A BEJEAP Contributions article.

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.

Submitted: August 23, 2005 · Accepted: February 15, 2006 · Published: July 10, 2006

Originally published in Contributions to Economic Analysis & Policy.

Recommended Citation

Jørgensen, Jan Guldager and Schröder, Philipp J. H. (2006) "Tariffs and Firm-Level Heterogeneous Fixed Export Costs," Contributions to Economic Analysis & Policy: Vol. 5 : Iss. 1, Article 18.
Available at: http://www.bepress.com/bejeap/contributions/vol5/iss1/art18