Tariffs, Technology and Global Integration

In the last two decades tariffs around the globe have fallen significantly. However, less well known are their changes in the sectorial structure of protection rates. Between 1988 and 1998, relative tariffs have increased in capital-intensive sectors, and this shift is specially strong in low wage countries. These changes in tariff structures reflect the response of governments to increasing integration in product and capital markets in the presence of international technology differences. Integration in factor markets revives the concept of absolute advantage, and countries adjust their tariff structure in order to compensate for technology differences and cost pressures in order to keep a diversified production structure. As a corollary, wage differences increase both within and between countries.