Three Essays on Tariff Pass-Through

In Chapter 1, I show empirically that the presence of retailers can reduce gains from trade under certain market structures. Theory suggests that retailers' buyer power (monopsony power), via negotiating with foreign suppliers, reduces gains from trade liberalization. Buyer power allows retailers to absorb the decline in trade costs in the form of a higher markup, rather than passing it on to consumers. I find that a 10% reduction in tariff rates causes US domestic retail prices to decline by 4.3% on average for goods which are subject to buyer power among retailers, versus 7.2% for goods not subject to buyer power. Furthermore, I show that for products that are subject to buyer power, the trade cost reduction can be completely absorbed by retailers' markup adjustment when the concentration in the retail sector exceeds a certain threshold. For products that are not subject to buyer power, on the other hand, lower tariff rates lead to lower consumer prices at any level of concentration in the retail sector.;Chapter 2 studies the differential effect of trade liberalization among 23 Chinese provinces during years 2001--2003. During these years, China lowered its tariffs substantially as it joined the World Trade Organization (WTO). The empirical results suggest that consumer welfare gains from trade are not distributed equally. I find that provinces which are more exposed to globalization than other provinces tend to pass through more of the decline in tariff rates to consumer prices. Provinces with higher FDI and imports compared to Regional Domestic Product (RDP) pass through more of the decline in tariffs to consumer prices, and coastal provinces pass through more of the reduction in tariffs than inland provinces. Also, tariff pass-through is lower on average when Chinese state owned enterprises import than when foreign owned enterprises import. I further show that pass-through increases when provinces become more exposed to globalization. This effect is pronounced for Chinese imports through state owned firms.;Chapter 3 answers the question why estimates of tariff rate pass-through (TRPT) and exchange rate pass-through (ERPT) usually differ in empirical studies. I argue that estimates of ERPT are lower than TRPT because exchange rate changes are perceived as transitory while tariff changes are viewed as permanent by economic agents. I adopt Rodriguez-Lopez (2006) and examine how pass-through differs when depreciation is perceived as temporary or permanent. The central result is reached by manipulating the hypothesized persistence of the exchange rate Markov process. A temporary change in the exchange rate leads to an ERPT that is one-half the size of ERPT that would have occurred under a permanent shock.