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

  • Giovanni Facchini

    (University of Milan, LdA and CEPR)

  • Marcelo Olarreaga

    (Banco Mundial)

  • Peri Silva

    (University of North Dakota)

  • Gerald Willmann

    (Christian-Albrechts-Universitat zu Kiel)

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 di®erent 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 speci¯cation in terms of explaining Latin America\'s structure of protection.

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Paper provided by Centro Studi Luca d\'Agliano, University of Milano in its series Development Working Papers with number 229.

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Length: 33
Date of creation: 01 May 2007
Date of revision:
Handle: RePEc:csl:devewp:229
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  1. kishore gawande & pravin krishna, 2005. "The Political Economy of Trade Policy: Empirical Approaches," International Trade 0503003, EconWPA.
  2. Gene M. Grossman & Elhanan Helpman, 1992. "Protection For Sale," NBER Working Papers 4149, National Bureau of Economic Research, Inc.
  3. Grossman, G.M. & Helpman, E., 1993. "The Politics of Free Trade Agreements," Papers 14-93, Tel Aviv.
  4. Giovanni Facchini & Johannes Van Biesebroeck & Gerald Willmann, 2005. "Protection for Sale with Imperfect Rent Capturing," NBER Working Papers 11269, National Bureau of Economic Research, Inc.
  5. Douglas Staiger & James H. Stock, 1997. "Instrumental Variables Regression with Weak Instruments," Econometrica, Econometric Society, vol. 65(3), pages 557-586, May.
  6. Gawande, Kishore, 1997. "Generated regressors in linear and nonlinear models," Economics Letters, Elsevier, vol. 54(2), pages 119-126, February.
  7. 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.
  8. Russell Davidson & James G. MacKinnon, 1980. "Several Tests for Model Specification in the Presence of Alternative Hypotheses," Working Papers 378, Queen's University, Department of Economics.
  9. Hiau Looi Kee & Nicita, Alessandro & Olarreaga, Marcelo, 2004. "Import demand elasticities and trade distortions," Policy Research Working Paper Series 3452, The World Bank.
  10. 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.
  11. 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.
  12. Alessandro Nicita & Marcelo Olarreaga, 2007. "Trade, Production, and Protection Database, 1976--2004," World Bank Economic Review, World Bank Group, vol. 21(1), pages 165-171.
  13. 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.
  14. Hiau LooiKee & Alessandro Nicita & Marcelo Olarreaga, 2009. "Estimating Trade Restrictiveness Indices," Economic Journal, Royal Economic Society, vol. 119(534), pages 172-199, 01.
  15. 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.
  16. Phillip McCalman, 2004. "Protection for Sale and Trade Liberalization: an Empirical Investigation," Review of International Economics, Wiley Blackwell, vol. 12(1), pages 81-94, 02.
  17. repec:cup:cbooks:9780521029018 is not listed on IDEAS
  18. 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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