An Enhanced Analytical Framework for Evaluating the Effects of Trade Costs along Global Value Chains

Abstract

In this paper, I present a new multi-regional input-output (MRIO) database with tariffs differentiated by agent. To construct the MRIO, I apply the Broad Economic Categories (BEC) system of concordances to detailed trade and tariff data from the Tariff Analytical and Simulation Tool for Economists (TASTE) Database version 9 to obtain measures of trade and tariff revenues by end-use. I use this trade data by end use to expand the GTAP Database version 9.2, thus incorporating direct linkages from foreign suppliers to domestic producers, investors, and consumers. Further, the new database comprises distinct composite tariff rates for producers, investors, and consumers. I use a constrained optimization procedure to ensure MRIO trade flows aggregate to the original GTAP Database. Through illustrative simulations, I demonstrate the effect of (1) new cross-border trade linkages and (2) tariff escalation for trade policy analysis. I further demonstrate how the addition of differentiated tariffs in the MRIO enhances policy analysis beyond preceding versions of the MRIO.