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Market Structure, Imperfect Tariff Pass-Through, and Household Welfare in Urban China

Author

Listed:
  • Han, Jun

    (Nankai University)

  • Liu, Runjuan

    (University of Alberta, Alberta School of Business)

  • Ural Marchand, Beyza

    (University of Alberta, Department of Economics)

  • Zhang, Junsen

    (Chinese University of Hong Kong)

Abstract
This paper investigates the tariff pass-through mechanism and the distributional effects of trade liberalization in urban China. We study how market structure, specifically the size of the private sector, affects tariff pass-through, and how this mechanism influenced the extent to which households benefited from the trade liberalization. Our results suggest that a higher share of private sector in Chinese cities is associated with higher levels of tariff pass-through rates. This effect works both through the distribution sector, and through the production of final goods. By incorporating the changes in consumer prices of tradable and non-tradable goods, we next investigate the impact of WTO accession on household welfare through changes in the cost of consumption. The results show that WTO accession of China was associated with welfare gains to almost every household across the per capita expenditure spectrum, and that the distributional effect is strongly pro-poor. The average welfare gain of WTO accession on Chinese households is estimated to be 7.3 percent. The distributional effect through higher levels of privatization was also pro-poor, indicating that privatization enhanced the pro-poor impact of trade liberalization.

Suggested Citation

  • Han, Jun & Liu, Runjuan & Ural Marchand, Beyza & Zhang, Junsen, 2013. "Market Structure, Imperfect Tariff Pass-Through, and Household Welfare in Urban China," Working Papers 2013-11, University of Alberta, Department of Economics, revised 01 Feb 2016.
    • Handle: RePEc:ris:albaec:2013_011
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    More about this item

    Keywords

    Market Structure; Trade Liberalization; Pass-Through; Welfare;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development

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