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Sem 5 Prep
← Intl TradeModern trade in the era of sustainability

Formulas for this chapter

Carbon border levy

Levy per unit = (importing carbon price - foreign carbon price) x embodied emissions per unit

Whenever a question gives a carbon price and an emissions intensity. The foreign carbon price is credited, so an exporter that already pays the full price faces no levy. Then convert to an ad valorem equivalent by dividing by the product price.

Importing carbon price
Price per tonne of carbon dioxide paid by the importing country's own producers
Foreign carbon price
Carbon price already paid in the exporting country, per tonne of carbon dioxide
Embodied emissions
Tonnes of carbon dioxide per unit of the traded good

Ad valorem equivalent of any border charge

Ad valorem equivalent % = charge per unit / price per unit x 100

To compare a carbon levy, a compliance cost or a delay with the tariffs in the rest of the course. It is the only way to say whether a non-tariff measure is large or small.

Charge per unit
Money cost imposed on one unit of the good at the border
Price per unit
Price of the good, in the same currency

Gravity model response to a change in trade costs

New trade / old trade = old t / new t

For any TradeTech or compliance-cost question. Because trade is inversely proportional to t, divide the old index by the new one. A 20 per cent fall in t gives a 25 per cent rise in trade, not 20.

t
Bilateral trade costs, in index form

Combining two gravity effects

Combined factor = (old t / new t) x (1 + growth in Y)

When trade costs and economic mass both change. The gravity equation is a product, so proportional changes multiply: 1.25 x 1.10 = 1.375, a 37.5 per cent rise, not 35 per cent.

t
Bilateral trade costs
Growth in Y
Proportional change in the relevant country's economic mass, as a decimal

Regressivity of a fixed compliance cost

Burden % = fixed cost per consignment / consignment value x 100

For the inclusivity lens. Compute it for a large and a small consignment and quote the gap in percentage points: the same rule can be a 0.5 per cent tariff for one exporter and an 8 per cent tariff for another.

Fixed cost
Documentation, verification or compliance cost, independent of shipment size
Consignment value
Value of one shipment
Step 3 of 23
The real wordsTheory

TradeTech

TradeTechThe set of technologies applied to the process of trading across borders, rather than to the goods traded. It covers digital documentation, customs and border clearance, logistics, trade finance and the data infrastructure that connects them.

Put it in the language of the course: TradeTech does not change comparative advantage. It attacks trade costs, the term the gravity model calls t.

That single sentence is the most useful thing you can say about this session in an exam. Check against your class slides.

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