Discussion Paper Details

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Title: "The political economy of protection in GVCs: Evidence from Chinese micro data"

Author(s): Rodney D Ludema, Anna Maria Mayda, Miaojie Yu and Zhi Yu

Publication Date: November 2019

Keyword(s): global value chains, Lobbying and trade policy

Programme Area(s): International Trade and Regional Economics

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.

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Bibliographic Reference

Ludema, R, Mayda, A, Yu, M and Yu, Z. 2019. '"The political economy of protection in GVCs: Evidence from Chinese micro data"'. London, Centre for Economic Policy Research.