36 Pages Posted: 1 May 2008
Date Written: April 24, 2008
We derive a method to econometrically estimate the tariff equivalent and foregone trade effects of a prohibitive technical barrier to trade (TBT) based on Wales and Woodland's Kuhn-Tucker approach to corner solutions in consumer choice. The method overcomes the lack of observed data on bilateral trade flows and accounts for differentiated goods by place of origin. We apply the derived random utility model to international trade in apples to identify the tariff equivalent of prohibitive phytosanitary barriers imposed by Australia on potential imports of New Zealand apples. We estimate the forgone apple trade between the two countries, the implied trade injury imposed by Australia on New Zealand, and the welfare loss to Australia. The removal of the Australian policy would induce net welfare gains around US$50 million annually for Australia.
Keywords: Corner solution, Kuhn-Tucker model, New Zealand apples, nontariff barrier, NTB, prohibitive, random utility, TBT, technical barrier to trade, SPS, phytosanitary
JEL Classification: Q17, F13
Suggested Citation: Suggested Citation
Yue, Chengyan and Beghin, John, The Tariff Equivalent and Forgone Trade Effects of Prohibitive Technical Barriers to Trade (April 24, 2008). Available at SSRN: https://ssrn.com/abstract=1127523 or http://dx.doi.org/10.2139/ssrn.1127523