Prices and Welfare, NBER Working Paper; 2018.
Cavallo A, Gopinath G, Neiman B, Tang J. Tariff passthrough at the border and at the store: Evidence from US Trade Policy, NBER Working paper 26396; 2019.
Fajgelbaum PD, Goldberg PK, Kennedy PJ, Khandelwal AK. The return to protectionism. Quarterly Journal of Economics. 2020;c135: 1-55.
Yang J. Exchange Rate Pass-through into U.S. Manufacturing Industries. Review of Economics and Statistics. 1997;79(1997):95–104.
Ludema, Yu. Tariff pass-through, firm heterogeneity and product quality. Journal of International Economics. 2016;103C:234-249.
Berner E, Birg L, Boddin D. Retailers and Consumers: The passthrough of import price changes, the world economy. 2016;40:1314-1344.
Melitz M. The impact of trade on intra-industry reallocations and aggregate industry productivity. Econometrica. 2003;71(6):1695-1725
Halpern, Koren. Pricing to Firm: An analysis of firm- and product-level import prices. Review of International Economics. 2007;15(3):574-591.
Morlacca M. Market power in input markets: Theory and evidence from French Manufacturing: Job Market Paper; 2017.
Liu Z, Ma H. Input trade liberalization and markup distribution: Evidence from China. Economic Inquiry. 2020;59(1):344-360.
Iapadre PL, Pace G. Trade intermediaries and the tariff pass-through. Journal Industry Competition and Trade. 2016;16:441–45.
Bodipo- Memba. Pace of wage growth slowed. Wall Street Journal. 1999;A2.
Brander, J., Spencer. B. Export subsidies and international market share rivalry. Journal of International Economics, 1985;18(1-2):83-100.
De Meza D. Commercial policy towards multinational monopolies-reservations on Katrak. Oxford Economic Papers. 1979;31(2): 334-337.
Katrak H. Multi-national monopolies and commercial policy. Oxford Economic Papers. 1997;29(2):283-291.
Schumacher U. Buyer structure and seller performance in U.S. Manufacturing Industries. The Review of Economics and Statistics. 1991;73(2):277-284.
Svedberg P. Current Swedish development co-operation policy. Development Policy Review. 1979; A12(1):77-110.
Abstract View: 1004 times
PDF Download: 7 times