The Protectionist Bias of Duty Drawbacks and the New Regionalism

Jaime de Melo, Olivier Cadot and Marcelo Olarreaga

No 2559, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: In a political-economy setting where tariffs and duty drawbacks are endogenously chosen through industry lobbying, it is shown that full duty-drawbacks are granted to exporters who use imported intermediates in their production. This in turn decreases their incentives to counter-lobby against high tariff on their inputs. In equilibrium, higher tariffs will be observed on these goods. The creation of a regional block will change the political equilibrium. Duty-drawbacks will be eliminated on intra-regional exports, which in turn will lead to lower tariffs for goods used as inputs by intra-regional exporters. Evidence from Mercosur suggests that the elimination of duty-drawbacks for intra-regional exports, led to increased counter-lobbying by users of intermediate products. In its absence the common external tariff would have been on average 3.5 percentage points (25 percent) higher.

Keywords: Duty-drawbacks; Political-economy; Mercosur; New regionalism (search for similar items in EconPapers)
JEL-codes: F11 F13 F15 (search for similar items in EconPapers)
Date: 2000-09
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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