057 The Welfare Cost of Tariff Protection in the Balkan Countries

2004 10 wiiw bo wp 057

Philippe Kohler

The Welfare Cost of Tariff Protection in the Balkan Countries (PDF)


For eight Balkan countries (Albania, Bosnia & Herzegovina, Bulgaria, Croatia, Macedonia, Romania, Serbia & Montenegro, and Slovenia) the welfare cost of tariff protection on imports of goods based on recent years tariff data (2001 to 2003) is computed. The computation is based on a partial equilibrium framework with constant elasticity demands and perfect substitutes with a compilation of 6000 tariff lines. The focus on the import market allows to identify tariff peaks but the welfare loss of protection is concentrated in a small set of products, namely food products, tobacco, textiles and agriculture. With a simulated extrapolation to imports of services and when the administrative cost of tax collection is taken into account, the welfare cost is equal, on average, to 0.7% of GDP, that is $ 0.9 billion ($ 18 per capita). In Romania, the highest protection deals with intermediate goods and capital goods -as in import substitution policies used in the past by developing countries- strengthening the perverse effect of trade policy on economic growth.

Keywords: Cost of trade protection, tax policies, Southeastern European Countries.

JEL classifcation: F13