Trade Policy Determinants and Trade Reform in a Developing Country: The Case of Colombia

Abstract

In this paper, I empirically examine trade policy determinants and trade reform in a developing country setting by using a political economy of trade policy model to guide my estimations for Colombia between 1983 and 1998. I introduce a novel approach to estimating the extra political weights placed by the government on the well-being of producers relative to average citizens. This is under the assumption that producers are organized in terms of trade policy while the public is not. I measure the impact of sectorial 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 as compared to the earlier literature. I also show that it is important to control for the drastic unilateral trade reform shock that affects all sectors and I test the effect of preferential trade agreements (PTAs) on tariffs in the presence of such trade liberalization. I find that protection is higher in sectors that are important exports for preferential partners which may be seen as a slowing down effect of PTAs for Colombia. The estimations account for endogeneity and omitted variable bias concerns.