Tariff pass‐through in the middle products model

• DOI: http://doi.org/10.1111/ijet.12293
• Author: Eric W. Bond
• Date: 01 March 2021
• Published date: 01 March 2021

Int J Econ Theory. 2021;17:20–30.20

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wileyonlinelibrary.com/journal/ijet

Received: 10 January 2020

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Accepted: 1 May 2020

DOI: 10.1111/ijet.12293

ORIGINAL ARTICLE

Tariff pass‐through in the middle products

model

Eric W. Bond

Department of Economics, Vanderbilt University, Nashville, Tennessee

Correspondence

Eric W. Bond, Department of Economics,

Vanderbilt University, 2301 Vanderbilt

Place, Nashville, TN 37235‐1819.

Email: eric.w.bond@vanderbilt.edu

Abstract

I use the middle products model of Sanyal and Jones to

study the pass‐through of a tariff on the price of non‐

traded final goods. I extend their analysis by comparing

the short‐run effect of the tariff, when all factors are

immobile, with the effects when labor is mobile be-

tween all sectors. It is shown that the short‐run pass‐

through may vary from zero to a magnified effect on

the price of the final product, depending on the elas-

ticities of substitution in consumption and production.

The relative magnitude of these elasticities determines

whether the pass‐through with labor mobility is greater

or less than the short‐run pass‐through.

KEYWORDS

middle products, tariff policy effects, tariff pass‐through

JEL CLASSIFICATION

F11, F13

1|INTRODUCTION

Ronald Jones's research has primarily focused on the analysis of general equilibrium models of

international trade under conditions of perfect competition. He has made seminal contributions

to our understanding of the models that are the core of competitive trade theory: the Ricardian

model (Jones, 1961), the Heckscher–Ohlin model (Jones, 1956,1965), and the specific factors

model (Jones, 1971).

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© 2020 International Association for Economic Theory