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Trade Policy Determinants and Trade Reform in a Developing Country

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  • Baybars Karacaovali

    ()
    (Department of Economics, University of Hawaii)

Abstract

In this paper, I start out with a standard political economy of trade policy model to guide the subsequent estimation of the determinants of trade policy in a developing country. I carefully test the model with Colombian data from 1983 to 1998 accounting for endogeneity and omitted variable bias concerns and then expand it empirically in several directions. I show that it is important to control for the impact of a drastic trade reform shock that affects all sectors and disentangle its effect from preferential trade agreements (PTAs). I find that protection is higher in sectors that are important exports for preferential partners which may be seen as a stumbling block effect of PTAs for Colombia. I also relax the assumption of fixed political weights that measure the extra importance of producers' welfare relative to consumers in the government objective. I measure the impact of sectoral characteristics on tariffs indirectly through political weights as a novel alternative to nonstructurally estimating them as determinants of protection. Accordingly, I obtain more realistic estimates for the political weights further contributing to the literature.

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File URL: http://www.economics.hawaii.edu/research/workingpapers/WP_11-15.pdf
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Bibliographic Info

Paper provided by University of Hawaii at Manoa, Department of Economics in its series Working Papers with number 201115.

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Length: 35 pages
Date of creation: 01 Nov 2011
Date of revision:
Handle: RePEc:hai:wpaper:201115

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Keywords: Political economy of trade policy; trade liberalization; preferential trade agreements; empirical trade;

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  4. Eslava, Marcela & Haltiwanger, John & Kugler, Adriana & Kugler, Maurice, 2004. "The effects of structural reforms on productivity and profitabality enhancing reallocation: evidence from Colombia," Discussion Paper Series In Economics And Econometrics 0408, Economics Division, School of Social Sciences, University of Southampton.
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