Tariff Reductions, Entry, and Welfare: Theory and Evidence for the Last Two Decades

Lorenzo Caliendo, Robert C. Feenstra, John Romalis, Alan M. Taylor

NBER Working Paper No. 21768
Issued in December 2015, Revised in April 2017
NBER Program(s):   ITI

In a standard multi-sector, heterogeneous-firm trade model the effect of tariffs on entry, especially in the presence of production linkages, can reverse the traditional positive optimal-tariff argument. We construct and employ a new, large, disaggregated tariff dataset and then apply a 189-country, 15-sector version of our model in order to quantify the trade, entry, and welfare effects of trade liberalization over the period 1990–2010. We find that the impact on firm entry was larger in Advanced Economies relative to Emerging and Developing Economies; that more than 90% of the gains from trade are a consequence of the reductions in MFN tariffs (the Uruguay Round); and that for some countries, particularly some Emerging and Developing Economies, there are additional gains from a further move to complete free trade. The countries which would gain from the elimination of tariffs have a strong rank correlation with those that gain from a negative optimal tariff, which comprise one-quarter of the countries in the world.

You may purchase this paper on-line in .pdf format from ($5) for electronic delivery.

Access to NBER Papers

You are eligible for a free download if you are a subscriber, a corporate associate of the NBER, a journalist, an employee of the U.S. federal government with a ".GOV" domain name, or a resident of nearly any developing country or transition economy.

If you usually get free papers at work/university but do not at home, you can either connect to your work VPN or proxy (if any) or elect to have a link to the paper emailed to your work email address below. The email address must be connected to a subscribing college, university, or other subscribing institution. Gmail and other free email addresses will not have access.


Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w21768

Users who downloaded this paper also downloaded* these:
Hanson, Lind, and Muendler w21753 The Dynamics of Comparative Advantage
Eaton, Kortum, and Neiman w21774 Obstfeld and Rogoff's International Macro Puzzles: A Quantitative Assessment
Powell and Goldman w21858 Disentangling Moral Hazard and Adverse Selection in Private Health Insurance
Fafchamps and Quinn w21084 Aspire
Bown and Irwin w21782 The GATT's Starting Point: Tariff Levels circa 1947
NBER Videos

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email:

Contact Us