Simulated economic impacts in applied trade modelling: A comparison of tariff aggregation approaches

Abstract

This paper assesses the performance of two recently developed tariff aggregators in reducing tariff aggregation bias by analysing Swiss beef market liberalisation scenarios. Specific relevant sources of bias are addressed: substitution effects on import demand, Tariff Rate Quotas and overprotection in tariffs. The aggregators are linked to a global large-scale partial equilibrium model and benchmarked against a standard aggregator. The choice of the aggregation method shows considerable effects on simulated economic impacts, specifically if the dispersion in tariffs or tariff cuts is large. A large bias is revealed in simulated gains from trade liberalisation using the standard aggregator. The impacts on traded quantities are found to be overestimated, while price and welfare effects can be higher or lower by switching to alternative aggregation methods. By reducing aggregation bias and depicting negotiated tariff schedules more directly, the proposed aggregators enhance the contribution of trade modelling to evidence-based policy making.