IDEAS home Printed from https://ideas.repec.org/a/wly/soecon/v70y2003i1p49-74.html
   My bibliography  Save this article

Unprotective Tariffs, Ineffective Liberalization, and Other Mysteries: An Investigation of the Endogenous Dimensions of Trade Policy Formation in Australia

Author

Listed:
  • Christis G. Tombazos

Abstract

At the forefront of research on Australia's trade policies two items have attracted considerable interest: (1) the endogeneity of tariff concessions and (2) the impact of liberalization on imports. Studies that investigate the former examine the impact of import penetration on tariffs, and studies that explore the latter consider the effect of tariffs on import penetration. Despite the simultaneity of these variables, research lines (1) and (2) followed separate paths by only considering unidirectional causal relationships. And yet, these paths do converge. The meeting point: perplexing results! Tariffs are found to protect those industries that have the least use for protection, and liberalization is often determined to be entirely ineffectual in stimulating imports. The present article explains that the source of such puzzling results is found in the misspecification of the employed frameworks of analysis, which ignore relevant feedback effects. When reciprocal causation is addressed in the analysis, the estimated impact of import penetration on the tariff level increases by almost fivefold and that of tariffs on import penetration more than doubles.

Suggested Citation

  • Christis G. Tombazos, 2003. "Unprotective Tariffs, Ineffective Liberalization, and Other Mysteries: An Investigation of the Endogenous Dimensions of Trade Policy Formation in Australia," Southern Economic Journal, John Wiley & Sons, vol. 70(1), pages 49-74, July.
  • Handle: RePEc:wly:soecon:v:70:y:2003:i:1:p:49-74
    DOI: 10.1002/j.2325-8012.2003.tb00555.x
    as

    Download full text from publisher

    File URL: https://doi.org/10.1002/j.2325-8012.2003.tb00555.x
    Download Restriction: no

    File URL: https://libkey.io/10.1002/j.2325-8012.2003.tb00555.x?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Richard E. Caves, 1976. "Economic Models of Political Choice: Canada's Tariff Structure," Canadian Journal of Economics, Canadian Economics Association, vol. 9(2), pages 278-300, May.
    2. Baldwin, Robert E & Magee, Christopher S, 2000. "Is Trade Policy for Sale? Congressional Voting on Recent Trade Bills," Public Choice, Springer, vol. 105(1-2), pages 79-101, October.
    3. Simmons, Phil & Smith, Al, 1994. "Producer Impact of two Proposals for Reform in the Australian Sugar Industry," Economic Analysis and Policy, Elsevier, vol. 24(1), pages 57-72.
    4. Brock, William A & Magee, Stephen P, 1978. "The Economics of Special Interest Politics: The Case of the Tariff," American Economic Review, American Economic Association, vol. 68(2), pages 246-250, May.
    5. Hillman, Arye L, 1982. "Declining Industries and Political-Support Protectionist Motives," American Economic Review, American Economic Association, vol. 72(5), pages 1180-1187, December.
    6. George J. Stigler, 1971. "The Theory of Economic Regulation," Bell Journal of Economics, The RAND Corporation, vol. 2(1), pages 3-21, Spring.
    7. Tombazos, Christis G., 1999. "The impact of imports on the demand for labor in Australia," Economics Letters, Elsevier, vol. 62(3), pages 351-356, March.
    8. Kreps,David M. & Wallis,Kenneth F. (ed.), 1997. "Advances in Economics and Econometrics: Theory and Applications," Cambridge Books, Cambridge University Press, number 9780521589819.
    9. Magee,Stephen P. & Brock,William A. & Young,Leslie, 1989. "Black Hole Tariffs and Endogenous Policy Theory," Cambridge Books, Cambridge University Press, number 9780521377003, November.
    10. Trefler, Daniel, 1993. "Trade Liberalization and the Theory of Endogenous Protection: An Econometric Study of U.S. Import Policy," Journal of Political Economy, University of Chicago Press, vol. 101(1), pages 138-160, February.
    11. John Conybeare, 1984. "Politicians and protection: Tariffs and elections in Australia," Public Choice, Springer, vol. 43(2), pages 203-209, January.
    12. Brainard, S. Lael & Verdier, Thierry, 1997. "The political economy of declining industries: Senescent industry collapse revisited," Journal of International Economics, Elsevier, vol. 42(1-2), pages 221-237, February.
    13. Grossman, Gene M & Helpman, Elhanan, 1994. "Protection for Sale," American Economic Review, American Economic Association, vol. 84(4), pages 833-850, September.
    14. Van Long, Ngo & Vousden, Neil, 1991. "Protectionist responses and declining industries," Journal of International Economics, Elsevier, vol. 30(1-2), pages 87-103, February.
    15. Pincus, J J, 1975. "Pressure Groups and the Pattern of Tariffs," Journal of Political Economy, University of Chicago Press, vol. 83(4), pages 757-778, August.
    16. Marvel, Howard P & Ray, Edward J, 1983. "The Kennedy Round: Evidence on the Regulation of International Trade in the United States," American Economic Review, American Economic Association, vol. 73(1), pages 190-197, March.
    17. Kym Anderson, 1980. "The Political Market for Government Assistance to Australian Manufacturing Industries," The Economic Record, The Economic Society of Australia, vol. 56(153), pages 132-144, June.
    18. Ray, Edward John, 1981. "The Determinants of Tariff and Nontariff Trade Restrictions in the United States," Journal of Political Economy, University of Chicago Press, vol. 89(1), pages 105-121, February.
    19. Mayer, Wolfgang, 1984. "Endogenous Tariff Formation," American Economic Review, American Economic Association, vol. 74(5), pages 970-985, December.
    20. Cheh, John H., 1974. "United States concessions in the Kennedy Round and short-run labor adjustment costs," Journal of International Economics, Elsevier, vol. 4(4), pages 323-340, November.
    21. Maggi, Giovanni & Rodriguez-Clare, Andres, 2000. "Import penetration and the politics of trade protection," Journal of International Economics, Elsevier, vol. 51(2), pages 287-304, August.
    22. Donald Feaver & Kenneth Wilson, 1998. "Unlocking Australia's Contingent Protection Black Box," The Economic Record, The Economic Society of Australia, vol. 74(224), pages 62-73, March.
    23. Ray, Edward John, 1981. "Tariff and Nontariff Barriers to Trade in the United States and Abroad," The Review of Economics and Statistics, MIT Press, vol. 63(2), pages 161-168, May.
    24. Choi, Jay Pil, 2001. "Protectionist response to import competition in declining industries reconsidered," European Journal of Political Economy, Elsevier, vol. 17(1), pages 193-201, March.
    25. George J. Stigler, 1974. "Free Riders and Collective Action: An Appendix to Theories of Economic Regulation," Bell Journal of Economics, The RAND Corporation, vol. 5(2), pages 359-365, Autumn.
    26. 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.
    27. Kreps,David M. & Wallis,Kenneth F. (ed.), 1997. "Advances in Economics and Econometrics: Theory and Applications," Cambridge Books, Cambridge University Press, number 9780521589833.
    28. Robert W. Staiger & Kyle Bagwell, 1999. "An Economic Theory of GATT," American Economic Review, American Economic Association, vol. 89(1), pages 215-248, March.
    29. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-838, May.
    30. W. Max Corden, 1996. "Protection and Liberalisation in Australia and Abroad," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 29(2), pages 141-154, April.
    31. Aislabie, Colin, 1988. "Economic Incentives and the Pattern of the Australian Tariff," Australian Economic Papers, Wiley Blackwell, vol. 27(50), pages 20-32, June.
    32. Ray, Edward John, 1987. "The Impact of Special Interests on Preferential Tariff Concessions by the United States," The Review of Economics and Statistics, MIT Press, vol. 69(2), pages 187-193, May.
    33. Kreps,David M. & Wallis,Kenneth F. (ed.), 1997. "Advances in Economics and Econometrics: Theory and Applications," Cambridge Books, Cambridge University Press, number 9780521589826.
    34. Ronald Findlay & Stanislaw Wellisz, 1982. "Endogenous Tariffs, the Political Economy of Trade Restrictions, and Welfare," NBER Chapters, in: Import Competition and Response, pages 223-244, National Bureau of Economic Research, Inc.
    35. Cassing, James H & Hillman, Arye L, 1986. "Shifting Comparative Advantage and Senescent Industry Collapse," American Economic Review, American Economic Association, vol. 76(3), pages 516-523, June.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Francois, Joseph & Nelson, Douglas R., 2014. "Political support for trade policy in the European Union," European Journal of Political Economy, Elsevier, vol. 36(C), pages 243-253.
    2. kishore gawande & pravin krishna, 2005. "The Political Economy of Trade Policy: Empirical Approaches," International Trade 0503003, University Library of Munich, Germany.
    3. Afontsev Serguey, 2000. "Political Economy of Tariff Protection in Russia: an Empirical Study," EERC Working Paper Series 99-16e, EERC Research Network, Russia and CIS.
    4. Yu-Fu Chen & I-Hui Cheng, 2003. "Lobbying for Protection under Uncertainty: A Real Option Approach," Dundee Discussion Papers in Economics 155, Economic Studies, University of Dundee.
    5. Richard E. Baldwin & Frédéric Robert-Nicoud, 2007. "Entry and Asymmetric Lobbying: Why Governments Pick Losers," Journal of the European Economic Association, MIT Press, vol. 5(5), pages 1064-1093, September.
    6. Mirabelle Muûls & Dimitra Petropoulou, 2013. "A swing state theory of trade protection in the Electoral College," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 46(2), pages 705-724, May.
    7. Rodrik, Dani, 1994. "What does the Political Economy Literature on Trade Policy (Not) Tell Us That We Ought to Know?," CEPR Discussion Papers 1039, C.E.P.R. Discussion Papers.
    8. Baybars Karacaovali, 2011. "Productivity Matters For Trade Policy: Theory And Evidence," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 52(1), pages 33-62, February.
    9. Richard Damania & Per Fredriksson & Thomas Osang, 2004. "Collusion, Collective Action and Protection: Theory and Evidence," Public Choice, Springer, vol. 121(3), pages 279-308, February.
    10. Alexandr Knobel, 2010. "Factors of important Tariff Information," Research Paper Series, Gaidar Institute for Economic Policy, issue 143P.
    11. Josh Ederington & Jenny Minier, 2003. "Is environmental policy a secondary trade barrier? An empirical analysis," Canadian Journal of Economics, Canadian Economics Association, vol. 36(1), pages 137-154, February.
    12. Nuno Limão & Patricia Tovar, 2018. "Policy choice: Theory and evidence from commitment via international trade agreements," World Scientific Book Chapters, in: Policy Externalities and International Trade Agreements, chapter 6, pages 179-198, World Scientific Publishing Co. Pte. Ltd..
    13. Theo S Eicher & Thomas Osang, 2000. "Politics and Trade Policy: An Empirical Investigation"," Working Papers 0004, University of Washington, Department of Economics.
    14. Brainard, S. Lael & Verdier, Thierry, 1997. "The political economy of declining industries: Senescent industry collapse revisited," Journal of International Economics, Elsevier, vol. 42(1-2), pages 221-237, February.
    15. Nuno Limão & Arvind Panagariya, 2003. "Why is there an Anti-trade Bias in Trade Policy?," International Trade 0310003, University Library of Munich, Germany.
    16. Tovar, Patricia, 2009. "The effects of loss aversion on trade policy: Theory and evidence," Journal of International Economics, Elsevier, vol. 78(1), pages 154-167, June.
    17. Kishore Gawande & Alok K. Bohara, 2000. "Errors‐in‐Variables Bounds in a Tobit Model of Endogenous Protection," Southern Economic Journal, John Wiley & Sons, vol. 66(4), pages 881-905, April.
    18. Bradford, Scott, 2003. "Protection and jobs: explaining the structure of trade barriers across industries," Journal of International Economics, Elsevier, vol. 61(1), pages 19-39, October.
    19. Benjamin H. Liebman & Kara M. Reynolds, 2006. "The returns from rent-seeking: campaign contributions, firm subsidies and the Byrd Amendment," Canadian Journal of Economics, Canadian Economics Association, vol. 39(4), pages 1345-1369, November.
    20. Olper, Alessandro, 2017. "The political economy of trade-related regulatory policy: environment and global value chain," Bio-based and Applied Economics Journal, Italian Association of Agricultural and Applied Economics (AIEAA), vol. 5(3), February.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wly:soecon:v:70:y:2003:i:1:p:49-74. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://doi.org/10.1002/(ISSN)2325-8012 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.