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Substitutability and Protectionism: Latin America’s Trade Policy and Imports from China and India

Author

Listed:
  • Giovanni Facchini
  • Marcelo Olarreaga
  • Peri A. Silva
  • Gerald Willmann

Abstract

This paper examines 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, we 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 towards Chinese goods can be explained by high substitutability between domestically produced goods and Chinese goods, whereas lower levels of protection towards goods imported from India can be explained by low substitutability with domestically produced goods. The data supports 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.

Suggested Citation

  • Giovanni Facchini & Marcelo Olarreaga & Peri A. Silva & Gerald Willmann, 2007. "Substitutability and Protectionism: Latin America’s Trade Policy and Imports from China and India," CESifo Working Paper Series 1947, CESifo Group Munich.
  • Handle: RePEc:ces:ceswps:_1947
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    References listed on IDEAS

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    1. Kishore Gawande & Usree Bandyopadhyay, 2000. "Is Protection for Sale? Evidence on the Grossman-Helpman Theory of Endogenous Protection," The Review of Economics and Statistics, MIT Press, vol. 82(1), pages 139-152, February.
    2. Hiau LooiKee & Alessandro Nicita & Marcelo Olarreaga, 2009. "Estimating Trade Restrictiveness Indices," Economic Journal, Royal Economic Society, vol. 119(534), pages 172-199, January.
    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.
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    5. kishore gawande & pravin krishna, 2005. "The Political Economy of Trade Policy: Empirical Approaches," International Trade 0503003, EconWPA.
    6. Chang, Pao-Li, 2005. "Protection for sale under monopolistic competition," Journal of International Economics, Elsevier, vol. 66(2), pages 509-526, July.
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    8. Devashish Mitra & Dimitrios D. Thomakos & Mehmet Ulubaşoğlu, 2016. "Can we obtain realistic parameter estimates for the ‘protection for sale’ model?," World Scientific Book Chapters,in: The Political Economy of Trade Policy Theory, Evidence and Applications, chapter 10, pages 175-198 World Scientific Publishing Co. Pte. Ltd..
    9. Grossman, Gene M & Helpman, Elhanan, 1995. "The Politics of Free-Trade Agreements," American Economic Review, American Economic Association, vol. 85(4), pages 667-690, September.
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    12. Phillip McCalman, 2004. "Protection for Sale and Trade Liberalization: an Empirical Investigation," Review of International Economics, Wiley Blackwell, vol. 12(1), pages 81-94, February.
    13. Gawande, Kishore, 1997. "Generated regressors in linear and nonlinear models," Economics Letters, Elsevier, vol. 54(2), pages 119-126, February.
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    15. 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.
    16. Davidson, Russell & MacKinnon, James G, 1981. "Several Tests for Model Specification in the Presence of Alternative Hypotheses," Econometrica, Econometric Society, vol. 49(3), pages 781-793, May.
    17. 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.
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    19. Devashish Mitra & Dimitrios D. Thomakos & Mehmet A. Ulubaşoğlu, 2016. "“Protection For Sale” In A Developing Country: Democracy Vs. Dictatorship," World Scientific Book Chapters,in: The Political Economy of Trade Policy Theory, Evidence and Applications, chapter 9, pages 163-174 World Scientific Publishing Co. Pte. Ltd..
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    Citations

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    Cited by:

    1. Wignaraja, Ganeshan & Ramizo, Dorothea & Burmeister, Luca, 2012. "Asia-Latin America Free Trade Agreements: An Instrument for Inter-Regional Liberalization and Integration?," ADBI Working Papers 382, Asian Development Bank Institute.
    2. Fan Zhai & Masahiro Kawai, 2009. "PRC-Latin America Economic Cooperation: Going beyond Resource and Manufacturing Complementarity," Working Papers id:1961, eSocialSciences.
    3. Silva, Peri, 2011. "The role of importers and exporters in the determination of the U.S. tariff preferences granted to Latin America," Journal of Development Economics, Elsevier, vol. 94(2), pages 207-219, March.
    4. Hylke Vandenbussche & Christian Viegelahn, 2011. "No Protectionist Policy Before and During the Great Recession," LICOS Discussion Papers 28511, LICOS - Centre for Institutions and Economic Performance, KU Leuven.
    5. Daniel Lederman & Marcelo Olarreaga & Guillermo Perry, 2007. "Latin America´s response to China and India: overview of research findings and policy implications - Observatorio de Política," Revista de Economía y Estadística, Universidad Nacional de Córdoba, Facultad de Ciencias Económicas, Instituto de Economía y Finanzas, vol. 0(1), pages 149-193, January.
    6. Hylke VANDENBUSSCHE & Christian VIEGELAHN, 2011. "No Protectionist Surprises: EU Antidumping Policy Before and During the Great Recession," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2011021, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).

    More about this item

    Keywords

    Latin America; protectionism;

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations

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