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

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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 domestic upstream and downstream producers are generally allies in favor of protection, but this alliance may weaken as DVA increases, because a home tariff on finished goods decreases foreign demand for home inputs. Empirically, we examine detailed discriminatory trade policies of 27 countries plus the EU 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 inputs are customized and 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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  • Anna Maria Mayda & Rodney D. Ludema & Miaojie Yu & Zhi Yu, 2018. "The political economy of protection in GVCs: Evidence from Chinese micro data," Working Papers gueconwpa~18-18-07, Georgetown University, Department of Economics.
    • Handle: RePEc:geo:guwopa:gueconwpa~18-18-07
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    5. Fontagné, Lionel & Santoni, Gianluca, 2021. "GVCs and the endogenous geography of RTAs," European Economic Review, Elsevier, vol. 132(C).
    6. Alonso de Gortari, 2019. "Disentangling Global Value Chains," NBER Working Papers 25868, National Bureau of Economic Research, Inc.
    7. Du, Yan & Yan, Jie & Cao, Fangzhou & Li, Yifei & Zhou, Mao, 2023. "Higher education expansion and domestic value added in exports: Theory and evidence from China," Journal of Asian Economics, Elsevier, vol. 87(C).
    8. Bao, Xiaohua & Gao, Lei & Jin, Yu & Sun, Jin, 2023. "Industrial agglomeration and firm exports: Micro-evidence based on input-output linkages," Economic Modelling, Elsevier, vol. 119(C).
    9. Mario Tello Pacheco, 2022. "The Political Economy of Trade Barriers in Peru," Apuntes del Cenes, Universidad Pedagógica y Tecnológica de Colombia, vol. 41(74), pages 71-107, July.
    10. Rudi Purwono & Unggul Heriqbaldi & Miguel Angel Esquivias & M. Khoerul Mubin, 2022. "The American–China Trade War and Spillover Effects on Value-Added Exports from Indonesia," Sustainability, MDPI, vol. 14(5), pages 1-22, March.

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    Keywords

    Trade policy; lobbying; global value chains.;
    All these keywords.

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

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