Firm input choice under trade policy uncertainty

A-Tier
Journal: Journal of International Economics
Year: 2024
Volume: 150
Issue: C

Score contribution per author:

1.005 = (α=2.01 / 4 authors) × 2.0x A-tier

α: calibrated so average coauthorship-adjusted count equals average raw count

Abstract

We examine the role of trade policy uncertainty (TPU) in shaping the import decisions of firms. In a model where firms must incur sunk costs to adopt new imported varieties of an input, a reduction in TPU for a given input increases imports of that input (a substitution effect) and possibly other inputs (a scale effect). We explore this in the context of China’s accession to the WTO, which bound China’s tariffs. We find that, controlling for current tariffs, the threat of reversion to past high tariffs reduces imports, but much less so after WTO accession, consistent with lower TPU. The current-tariff trade elasticity also increases after WTO entry, reflecting a greater perceived permanence of current tariffs. We find evidence of both substitution and scale effects for imports, and post accession, firms were more likely to adopt products previously subject to higher tariff risk.

Technical Details

RePEc Handle
repec:eee:inecon:v:150:y:2024:i:c:s0022199624000333
Journal Field
International
Author Count
4
Added to Database
2026-01-25