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Trade Policy Determinants and Trade Reform in a Developing Country

Author

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  • Baybars Karacaovali

    (Department of Economics, University of Hawaii at Manoa)

Abstract

In this paper, I start out with a standard political economy of trade policy model to guide the subsequent estimation of the determinants of trade policy in a developing country. I carefully test the model with Colombian data from 1983 to 1998 accounting for endogeneity and omitted variable bias concerns and then expand it empirically in several directions. I show that it is important to control for the impact of a drastic trade reform shock that affects all sectors and disentangle its effect from preferential trade agreements (PTAs). I find that protection is higher in sectors that are important exports for preferential partners which may be seen as a stumbling block effect of PTAs for Colombia. I also relax the assumption of fixed political weights that measure the extra importance of producers' welfare relative to consumers in the government objective. I measure the impact of sectoral characteristics on tariffs indirectly through political weights as a novel alternative to nonstructurally estimating them as determinants of protection. Accordingly, I obtain more realistic estimates for the political weights further contributing to the literature.

Suggested Citation

  • Baybars Karacaovali, 2011. "Trade Policy Determinants and Trade Reform in a Developing Country," Working Papers 201115, University of Hawaii at Manoa, Department of Economics.
  • Handle: RePEc:hai:wpaper:201115
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    File URL: http://www.economics.hawaii.edu/research/workingpapers/WP_11-15.pdf
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    References listed on IDEAS

    as
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    Cited by:

    1. Patricia Tovar, 2014. "External tariffs under a free-trade area," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 23(5), pages 656-681, August.
    2. Chad P. Bown & Baybars Karacaovali & Patricia Tovar, 2014. "What Do We Know About Preferential Trade Agreements and Temporary Trade Barriers?," Working Papers 201418, University of Hawaii at Manoa, Department of Economics.

    More about this item

    Keywords

    Political economy of trade policy; trade liberalization; preferential trade agreements; empirical trade;

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F15 - International Economics - - Trade - - - Economic Integration

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