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Market Access through Bound Tariffs

38 Pages Posted: 2 Dec 2009  

Davide Sala

University of Southern Denmark - Department of Business and Economics

Philipp J. H. Schröder

University of Aarhus - Faculty of Business Administration

Erdal Yalcin

CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute

Multiple version iconThere are 2 versions of this paper

Date Written: November 2009

Abstract

WTO negotiations deal predominantly with bound - besides applied - tariff rates. But, how can reductions in tariffs ceilings, i.e. tariff rates that no exporter may ever actually be confronted with, generate market access? The answer to this question relates to the effects of tariff bindings on the risk that exporters face in destination markets. The present paper formalizes the underlying interaction of risk, fixed export costs and firms’ market entry decisions based on techniques known from the real options literature; doing so we highlight the important role of bound tariffs at the extensive margin of trade. We find that bound tariffs are more effective with higher risk destination markets, that a large binding overhang may still command substantial market access, and that reductions in bound tariffs generate effective market access even when bound rates are above current and long-term applied rates.

Keywords: bound tariffs, Doha Round, WTO, heterogeneous firms, entry, dynamics, tariff bindings

JEL Classification: F12, F13, F15

Suggested Citation

Sala, Davide and Schröder, Philipp J. H. and Yalcin, Erdal, Market Access through Bound Tariffs (November 2009). CESifo Working Paper Series No. 2858. Available at SSRN: https://ssrn.com/abstract=1516225

Davide Sala (Contact Author)

University of Southern Denmark - Department of Business and Economics ( email )

DK-5230 Odense
Denmark

Philipp J. H. Schröder

University of Aarhus - Faculty of Business Administration ( email )

Haslegaardsvej 10
DK-8210 Aarhus, 8210
Denmark

Erdal Yalcin

CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute ( email )

Poschinger Str. 5
Munich, 01069
Germany

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