Varying Political Economy Weights of Protection: The Case of Colombia

Baybars Karacaovali

No 201501, Working Papers from University of Hawaii at Manoa, Department of Economics

Abstract: In this paper, we examine trade policy determinants and trade reform in a developing country setting by using a political economy of trade policy model where the government determines tariffs by balancing the political support from the producers against consumers and places a higher political weight on producers' welfare relative to average citizens. We then expand it in several directions to guide our subsequent estimations at the three-digit industry level for Colombia between 1983 and 1998. We account for import substitution motives for protection and the government's move away from these policies leads to unilateral trade liberalization. We innovatively allow the political weights to vary based on key industry variables beyond a common denominator. The sectors with higher employment, labor cost, and preferential trade agreement (PTA) import shares receive a larger political weight compared to otherwise similar sectors. The novelty of our approach is estimating the effect of sectoral characteristics on protection filtered through the political weights. We obtain more realistic estimates for these weights and provide some evidence for a slowing down effect of PTAs for trade liberalization.

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: 37 pages
Date: 2015-01
New Economics Papers: this item is included in nep-int, nep-lam and nep-pol
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http://www.economics.hawaii.edu/research/workingpapers/WP_15-01.pdf First version, 2015 (application/pdf)

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Journal Article: Varying Political Economy Weights of Protection: The Case of Colombia (2015)
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