Market Integration and Market Efficiency under Seasonal Tariff Rate Quotas
2019
Hillen, Judith
Switzerland applies seasonal tariff rate quotas (TRQs) for the import of many fruits and vegetables during the domestic harvest season. We examine how this system affects the relationship between Italian and Swiss tomato prices and test for physical market integration and spatial equilibrium conditions over time. We use detailed, transaction‐based data on trade flows and trade costs and estimate an extended parity bounds model, following Barrett and Li (2002). We confirm that in the summer season, when TRQs are in place, markets are inefficient. While quota holders receive positive rents, the marginal rents for importers without quota shares are negative. This inhibits trade flows above the in‐quota import quantity allowed by TRQs. Hence, despite leading to inefficiencies and creating rents for importers, seasonal TRQs are effective in protecting domestic production against competing imports.
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