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Estimating Trade Policy Models: An Empirical Study of Protection Policy in Turkey

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  • Hadi Salehi Esfahani

    (University of Illinois)

  • Stephanie Leaphart

    (University of Illinois)

Abstract

This paper has two aims. A specific goal is to examine the determinants of protection policy in Turkey. A second, broader goal is to test the recent insights of the political economy models of trade policy and assess their contribution to the empirical investigation of associations between protection rate and industry characteristics. The paper develops a stylized model that captures the key common results of the new political economy models of trade policy, which show that import penetration and price elasticity of import demand act as weights in the relationship between an industry's protection rate and its political characteristics. We find that adhering to the specific functional form that the theory generates substantially improves the explanatory power of industry characteristics in our econometric work on Turkish data. The results show that protection rate is higher for industries with smaller, less capital-intensive firms and low wage workers. Interestingly, these effects vanish when such firms are publicly owned. These outcomes suggest that the risk-mitigating role of trade barriers is an important factor driving government policy in Turkey. The finding implies that continued move toward openness to international trade require progress in fiscal systems or domestic and international institutions that can deal with the economic insecurities generated by globalization.

Suggested Citation

  • Hadi Salehi Esfahani & Stephanie Leaphart, 2000. "Estimating Trade Policy Models: An Empirical Study of Protection Policy in Turkey," Econometric Society World Congress 2000 Contributed Papers 0563, Econometric Society.
  • Handle: RePEc:ecm:wc2000:0563
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    References listed on IDEAS

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    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. 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.
    3. Gawande, Kishore, 1995. "Are U.S. Nontariff Barriers Retaliatory? An Application of Extreme Bounds Analysis in the Tobit Model," The Review of Economics and Statistics, MIT Press, vol. 77(4), pages 677-688, November.
    4. Davidson, Russell & MacKinnon, James G., 1993. "Estimation and Inference in Econometrics," OUP Catalogue, Oxford University Press, number 9780195060119.
    5. 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.
    6. Dani Rodrik, 1998. "Why Do More Open Economies Have Bigger Governments?," Journal of Political Economy, University of Chicago Press, vol. 106(5), pages 997-1032, October.
    7. 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.
    8. Pack, Howard, 1994. "Productivity or politics: The determinants of the Indonesian tariff structure," Journal of Development Economics, Elsevier, vol. 44(2), pages 441-451, August.
    9. Finger, J M & Hall, H Keith & Nelson, Douglas R, 1982. "The Political Economy of Administered Protection," American Economic Review, American Economic Association, vol. 72(3), pages 452-466, June.
    10. 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.
    11. Rodrik, Dani, 1995. "Political economy of trade policy," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 28, pages 1457-1494, Elsevier.
    12. Jong-Wha Lee & Phillip Swagel, 2000. "Trade Barriers And Trade Flows Across Countries And Industries," The Review of Economics and Statistics, MIT Press, vol. 79(3), pages 372-382, August.
    13. 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.
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