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Tariff-Induced (De)industrialization: An Empirical Analysis

Author

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  • Marjan Petreski

    () (University American College Skopje)

  • Branimir Jovanovic

    () (University of Turin)

  • Igor Velickovski

    () (National Bank of the Republic of Macedonia)

Abstract

Abstract In this paper, we investigate if tariffs affected manufacturing value added in 25 countries from Central and Southeast Europe, the Commonwealth of Independent States, and the Middle East and North Africa over the period 1990–2010. We identify and test three channels through which tariffs may affect industry value added. We use various fixed effects and an instrumental variable approach to address tariffs’ endogeneity with respect to value added. The results suggest that, in general, lower tariffs seem to lead to higher value added, mainly through the higher imports of inputs in the production process, which were either non-existent or more expensive on the domestic market previously. However, there are notable differences in the effects between different groups of countries and industries: tariffs are not found to affect industrialization in Southeast Europe and the Middle East and North Africa, which implies that their decision to liberalize trade was likely premature. This is supported by the finding that lower tariffs have positive effects on industry value added only in more mature industries.

Suggested Citation

  • Marjan Petreski & Branimir Jovanovic & Igor Velickovski, 2017. "Tariff-Induced (De)industrialization: An Empirical Analysis," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 59(3), pages 345-381, September.
  • Handle: RePEc:pal:compes:v:59:y:2017:i:3:d:10.1057_s41294-017-0030-8
    DOI: 10.1057/s41294-017-0030-8
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    More about this item

    Keywords

    industrialization; trade liberalization; tariffs;

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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