Vertical Specialization, Intermediate Tariffs, and the Pattern of Trade: Assessing the Role of Tariff Liberalization to U.S. Bilateral Trade 1989–2001

Abstract

How important are intermediate tariffs in determining trade patterns? Empirical work measuring the impact of tariff liberalization most commonly focuses on the effects of barriers imposed by importers, but exporter trade policy should also matter when exports are produced with imported intermediates. Guided by extensions of the Eaton and Kortum (2002) model, I study the impact of trade liberalizations on U.S. bilateral trade from 19892001. I estimate the impact on U.S. bilateral trade flows of both intermediate tariffs imposed by countries exporting to the United States and U.S. tariffs. My empirical estimates suggest that, especially for less developed countries, their own liberalizations have been quantitatively much more important in explaining changes in bilateral trade patterns, on average 4.2 times larger than the impact of US liberalizations. For the entire sample of countries, countries’ own liberalizations have been 2.2 times more important.