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Who determines Mexican trade policy?

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Author Info
Grether, Jean-Marie
de Melo, Jaime
Olarreaga, Marcelo

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Abstract

Using a political economy approach, the authors analyze the pattern of protection in Mexico's manufacturing sector during the period of trade policy reforms (1985-89), when Mexico experienced significant trade liberalization and an important inflow of foreign direct investment. They take into account the potential effect of foreign direct investment on endogenous tariff formation. It turns out that the data support this analytic approach, in which the formulation of trade policy reflects political support, and in which the presence of foreign direct investment in the sector strongly affects the pattern of tariff protection before and after reform. In Mexican manufacturing, especially, sectors with heavy foreign direct investment received greater protection in import-competing sectors, although the move toward greater openness was associated with a reduction in the influence of industrial and foreign-investor lobbying.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 2187.

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Date of creation: 30 Sep 1999
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Handle: RePEc:wbk:wbrwps:2187

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Keywords: Environmental Economics&Policies; Payment Systems&Infrastructure; Economic Theory&Research; Banks&Banking Reform; Trade Policy; Foreign Direct Investment; Economic Theory&Research; Trade and Regional Integration; TF054105-DONOR FUNDED OPERATION ADMINISTRATION FEE INCOME AND EXPENSE ACCOUNT; Environmental Economics&Policies;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  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. Markusen, James R, 1995. "The Boundaries of Multinational Enterprises and the Theory of International Trade," Journal of Economic Perspectives, American Economic Association, vol. 9(2), pages 169-89, Spring. [Downloadable!] (restricted)
  3. de Melo, Jaime & Tarr, David, 1993. "Industrial Policy in the Presence of Wage Distortions: The Case of the U.S. Auto and Steel Industries," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 34(4), pages 833-51, November. [Downloadable!] (restricted)
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  4. Braillard, S. Lael & Verdier, Thierry, 1994. "Lobbying and adjustment in declining industries," European Economic Review, Elsevier, vol. 38(3-4), pages 586-595, April. [Downloadable!] (restricted)
  5. Bruce A. Blonigen & Robert C. Feenstra, 1996. "Protectionist Threats and Foreign Direct Investment," NBER Working Papers 5475, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  6. Schweinberger, Albert G & Vosgerau, Hans J, 1997. "Foreign Factor Ownership and Optimal Tariffs," Review of International Economics, Blackwell Publishing, vol. 5(1), pages 1-19, February.
  7. Levinsohn, James, 1993. "Testing the imports-as-market-discipline hypothesis," Journal of International Economics, Elsevier, vol. 35(1-2), pages 1-22, August. [Downloadable!] (restricted)
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  8. J. Michael Finger & Ann Harrison, 1994. "The MFA Paradox: More Protection and More Trade?," NBER Working Papers 4751, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  9. Grossman, Gene M & Helpman, Elhanan, 1994. "Protection for Sale," American Economic Review, American Economic Association, vol. 84(4), pages 833-50, September. [Downloadable!] (restricted)
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  10. 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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  11. Dick, Andrew R., 1993. "Strategic trade policy and welfare : The empirical consequences of cross-ownership," Journal of International Economics, Elsevier, vol. 35(3-4), pages 227-249, November. [Downloadable!] (restricted)
  12. Gene Grossman & Elhanan Helpman, 1994. "Foreign Investment with Endogenous Protection," NBER Working Papers 4876, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  13. Lee, Sanghack, 1990. "International equity markets and trade policy," Journal of International Economics, Elsevier, vol. 29(1-2), pages 173-184, August. [Downloadable!] (restricted)
  14. Anderson, Kym, 1980. "The Political Market for Government Assistance to Australian Manufacturing Industries," The Economic Record, The Economic Society of Australia, vol. 56(153), pages 132-44, June.
  15. Azrak, Paul & Wynne, Kevin, 1995. "Protectionism and Japanese direct investment in the United States," Journal of Policy Modeling, Elsevier, vol. 17(3), pages 293-305, June. [Downloadable!] (restricted)
  16. Olarreaga, Marcelo, 1996. "Tariff Reductions in the Presence of Foreign Direct Investment," Review of International Economics, Blackwell Publishing, vol. 4(3), pages 263-75, October.
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  17. Hillman, Arye L & Ursprung, Heinrich W, 1993. "Multinational Firms, Political Competition, and International Trade Policy," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 34(2), pages 347-63, May. [Downloadable!] (restricted)
  18. Helleiner, G.K., 1989. "Transnational corporations and direct foreign investment," Handbook of Development Economics, in: Hollis Chenery† & T.N. Srinivasan (ed.), Handbook of Development Economics, edition 1, volume 2, chapter 27, pages 1441-1480 Elsevier. [Downloadable!] (restricted)
  19. Blonigen, Bruce A & Figlio, David N, 1998. "Voting for Protection: Does Direct Foreign Investment Influence Legislator Behavior?," American Economic Review, American Economic Association, vol. 88(4), pages 1002-14, September. [Downloadable!] (restricted)
  20. Rodrik, Dani, 1995. "Political economy of trade policy," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 28, pages 1457-1494 Elsevier. [Downloadable!] (restricted)
  21. Barrell, Ray & Pain, Nigel, 1999. "Trade restraints and Japanese direct investment flows," European Economic Review, Elsevier, vol. 43(1), pages 29-45, January. [Downloadable!] (restricted)
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  22. Marcelo Olarreaga, 1998. "Tariff Reductions under Foreign Factor Ownership," Canadian Journal of Economics, Canadian Economics Association, vol. 31(4), pages 830-836, November. [Downloadable!] (restricted)
  23. Bhagwati, Jagdish N & Dinopoulos, Elias & Wong, Kar-yiu, 1992. "Quid Pro Quo Foreign Investment," American Economic Review, American Economic Association, vol. 82(2), pages 186-90, May. [Downloadable!] (restricted)
  24. Hillman, Arye L, 1982. "Declining Industries and Political-Support Protectionist Motives," American Economic Review, American Economic Association, vol. 72(5), pages 1180-87, December. [Downloadable!] (restricted)
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Pravin Krishna & Devashish Mitra, 2003. "Reciprocated Unilateralism in Trade Policy: An Interest-Group Approach," NBER Working Papers 9631, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  2. Olarreaga, Marcelo, 1999. "Foreign-owned capital and endogenous tariffs," Policy Research Working Paper Series 2205, The World Bank. [Downloadable!]
    Other versions:
  3. Yushi Yoshida & Hiro Ito, 2005. "Distance on FDI and Trade: The Roles of China and Mexico in the Pacific Basin," Discussion Papers 24, Kyushu Sangyo University, Faculty of Economics. [Downloadable!]
  4. Bin, Sheng, 2000. "The Political Economy of Trade Policy in China," Working Papers 10/2000, Copenhagen Business School, Department of Management, Politics & Philosophy. [Downloadable!]
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