https://openknowledge.worldbank.org/handle/10986/33886

1) #Import duties -everywhere - have a dual role. They are a source of #tax revenues and they help #allocate resources because modify the prices of the goods or services on which they are imposed.

2) In general - as countries grow import duty revenue falls. Countries move toward less distortive taxes that are also more difficult to collect. In #Pakistan, import duty revenues are 16% of total tax revenues. Above the average for countries at similar level of development.

3) Import duties also help allocate resources. Indeed, in the interest of 'industrializing' many use #cascading schemes. High tariffs on final goods, lower on intermediates and raw materials. In #Pakistan cascading is quite marked!

4) #Cascading creates very high effective protection. See below!

5) Now, while cascading sounds like a good thing - the objective is reasonable - 'industrialize'. It has a big unintended consequence: it creates an #anti- #export #bias. Indeed, while tariffs are explicitly taxes on imports, they are implicitly #taxes on #exports. Why?

6) Pretend you're a company. You can sell domestically w/ high protection (& foreign competitors pay high tariffs to sell in your market). Or you export - no protection. You'll likely prefer the coziness of the domestic market. Lift protection and you'll face different incentive.

7) This is why #export intensities are greater in countries with lower duties on final goods. Because duties on final goods are implicit #export taxes.

8) #Import duties on #inputs are also a problem. They make production more costly. They not only increase the price paid for imported inputs, but also allow producers of domestic inputs to increase prices! In the note we look at 2 things: #CPFTA & inputs, & inputs & productivity.

9) #CPFTA brought more imports from #China. Some where intermediates and raw materials. We measure which sectors in #Pakistan most benefited from those new inputs available. Here's a chart:

10) Sectors that benefited from increases in availability of inputs from #China gained competitiveness w/ rest of the world (they built a regional value chain). They showed increases in export growth & in market shares. (those interested in details, see Appendix 7.4 in the note).

11) Also important: in #Pakistan - like in many other places - duties on inputs hurt productivity of firms using these inputs downstream. [NB: #productivity is crucial for solid growth].

11) In summary - lots of thinking needs to go in design of #import duty policy. Reduce tariffs on intermediates to increase productivity. And gradually reduce those on final goods to eliminate the #anti-export bias. For more, read the note here: https://openknowledge.worldbank.org/handle/10986/33886
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