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The B.E. Journal of Economic Analysis & Policy

Editor-in-Chief: Jürges, Hendrik / Ludwig, Sandra

Ed. by Auriol , Emmanuelle / Brunner, Johann / Fleck, Robert / Friebel, Guido / Mendola, Mariapia / Requate, Till / Tsui, Kevin / Wichardt, Philipp / Zulehner, Christine

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Tariffs and Firm-Level Heterogeneous Fixed Export Costs

Jan Guldager Jørgensen1 / Philipp J. H. Schröder2

1University of Southern Denmark,

2Aarhus School of Business and DIW Berlin,

Citation Information: The B.E. Journal of Economic Analysis & Policy. Volume 5, Issue 1, ISSN (Online) 1935-1682, ISSN (Print) 2194-6108, DOI: 10.1515/1538-0645.1495, July 2006

Publication History

Published Online:
2006-07-10

Abstract

This paper presents a two-country intra-industry trade model with bilateral ad valorem tariffs and fixed export costs that are heterogeneous across firms. In this model not all firms will choose to export. We examine the effects of reciprocal changes in the tariff and the fixed export barrier on the number of firms, firm profits, tariff revenue and consumer welfare. We show that both types of trade barriers reduce (increase) the number of exporting (pure domestic) firms. However, the sum of available home and foreign varieties increases for small tariffs. Firm profits are falling in both tariff and fixed export cost barriers. Tariff revenue falls when fixed export costs increase whereas we have a Laffer curve effect for the tariff. Welfare falls when fixed export costs increase and increases for small tariffs and falls for large tariffs, i.e. there exists a welfare maximizing tariff.

Keywords: welfare; intra-industry trade; heterogeneous firms; monopolistic competition; tariffs

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