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The Protectionist Bias of Duty Drawbacks and the New Regionalism

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Author Info
Cadot, Olivier
de Melo, Jaime
Olarreaga, Marcelo

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Abstract

In a political-economy setting where tariffs and duty drawbacks are endogenously chosen through industry lobbying, it is shown that full duty-drawbacks are granted to exporters who use imported intermediates in their production. This in turn decreases their incentives to counter-lobby against high tariff on their inputs. In equilibrium, higher tariffs will be observed on these goods. The creation of a regional block will change the political equilibrium. Duty-drawbacks will be eliminated on intra-regional exports, which in turn will lead to lower tariffs for goods used as inputs by intra-regional exporters. Evidence from Mercosur suggests that the elimination of duty-drawbacks for intra-regional exports, led to increased counter-lobbying by users of intermediate products. In its absence the common external tariff would have been on average 3.5 percentage points (25 percent) higher.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 2559.

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Date of creation: Sep 2000
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Handle: RePEc:cpr:ceprdp:2559

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Related research
Keywords: Duty-Drawbacks; Mercosur; New Regionalism; Political-Economy;

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Find related papers by JEL classification:
F11 - International Economics - - Trade - - - Neoclassical Models of Trade
F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
F15 - International Economics - - Trade - - - Economic Integration

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  1. Helpman, Elhanan, 1995. "Politics and Trade Policy," CEPR Discussion Papers 1269, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  2. Cadot, O. & De Melo, J. & Olarreaga, M., 1996. "Regional Integration and Lobbying for Tariffs Against Non-Members," University of Geneva Economics Working Papers 96.07, University of Geneva, Department of Political Economy.
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  3. Cadot, Olivier & de Melo, Jaime & Olarreaga, Marcelo, 2001. "Can bilateralism ease the pains of multilateral trade liberalization?," European Economic Review, Elsevier, vol. 45(1), pages 27-44, January. [Downloadable!] (restricted)
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  4. Dickins, William T, 1990. "Error Components in Grouped Data: Is It Ever Worth Weighting?," The Review of Economics and Statistics, MIT Press, vol. 72(2), pages 328-33, May. [Downloadable!] (restricted)
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  6. Cadot, Olivier & de Melo, Jaime & Olarreaga, Marcelo, 1997. "Lobbying and the Structure of Protection," CEPR Discussion Papers 1574, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  7. Pinelopi Koujianou Goldberg & Giovanni Maggi, 1999. "Protection for Sale: An Empirical Investigation," American Economic Review, American Economic Association, vol. 89(5), pages 1135-1155, December. [Downloadable!] (restricted)
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  8. Wilfred J. Ethier, 1998. "Regionalism in a Multilateral World," Journal of Political Economy, University of Chicago Press, vol. 106(6), pages 1214-1245, December. [Downloadable!] (restricted)
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  10. Olarreaga, Marcelo & Soloaga, Isidro & Winters, Alan, 1999. "What's behind MERCOSUR's common external tariff?," Policy Research Working Paper Series 2231, The World Bank. [Downloadable!]
  11. Veall, Michael R & Zimmermann, Klaus F, 1994. "Goodness of Fit Measures in the Tobit Model," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 56(4), pages 485-99, November.
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  16. Arvind Panagariya, 2000. "Preferential Trade Liberalization: The Traditional Theory and New Developments," Journal of Economic Literature, American Economic Association, vol. 38(2), pages 287-331, June. [Downloadable!] (restricted)
  17. Anne O. Krueger & Sarath Rajapatirana, 1999. "The World Bank Policies Towards Trade and Trade Policy Reform," The World Economy, Blackwell Publishing, vol. 22(6), pages 717-740, 08. [Downloadable!] (restricted)
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  19. Panagariya, Arvind, 1990. "Input tariffs and duty drawbacks in the design of tariff reform," Policy Research Working Paper Series 336, The World Bank. [Downloadable!]
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