Asymmetric Tariff Pass-Through to Trade Prices

Discussion Papers


by HAYAKAWA Kazunobu

February 2017


This paper examines asymmetry in tariff pass-through, that is, how import prices react differently to the increase and decrease in most favored nation (MFN) rates. For this, we analyze Indonesia’s imports because Indonesia not only reduced MFN rates for a significant number of products but also raised those rates for a large number of other products in 2010. The analysis results indicate asymmetric tariff pass-through: trade prices decrease when MFN rates decline but do not change when these rates rise. Furthermore, examining the effects of changes in MFN rates on product quality and quality-adjusted prices separately, we find that a decrease in trade prices when MFN rates decline is led by a reduction in (average) product quality. In addition, we find that controlling for the change in ad valorem equivalent rates, a change in tariffs from ad valorem form to specific form does not have any additional impact on import prices.

Keywords: Tariff pass-through; Trade prices
JEL classification: F15, F53

Please note that discussion papers are works in various stages of progress and most have not been edited and proofread and may contain errors of fact or judgment. Revised versions of these papers may subsequently appear in more formal publication series. The views expressed in this publication are those of the author(s). The IDE does not guarantee the accuracy of the data included and accepts no responsibility for any consequences arising from its use.