Economics Seminar（2013-25）

Topic:Measuring China’s Trade Liberalization:A Generalized Measure of Trade Restrictiveness Index

Speaker: Bo Chen

Affiliation: Shanghai University of Finance and Economics

Time: Tuesday, 19 Nov, 14:00-15:30pm
Location: Room217, Guanghua Building 2

Abstract：
Both simple average and import-weighted average tariff indexes may be misleading measures of tariff barriers. In this paper, we propose a generalized trade restrictiveness index (GTRI) that extends Feenstra’s (1995) tariff restrictiveness index (TRI) by relaxing his crucial assumption of a small open economy. We show that GTRI can be measured using import tariffs, import shares, and the corresponding import and foreign export elasticities. We then apply the GTRI to measure China’s trade liberalization during and after China’s accession into the World Trade Organization (WTO) in 2001, using highly disaggregate Chinese import and tariff data from 1997 to 2008. Prior to its WTO accession, China’s GTRI in 2001 actually increased by nearly 50% compared to its 1997 rate, which is in sharp contrast to either the nearly flat TRI changes or the 13% increase indicated by the weighted average tariff rate. This implies that prior to the WTO accession, China’s high tariffs were imposed on those industries with relatively low tariff pass-through. Nevertheless all the trade restrictiveness measures dropped significantly after 2001 and exhibited similar dynamic pattern, confirming WTO’s effectiveness in removing tariff barriers. We further breakdown the GTRI and show that the difference between GTRI and import-weighted tariff is mainly due to the variance of tariff and the covariance between tariffs and trade elasticities. Finally, we show GTRI differs from TRI since the former allows for upward-sloping foreign supply, implying an incomplete tariff pass-through which increased from 30% in 1997 to 51% in 2008.

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