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Measuring the overall restrictiveness of a country's international trade policies is important and, in fact, essential for estimating the effects of trade policies and for negotiations to reduce trade barriers. A good measure is also difficult to produce: Trade restrictiveness indices are constructed by combining the actual structure of trade restrictions, which is generally quite different across goods, into a single number. Under certain assumptions, this single number is the uniform tariff that would produce the same trade restrictiveness as the actual differentiated structure of restrictions. In this paper, the economic intuition underlying the construction of these indices is presented and estimates of these indices and the resulting insights are summarized.
(JEL F00, F13, C43)
Federal Reserve Bank of St. Louis Review, September/October 2010, 92(5), pp. 381-94.
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Countries commonly use tariffs and other barriers to deter the importation of foreign-produced goods. Such trade policies affect economic activity and economic well-being not only in the country enacting these policies but in other countries as well. A fundamental question when assessing these policies is how restrictive overall a country's trade policies actually are. Ideally, one would like to have a measure that provides insights concerning not only how a country's restrictiveness has changed over time, but also how it compares with its trading partners'.
The present paper focuses on the measurement of trade restrictiveness. Particular attention is given to measures that are termed trade restrictiveness indices. Such indices are produced by combining actual trade restrictions, which are generally quite different across goods, into a single number. This single number is the uniform tariff factor equivalent that would produce the same trade restrictiveness as the actual structure of restrictions. In the case of a specific index discussed later, this tariff, if applied to every imported good, would generate the same result for a nation's economic wellbeing as the actual set of trade barriers.1 Trade restrictiveness indices are valuable for many purposes, such as assessing the impact of trade policy on economic and social outcomes and providing useful information for trade negotiations. Because of the importance of trade restrictiveness indices, an elementary introduction to these indices should be of value for researchers, policymakers, and students.
Unlike trade restrictiveness indices, more common measures of...