Trade Policy Determinants and Trade Reform in a Developing Country

No 201115, Working Papers from University of Hawaii at Manoa, Department of Economics

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.

Keywords: Political economy of trade policy; trade liberalization; preferential trade agreements; empirical trade (search for similar items in EconPapers)
JEL-codes: F13 F14 F15 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2011-11-01
New Economics Papers: this item is included in nep-dev and nep-int
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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http://www.economics.hawaii.edu/research/workingpapers/WP_11-15.pdf First version, 2011 (application/pdf)

Related works:
Working Paper: Trade Policy Determinants and Trade Reform in a Developing Country (2011)
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