Tariff Pass-through of the World-wide Trade: Empirical Evidence at Tariff-line Level

This paper provides the first empirical evidence about the tariff passthrough in world-wide trade. Specifically, we estimate the effects of tariff reduction on import prices for our tariff line-level data in 46 importing countries in 2007- 2011. The estimation results show that the average pass-through rate for tariff reduction by regional trade agreements (RTAs) is higher than that for reduction by the most favoured nation rates. Namely, most of the tariff rent goes to the importer in the case of multilateral trade liberalization and to the exporter in the case of trade liberalization by RTAs. We also find that product differentiation has an impact of a substantial magnitude on the tariff pass-through for RTAs. The difference in income level of country pairs affects much the tariff pass-through for RTAs. Bargaining over prices between the importer and exporter might explain these results because the use of RTAs requires exporters to incur some costs for certifying the products’ origin.