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

Hadi Salehi Esfahani () and Stephanie Leaphart
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Stephanie Leaphart: University of Illinois

No 563, Econometric Society World Congress 2000 Contributed Papers from Econometric Society

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.

Date: 2000-08-01
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