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Substitutability and protectionism : Latin America's trade policy and imports from China and India

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Author Info
Facchini, Giovanni
Olarreaga, Marcelo
Silva, Peri
Willmann, Gerald

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Abstract

The authors examine 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, they extend the"protection for sale"model to allow for different degrees of substitutability between domestically produced and imported varieties. The extension suggests that higher levels of protection toward Chinese goods can be explained by high substitutability between domestically produced goods and Chinese goods, whereas lower levels of protection toward goods imported from India can be explained by low substitutability with domestically produced goods. The data support the extension to the"protection for sale"model, which performs better than the original specification in terms of explaining Latin America's structure of protection.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 4188.

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Date of creation: 01 Apr 2007
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Handle: RePEc:wbk:wbrwps:4188

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Keywords: Economic Theory&Research; Markets and Market Access; Free Trade; Globalization and Financial Integration; International Trade and Trade Rules;

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  1. Kee, Hiau Looi & Nicita, Alessandro & Olarreaga, Marcelo, 2006. "Estimating trade restrictiveness indices," Policy Research Working Paper Series 3840, The World Bank. [Downloadable!]
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  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)
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  4. 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)
  5. 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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  6. 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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  7. Hiau Looi Kee & Nicita, Alessandro & Olarreaga, Marcelo, 2004. "Import demand elasticities and trade distortions," Policy Research Working Paper Series 3452, The World Bank. [Downloadable!]
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  8. 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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  9. Gawande, Kishore, 1997. "Generated regressors in linear and nonlinear models," Economics Letters, Elsevier, vol. 54(2), pages 119-126, February. [Downloadable!] (restricted)
  10. Choi, E Kwan & Harrigan, James, 2004. "Handbook of International Trade," Staff General Research Papers 11375, Iowa State University, Department of Economics.
  11. 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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  12. 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. [Downloadable!] (restricted)
  13. kishore gawande & pravin krishna, 2005. "The Political Economy of Trade Policy: Empirical Approaches," International Trade 0503003, EconWPA. [Downloadable!]
  14. 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)
  15. Grossman, Gene M & Helpman, Elhanan, 1995. "The Politics of Free-Trade Agreements," American Economic Review, American Economic Association, vol. 85(4), pages 667-90, September. [Downloadable!] (restricted)
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