We derive a method to econometrically estimate the tariff equivalent and forgone trade effects of a prohibitive technical barrier to trade (TBT) based on Wales and Woodland's Kuhn-Tucker approach to corner solutions in consumer choice. The method overcomes the lack of observed data on bilateral trade flows and accounts for differentiated goods by place of origin. We apply the derived random utility model to international trade in apples to identify the tariff equivalent of prohibitive phytosanitary barriers imposed by Australia on potential imports of New Zealand apples. We estimate the forgone apple trade between the two countries, the implied trade injury imposed by Australia on New Zealand, and the welfare loss to Australia. The removal of the Australian policy would induce net welfare gains around US$50 million annually for Australia.
|Original language||English (US)|
|Title of host publication||Nontariff Measures and International Trade|
|Publisher||World Scientific Publishing Co. Pte Ltd|
|Number of pages||12|
|State||Published - Nov 28 2016|
Bibliographical notePublisher Copyright:
© 2017 by World Scientific Publishing Co. Pte. Ltd.
- Corner solution
- Kuhn-tucker model
- New zealand apples
- Prohibitive barrier
- Technical barrier to trade