Pass-through of exchange rates and tariffs in Greek–US tobacco trade

Abstract

Abstract The paper examines the extent to which exchange rate and unit tariff changes are passed-through in US import prices of unmanufactured Greek oriental tobacco. The results indicate partial pass-through of exchange rates and tariffs. Exchange rate pass-through is about 0.272 and tariff pass-through about 0.185. One possible reason for the partial pass-through is oligopoly in tobacco exporting. Oligopoly would imply that depreciation of the drachma relative to the US dollar benefits tobacco exporters operating in Greece. A second possible reason is a possible correlation between exchange rates premiums paid to tobacco exporters in previous agricultural policies. An important implication of this possible correlation is that Greek tobacco prices may be more sensitive to exchange rate changes under the current agricultural policy.