Pass-Through of Trade Costs to U.S. Import Prices
Florida International University
April 21, 2013
Although the effects of trade costs on export prices have been studied extensively, referring to the gains from trade through export-oriented growth, similar effects on import prices has received limited attention, which is important for import competition as well as household welfare. This paper is the first attempt to calculate the pass-through of trade costs into U.S. import prices and their components. The key innovation is to control for markups, quality, and productivity effects while measuring/interpreting the pass-through of trade costs into welfare. Under the assumption of variable (constant) markups, the results obtained by using actual data on duties/tariffs and freight-related costs show that 1% of a reduction in trade costs would result in 0.2% (0.3%) of an increase in welfare measured by inverse of prices controlled for quality; hence, pass-through of trade costs into welfare is incomplete.
Number of Pages in PDF File: 32
Keywords: Pass-through, Trade Costs, Variable Markups, Quality, Productivity
JEL Classification: F12, F13, F14working papers series
Date posted: April 22, 2013
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