Working Paper: CEPR ID: DP14156
Authors: Anna Maria Mayda; Rodney D. Ludema; Zhi Yu; Miaojie Yu
Abstract: This paper explores the political economy of import protection in a setting where imports may contain a country’s own domestic value added (DVA) via domestically produced inputs that get exported and used in foreign downstream production. We show that import-competing producers and their domestic input suppliers are generally allies in favor of protection, but this alliance weakens as DVA increases, because a home tariff on finished goods decreases foreign demand for home inputs. Empirically, we examine detailed discriminatory trade policies of 23 countries toward China and use Chinese transaction-level processing trade data to construct a measure of DVA. We also measure input customization. We find that both upstream and downstream political organization increase downstream protection, but the effect of the former is smaller when DVA as a share of final imports from China is larger. Tariffs on products containing inputs that are neither customized nor politically organized appear to be unaffected by the DVA share.
Keywords: trade policy; lobbying; global value chains
JEL Codes: F10; F13; F14
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| upstream political organization (D73) | trade protection (F13) |
| domestic value added (DVA) share (F23) | influence of upstream political organization on trade protection (F13) |
| upstream political organization and domestic value added (DVA) share (D20) | level of protection (D18) |
| domestic value added (DVA) share (F23) | tariffs on products with non-customized inputs (F13) |
| domestic value added (DVA) share (F23) | preferential tariffs (F13) |
| domestic value added (DVA) share (F23) | likelihood of antidumping filings (F18) |