Working Paper: NBER ID: w28171
Authors: Yang Jiao; Shangjin Wei
Abstract: This paper investigates whether "natural" trade barriers of a country due to geography and other factors outside the country's control stimulate more or less policy barriers such as tariffs. Our theory predicts that the politician's relative weight on private benefits over social welfare in a "protection-for-sale" setup depends on these "natural" features. The key mechanism is that a society's willingness to invest in improving institutions that constrain rent-seeking behavior is influenced by the natural barriers. Two types of empirical evidence support the theoretical predictions. First, "natural" barriers beget policy barriers - countries with more "natural" barriers tend to have higher tariffs and more NTBs. Second, liberalization begets liberalization - in response to unilateral trade reforms in China in the early 2000s, those other countries that benefit more from the Chinese liberalization also undertake more liberalization of their own.
Keywords: natural trade barriers; policy barriers; tariffs; trade liberalization; political economy
JEL Codes: F10; F24
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Natural barriers (F55) | Policy barriers (J18) |
| Natural barriers (F55) | Tariffs (F19) |
| Natural barriers (F55) | Non-tariff barriers (F13) |
| Liberalization (F69) | Liberalization (F69) |
| Natural barriers (F55) | Institutional quality (I24) |
| Institutional quality (I24) | Policy barriers (J18) |
| Natural barriers (F55) | Politician's behavior (D72) |
| Natural tariffs (F19) | Optimal tariffs (F13) |