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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)

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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Bibliographic Info

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

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Length: 33
Date of creation: 01 May 2007
Date of revision:
Handle: RePEc:csl:devewp:229

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Keywords: Latin America; Protectionism;

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References

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  1. 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.
  2. Kee, Hiau Looi & Nicita, Alessandro & Olarreaga, Marcelo, 2004. "Import Demand Elasticities and Trade Distortions," CEPR Discussion Papers 4669, C.E.P.R. Discussion Papers.
  3. Gilbert,Christopher L. & Vines,David (ed.), 2006. "The World Bank," Cambridge Books, Cambridge University Press, number 9780521029018, April.
  4. Devashish Mitra, 1999. "Endogenous Lobby Formation and Endogenous Protection: A Long-Run Model of Trade Policy Determination," American Economic Review, American Economic Association, vol. 89(5), pages 1116-1134, December.
  5. Gene M. Grossman & Elhanan Helpman, 1992. "Protection For Sale," NBER Working Papers 4149, National Bureau of Economic Research, Inc.
  6. Giovanni Maggi & Pinelopi Koujianou Goldberg, 1999. "Protection for Sale: An Empirical Investigation," American Economic Review, American Economic Association, vol. 89(5), pages 1135-1155, December.
  7. 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.
  8. Grossman, G.M. & Helpman, E., 1993. "The Politics of Free Trade Agreements," Papers 14-93, Tel Aviv.
  9. Russell Davidson & James G. MacKinnon, 1980. "Several Tests for Model Specification in the Presence of Alternative Hypotheses," Working Papers 378, Queen's University, Department of Economics.
  10. Douglas Staiger & James H. Stock, 1994. "Instrumental Variables Regression with Weak Instruments," NBER Technical Working Papers 0151, National Bureau of Economic Research, Inc.
  11. 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.
  12. kishore gawande & pravin krishna, 2005. "The Political Economy of Trade Policy: Empirical Approaches," International Trade 0503003, EconWPA.
  13. 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.
  14. Gawande, Kishore, 1997. "Generated regressors in linear and nonlinear models," Economics Letters, Elsevier, vol. 54(2), pages 119-126, February.
  15. Kee, Hiau Looi & Nicita, Alessandro & Olarreaga, Marcelo, 2006. "Estimating Trade Restrictiveness Indices," CEPR Discussion Papers 5576, C.E.P.R. Discussion Papers.
  16. Alessandro Nicita & Marcelo Olarreaga, 2007. "Trade, Production, and Protection Database, 1976--2004," World Bank Economic Review, World Bank Group, vol. 21(1), pages 165-171.
  17. 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.
  18. Chang, Pao-Li, 2005. "Protection for sale under monopolistic competition," Journal of International Economics, Elsevier, vol. 66(2), pages 509-526, July.
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Citations

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Cited by:
  1. 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) 2011021, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  2. Silva, Peri, 2005. "The role of importers and exporters in the determination of the U.S. tariff preferenes granted to Latin America," Policy Research Working Paper Series 3518, The World Bank.
  3. Fan Zhai & Masahiro Kawai, 2009. "PRC-Latin America Economic Cooperation: Going beyond Resource and Manufacturing Complementarity," Working Papers id:1961, eSocialSciences.
  4. 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, vol. 0(1), pages 149-193, January.
  5. Wignaraja, Ganeshan & Ramizo, Dorothea & Burmeister, Luca, 2012. "Asia-Latin America Free Trade Agreements: An Instrument for Inter-Regional Liberalization and Integration?," ADBI Working Papers 382, Asian Development Bank Institute.

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