We construct a new, global tariff dataset, and apply it to a
multi-sector quantitative trade model with heterogeneous firms,
including nearly all countries of the world. The impact of the Uruguay
Round tariff reductions over 1990–2010 are analyzed, as well as the
further cuts in Preferential tariffs and the impact of moving to
complete free trade. We find that the Uruguay Round tariff cuts led to
large welfare gains (2%–3% relative to 1990 for the world, higher in
Emerging and Developing countries), but that Preferential tariff cuts
led to only small further gains (0%–1%). Surprisingly, the
hypothetical movement to free trade leads to the greatest gains (5%
relative to 1990, almost 10% in Emerging and Developing countries),
which implies that there is strong scope for gains from future
multilateral tariff reductions, especially for Emerging and Developing
economies. These gains are large relative to prior estimates in the
literature and we attribute about nearly one-half of our measured
gains to selection effects in our heterogeneous-firm model, which are
influenced by the scale of production and by two-tier Armington
aggregation.
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