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

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Author Info
Giovanni Facchini (University of Milan, LdA and CEPR)
Marcelo Olarreaga (Banco Mundial)
Peri Silva (University of North Dakota)
Gerald Willmann (Christian-Albrechts-Universitat zu Kiel)

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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 di®erent 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 speci¯cation in terms of explaining Latin America\'s structure of protection.

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Paper provided by Centro Studi Luca d\'Agliano, University of Milano in its series Development Working Papers with number 229.

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Handle: RePEc:csl:devewp:229

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Related research
Keywords: Latin America Protectionism

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Find related papers by JEL classification:
F10 - International Economics - - Trade - - - General
F11 - International Economics - - Trade - - - Neoclassical Models of Trade
F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations

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    Other versions:
  2. Chang, Pao-Li, 2005. "Protection for sale under monopolistic competition," Journal of International Economics, Elsevier, vol. 66(2), pages 509-526, July. [Downloadable!] (restricted)
  3. Giovanni Facchini & Johannes Van Biesebroeck & Gerald Willmann, 2006. "Protection for sale with imperfect rent capturing," Canadian Journal of Economics, Canadian Economics Association, vol. 39(3), pages 845-873, August. [Downloadable!] (restricted)
    Other versions:
  4. Choi, E Kwan & Harrigan, James, 2004. "Handbook of International Trade," Staff General Research Papers 11375, Iowa State University, Department of Economics.
  5. Kee, Hiau Looi & Nicita, Alessandro & Olarreaga, Marcelo, 2004. "Import Demand Elasticities and Trade Distortions," CEPR Discussion Papers 4669, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  6. Davidson, Russell & MacKinnon, James G, 1981. "Several Tests for Model Specification in the Presence of Alternative Hypotheses," Econometrica, Econometric Society, vol. 49(3), pages 781-93, May. [Downloadable!] (restricted)
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  7. 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, vol. 39(1), pages 187-210, February. [Downloadable!] (restricted)
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  10. 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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  11. Douglas Staiger & James H. Stock, 1997. "Instrumental Variables Regression with Weak Instruments," Econometrica, Econometric Society, vol. 65(3), pages 557-586, May.
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  12. kishore gawande & pravin krishna, 2005. "The Political Economy of Trade Policy: Empirical Approaches," International Trade 0503003, EconWPA. [Downloadable!]
  13. 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. [Downloadable!] (restricted)
  14. Gawande, Kishore, 1997. "Generated regressors in linear and nonlinear models," Economics Letters, Elsevier, vol. 54(2), pages 119-126, February. [Downloadable!] (restricted)
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