Gravity-Based Tools to Assess the Impact of Tariff Changes: An Application to Armenia

Abstract

This paper uses two empirical tools to quantify the impact of tariff changes on bilateral trade and welfare. Both tools are rooted in structural gravity literature. The first tool estimates the impact of tariff changes on bilateral trade for 5,020 products in a partial equilibrium framework. The second tool quantifies the impact on bilateral aggregate trade in a general equilibrium setup, allowing estimates of trade diversion and welfare changes. These tools are used to estimate the impact of tariff changes on Armenia with regard to (i) its alignment with the external tariff of the Eurasian Economic Union; (ii) free trade agreements between the Eurasian Economic Union and other economies, including Iran and the People’s Republic of China; and (iii) Armenia’s loss of beneficiary status under the Generalised Scheme of Preferences of the European Union.