Jan Guldager Jørgensen

Tariffs and Firm-Level Heterogeneous Fixed Export Costs

Abstract This paper presents a two-country intra-industry trade model with bilateral ad valorem tariffs and fixed export costs that are heterogeneous across firms. In this model not all firms will choose to export. We examine the effects of reciprocal changes in the tariff and the fixed export barrier on the number of firms, firm profits, tariff revenue and consumer welfare. We show that both types of trade barriers reduce (increase) the number of exporting (pure domestic) firms. However, the sum of available home and foreign varieties increases for small tariffs. Firm profits are falling in both tariff and fixed export cost barriers. Tariff revenue falls when fixed export costs increase whereas we have a Laffer curve effect for the tariff. Welfare falls when fixed export costs increase and increases for small tariffs and falls for large tariffs, i.e. there exists a welfare maximizing tariff.

Effects of Tariffication: Tariffs, Quotas and VERs under Monopolistic Competition

Recent rounds of GATT and later WTO have advocated widespread tariffication, meaning that existing non-tariff barriers be converted into import equivalent tariffs. From an economic point of view, the effects of such tariffication are not entirely clear. The paper presents a general equilibrium model with monopolistic competition to examine the welfare effects of tariffication. The ranking of pre- and post-tariffication welfare depends crucially on the nature of the initial trade barrier and the tariff tool applied. Tariffication using a specific (an ad valorem) tariff results in the same (a reduced) welfare level compared to an initial quota, whereas welfare is increased (the same) compared to an initial VER.

Mutual Recognition for Sale: International Bargaining over Product Standards

We model a two-country bargaining process over the coordination of a horizontally differentiated product standard. We show that the necessary conditions for bargaining to take place are (i) firm heterogeneity and (ii) sufficiently high complying costs. When firms compete a la Cournot in the Home market and when bargaining takes place, our results suggest that mutual recognition of standards, and not the harmonization of standards, inevitably emerges as Home’s optimal choice. We also demonstrate that mutual recognition can maximize global welfare. Our results largely hold when firms compete a la Bertrand.

Welfare-Reducing Trade Liberalization

Recent literature on the workhorse model of intra-industry trade has explored heterogeneous cost structures at the firm level. These approaches have proven to add realism and predictive power. This paper shows, however, that this added realism also implies that there may exist a positive bilateral tariff that maximizes national and world welfare. Applying one of the simplest specifications possible, namely a symmetric two-country intra-industry trade model with fixed export costs that are heterogeneous across firms, we find that the reciprocal reduction of small tariffs reduces welfare.