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Substitutability and Protectionism: Latin America’s Trade Policy and Imports from China and India

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  • Giovanni Facchini
  • Marcelo Olarreaga
  • Peri A. Silva
  • Gerald Willmann

Abstract

This paper examines the trade policy response of Latin American governments to the rapid growth of China and India in world markets. To explain higher protection in sectors where a large share is imported from these countries, we extend the ‘protection for sale’ model to allow for different degrees of substitutability between domestically produced and imported varieties. The extension suggests that higher levels of protection towards Chinese goods can be explained by high substitutability between domestically produced goods and Chinese goods, whereas lower levels of protection towards goods imported from India can be explained by low substitutability with domestically produced goods. The data supports the extension to the ‘protection for sale’ model, which performs better than the original specification in terms of explaining Latin America's structure of protection.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2007/wp-cesifo-2007-03/cesifo1_wp1947.pdf
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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1947.

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Date of creation: 2007
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Handle: RePEc:ces:ceswps:_1947

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Keywords: Latin America; protectionism;

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References

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  1. Grossman, Gene & Helpman, Elhanan, 1994. "The Politics of Free Trade Agreements," CEPR Discussion Papers, C.E.P.R. Discussion Papers 908, C.E.P.R. Discussion Papers.
  2. Russell Davidson & James G. MacKinnon, 1980. "Several Tests for Model Specification in the Presence of Alternative Hypotheses," Working Papers, Queen's University, Department of Economics 378, Queen's University, Department of Economics.
  3. Giovanni Facchini & Johannes Van Biesebroeck & Gerald Willmann, 2005. "Protection for Sale with Imperfect Rent Capturing," NBER Working Papers 11269, National Bureau of Economic Research, Inc.
  4. Hiau LooiKee & Alessandro Nicita & Marcelo Olarreaga, 2009. "Estimating Trade Restrictiveness Indices," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 119(534), pages 172-199, 01.
  5. Grossman, Gene & Helpman, Elhanan, 1993. "Protection for Sale," CEPR Discussion Papers, C.E.P.R. Discussion Papers 827, C.E.P.R. Discussion Papers.
  6. Douglas Staiger & James H. Stock, 1994. "Instrumental Variables Regression with Weak Instruments," NBER Technical Working Papers 0151, National Bureau of Economic Research, Inc.
  7. Hiau Looi Kee & Alessandro Nicita & Marcelo Olarreaga, 2008. "Import Demand Elasticities and Trade Distortions," The Review of Economics and Statistics, MIT Press, vol. 90(4), pages 666-682, November.
  8. Gawande, Kishore, 1997. "Generated regressors in linear and nonlinear models," Economics Letters, Elsevier, Elsevier, vol. 54(2), pages 119-126, February.
  9. Alessandro Nicita & Marcelo Olarreaga, 2007. "Trade, Production, and Protection Database, 1976--2004," World Bank Economic Review, World Bank Group, World Bank Group, vol. 21(1), pages 165-171.
  10. kishore gawande & pravin krishna, 2005. "The Political Economy of Trade Policy: Empirical Approaches," International Trade, EconWPA 0503003, EconWPA.
  11. Devashish Mitra & Dimitrios D. Thomakos & Mehmet A. Ulubaşoglu, 2002. ""Protection For Sale" In A Developing Country: Democracy Vs. Dictatorship," The Review of Economics and Statistics, MIT Press, vol. 84(3), pages 497-508, August.
  12. Phillip McCalman, 2004. "Protection for Sale and Trade Liberalization: an Empirical Investigation," Review of International Economics, Wiley Blackwell, vol. 12(1), pages 81-94, 02.
  13. Chang, Pao-Li, 2005. "Protection for sale under monopolistic competition," Journal of International Economics, Elsevier, Elsevier, vol. 66(2), pages 509-526, July.
  14. Kishore Gawande & Usree Bandyopadhyay, 2000. "Is Protection for Sale? Evidence on the Grossman-Helpman Theory of Endogenous Protection," The Review of Economics and Statistics, MIT Press, vol. 82(1), pages 139-152, February.
  15. Devashish Mitra, 1999. "Endogenous Lobby Formation and Endogenous Protection: A Long-Run Model of Trade Policy Determination," American Economic Review, American Economic Association, American Economic Association, vol. 89(5), pages 1116-1134, December.
  16. Devashish Mitra & Dimitrios Thomakos & Mehmet Ulubasoglu, 2006. "Can we obtain realistic parameter estimates for the `protection for sale' model?," Canadian Journal of Economics, Canadian Economics Association, Canadian Economics Association, vol. 39(1), pages 187-210, February.
  17. Giovanni Maggi & Pinelopi Koujianou Goldberg, 1999. "Protection for Sale: An Empirical Investigation," American Economic Review, American Economic Association, American Economic Association, vol. 89(5), pages 1135-1155, December.
  18. Gilbert,Christopher L. & Vines,David (ed.), 2006. "The World Bank," Cambridge Books, Cambridge University Press, Cambridge University Press, number 9780521029018.
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Citations

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Cited by:
  1. Daniel Lederman & Marcelo Olarreaga & Guillermo Perry, 2007. "Latin America´s response to China and India: overview of research findings and policy implications - Observatorio de Política," Revista de Economía y Estadística, Universidad Nacional de Córdoba, Facultad de Ciencias Económicas, Instituto de Economía y Finanzas, Universidad Nacional de Córdoba, Facultad de Ciencias Económicas, Instituto de Economía y Finanzas, vol. 0(1), pages 149-193, January.
  2. Wignaraja, Ganeshan & Ramizo, Dorothea & Burmeister, Luca, 2012. "Asia-Latin America Free Trade Agreements: An Instrument for Inter-Regional Liberalization and Integration?," ADBI Working Papers, Asian Development Bank Institute 382, Asian Development Bank Institute.
  3. Hylke VANDENBUSSCHE & Christian VIEGELAHN, 2011. "No Protectionist Surprises: EU Antidumping Policy Before and During the Great Recession," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales), Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES) 2011021, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  4. Silva, Peri, 2011. "The role of importers and exporters in the determination of the U.S. tariff preferences granted to Latin America," Journal of Development Economics, Elsevier, Elsevier, vol. 94(2), pages 207-219, March.
  5. Fan Zhai & Masahiro Kawai, 2009. "PRC-Latin America Economic Cooperation: Going beyond Resource and Manufacturing Complementarity," Working Papers id:1961, eSocialSciences.

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