Trade Theory, Analytical Models and Development
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Trade Theory, Analytical Models and Development Essays in Honour of Peter Lloyd, Volume I

Essays in Honour of Peter Lloyd, Volume I

Edited by Sisira Jayasuriya

Trade Theory, Analytical Models and Development, comprises 11 essays offering new contributions on the following topics: trade and wages; factor endowments, factor mobility and political economy of trade; optimality of tariffs; measurement of welfare; customs union theory; endogenous mergers and tariffs; intra-industry trade; state trading enterprises and trade liberalisation; general equilibrium effects of e-Commerce, and trade; economic growth with production and consumption externalities; and environmental pollution and resource degradation.
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Chapter 3: Are uniform tariffs optimal?

Mary Amiti

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3. 1. Are uniform tariffs optimal? Mary Amiti* INTRODUCTION Tariffs rates vary widely along the production chain. Most industries are characterized by escalating tariffs where tariffs are lowest on raw materials and increasing as one goes up the value chain. Dividing the value chain into first stage, semi-processed and fully processed, World Bank figures indicate that 48 out of 86 countries had escalating tariffs in their industrial products between 1994 and 2000.1 For example, in 2000 Mauritius had an average tariff rate of 3.1 per cent on the first stage, 4 per cent on semi-processed and 44.4 per cent on the final stage. Some countries had uniform tariff rates; for example, Chile had an average tariff rate of 9 per cent on all production stages; and other countries had a mix of increasing and then decreasing tariff rates from one stage to the next. Bolivia was the only country to report, on average, de-escalating tariffs with a 10 per cent tariff rate on the first stage and semi-processed, and 9.3 per cent on final goods. Given these large disparities in tariff rates, this raises the question of how to proceed with tariff reform. A guiding principle for tariff reform in developing countries in the 1970s and 1980s has been the ‘concertina theorem’, which involves reducing tariffs on those goods with the highest tariffs first (Michaely et al., 1991). This idea dates back to Meade (1955) who concluded that the welfare gains will...

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