Trade Policy Determinants and Trade Reform in a Developing Country

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.Political economy of trade policy, trade liberalization, preferential trade agreements, empirical trade

Turkey: Temporary Trade Barriers as Resistance to Trade Liberalization with the European Union?

Turkey has been an active user of antidumping since the 1990s and more recently added safeguards and countervailing duties to its temporary trade barriers (TTBs). Turkey is a founding member of the World Trade Organization and formed a customs union with the European Union (EU) in 1996. It has also signed numerous preferential trade agreements the EU has been involved in as part of its EU candidacy. The drastic intra and extra-group trade liberalization brought by the relations with the EU seems to be important determinants in the rise of Turkey’s contingent protection over the last decade. Moreover, apart from an increase in the number of initiations, the higher rate of initiations finding support and sluggishness in the removal of TTBs over time appear to have played a role in their build-up. Turkey has been significantly affected by the 2008-9 global economic crisis and at the same time kept increasing the use of TTBs. The increase as of 2009 was in line with the recent upward trend but the response to the crisis may come with a lag. In general, Turkey does not target established EU members with TTBs although there is no restriction. Turkey mainly targets developing countries, especially China, at rates disproportional to their import market share.Temporary trade barriers, antidumping, safeguards, countervailing duties, Turkey

The clash of liberalizations : preferential versus multilateral trade liberalization in the European Union

There has been an explosion in the number of preferential trade agreements in the past decade. Preferential trade agreements are characterized by liberalization with respect to only a few partners and thus they can potentially clash with and retard multilateral trade liberalization. Despite this important concern with preferential trade agreements, there is almost no systematic evidence on whether they actually affect multilateral trade liberalization. The authors model the effect of preferential trade agreements on multilateral trade liberalization and show that preferential trade agreements slow down multilateral trade liberalization unless they havea common external tariff and allow for internal transfers. Next, they use detailed data on product-level tariffs negotiated by the European Union in the past two multilateral trade rounds to structurally estimate their model. The authors confirm the main prediction-the European Union's preferential trade agreements have clashed with its multilateral trade liberalization--and find that the effect is quantitatively significant. Moreover, they also confirm several auxiliary predictions of the model and provide new evidence on the political economy determinants of multilateral liberalization in the European Union.Economic Theory&Research,Rules of Origin,Export Competitiveness,Environmental Economics&Policies,Trade Policy,Environmental Economics&Policies,Economic Theory&Research,Trade and Regional Integration,Trade Policy,TF054105-DONOR FUNDED OPERATION ADMINISTRATION FEE INCOME AND EXPENSE ACCOUNT

Access to Finance in Turkey

Abstract. Access to finance is essential for a successful development and growth of the private sector. In the absence of finance, enterprises cannot develop, innovate, and compete with other firms in other countries which offer more favorable access to finance. This paper makes use of the Enterprise Survey conducted with a representative stratified random sample of 6,006 Turkish firms for the 2015 fiscal year to evaluate the access to finance conditions in the nation. Moreover, data from the Enterprise Surveys Database for a comparison group of countries and 2013 survey for Turkey are employed to put the current survey in perspective.Keywords. Business environment, Financial constraints, Access to finance, Turkey.JEL. G10, G30, O12

International trade effects of a potentially revived Trans-Pacific partnership for North America

Abstract. This paper analyzes the international trade relations of the United States, Canada, and Mexico with the now defunct Trans-Pacific Partnership (TPP12) member countries currently and historically in order to provide insights for potential future effects provided United States decides to join the new Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP or TPP11) with the remaining original TPP countries. Using a gravity model estimation, we find that the existing free trade agreements (FTAs) between TPP12 countries (intra-TPP) and FTAs between TPP12 members and other countries (extra-TPP) have positively impacted trade in the 1980-2015 period. A revived TPP12 agreement promises to boost trade further.Keywords. International trade, Gravity model, Free trade agreements, Trans-Pacific partnership.JEL. F10

Productivity matters for trade policy : theory and evidence

There is a growing literature that investigates the effect of trade liberalization on productivity. Nearly all such studies assume that trade policy is determined independently of productivity, hence it is exogenous. The author shows that this assumption is not valid in general, both theoretically and empirically, and that researchers may be underestimating the positive effect of liberalization on productivity when they do not account for the endogeneity bias. On the theory side, he demonstrates that under a standard political economy model of trade protection, productivity directly influences tariffs. Moreover, this productivity-tariff relationship partly determines the extent of liberalization across sectors even in the presence of a large exogenous unilateral liberalization shock that affects all sectors. The link between productivity and tariffs is maintained after the author includes in his political economy model a learning-by-doing motive of protection, which also serves as the source of liberalization. On the empirical side, he examines total factor productivity (TFP) estimates obtained at the firm level for Colombia between 1983 and 1998, and finds that more productive sectors receive more protection within this period. In estimating the effect of productivity on tariffs, he controls for the endogeneity of the two main right-hand-side variables-the inverse import penetration to import demand elasticity ratio and productivity-by using materials prices, the capital to output ratio, a measure of scale economies, and the TFP of the upstream industries as robust instruments. The author also accounts for the large trade liberalization between 1990 and 1992, and finds that the sectors with a higher productivity gain are liberalized less. Finally, he illustrates a system of equations estimation and shows that the positive impact of liberalization on productivity grows stronger when corrected for the endogeneity bias.Economic Theory&Research,Free Trade,Political Economy,Trade Policy,Trade Law

The Three Faces of Trade Liberalization: Unilateral, Preferential, and Multilateral

There is a growing number of studies that investigate the effect of trade liberalization on productivity and nearly all assume that trade policy is independently determined of productivity, hence it is exogenous. I show that this assumption is generally invalid both theoretically and empirically. In Chapter 1, I demonstrate that under a standard political economy model of trade protection, productivity directly influences tariffs. Moreover, this productivity-tariff relationship partly determines the extent of liberalization across sectors even in the presence of a large exogenous unilateral liberalization shock that affects all sectors. In Chapter 2, I examine total factor productivity (TFP) estimates obtained at the firm level for Colombia between 1983 and 1998 and find that more productive sectors receive more protection within this period. In estimating the effect of productivity on tariffs, I control for the endogeneity of the inverse import penetration to import demand elasticity ratio and productivity. Finally, I use a system of equations to illustrate that the positive impact of liberalization on productivity grows somewhat stronger when corrected for the endogeneity bias. In Chapter 3, which is joint with Nuno Limão, we analyze the effect of preferential trade agreements (PTAs) on multilateral trade liberalization (MTL). PTAs are characterized by liberalization with respect to only a few partners and thus can potentially retard multilateral trade liberalization (MTL). Despite this important concern, there is almost no systematic evidence as to whether PTAs actually affect MTL or not. We model the effect of PTAs on MTL and show that PTAs slow down MTL unless they involve a common external tariff and allow for internal transfers. Next, we use detailed data on product-level tariffs negotiated by the European Union (EU) in the last two multilateral trade rounds to structurally estimate our model. We confirm the main prediction-the EU's PTAs have clashed with its MTL-and find that the effect is quantitatively significant. Moreover, we also confirm several auxiliary predictions of the model and provide new evidence on the political economy determinants of MTL in the EU

Lessons from the European Spaghetti Bowl

European economic integration fascinates and inspires for the way it brought peace to a continent torn by violent and long-standing rivalries. The lessons from Europe, however, cannot be applied directly as the degree of the European Union's supranationality is unthinkable elsewhere. This paper discusses how Europe overcame the specific problem of overlapping free trade agreements (FTAs) with the Pan-European Cumulation System which instituted common rules of origin, regional cumulation of value, and completed the full matrix of bilateral FTAs. After this, Europe had what can be thought of as a "customs union" for rules of origin

Deposit Insurance around the World: A Comprehensive Database

This chapter updates the earlier deposit insurance database constructed in 1999 and extends several important dimensions. The database is inclusive of fourteen different countries that are known to have adopted deposit insurance schemes since the database\u27s construction and even includes twelve other countries that were not initially included in the data