Page 125 - DECO503_INTERNATIONAL_TRADE_AND_FINANCE_ENGLISH

Unit 10 : Political Economy of Non-tariff Barriers : and Their Applications

(v) In the case of a small country, a quota and a tariff are (almost) identical if: Notes
(a) The government allocates licenses for free to importers using a rule or process that
involves (almost) no resource cost.
(b) The government auctions off licenses to the highest bidder.
(c) The government allocates licenses to importers through application and selection
procedures that require the use of substantial resources.
(d) The government allocates import licenses directly to the public using a free lottery system.
(vi) Which of the following is a means of allocating import licenses by assigning the licenses
without competition, applications, or negotiation?
(a) Fixed favoritism.
(b) Resource-using application procedures.
(c) Import-license auctions.
(d) Domestic content requirements.
(vii) Which of the following requires that an import distributor buy a certain percentage of the
product locally?
(a) An import quota.
(b) A mixing requirement.
(c) A voluntary export restraint.
(d) A domestic content requirement.

10.5 Summary

• Our results have a number of implications for studies of the political economy of trade policy.
In recent years, one of the most persistent sources of debate among both economists and political
scientists has centered on the relative merits of societal and statist explanations of foreign
economic policy. Our findings lend support for the societal argument that macroeconomic
fluctuations contribute to demands for protection, which are in turn central determinants of
trade policy.
• Large states have a greater incentive to impose protection than their smaller counterparts, and
our findings indicate that they do in fact impose NTBs more widely than small states. It is
curious that, despite the clear importance of this factor, it has been considered so rarely in
empirical research on trade policy. Our results indicate that this omission is likely to yield
incomplete and potentially misleading conclusions regarding the determinants of commercial
policy.
• Our findings bear out the position NTBs is at least partially governed by economic size, domestic
institutions, and the interaction between these factors. More specifically, NTBs are highest in,
large states that are characterized by high levels of institutional insulation and autonomy. Thus,
states are most likely to impose NTBs when economic incentives to do so exist and when strong
domestic institutions insulate policymakers from interest-group pressures, thereby allowing
them to advance the national interest unencumbered by those pressure groups that display
preferences for freer trade.
• These findings stand in stark contrast to predictions based on either societal or statist models of
foreign economic policy artic models—including most endogenous models of protection—
emphasize factors related to societal demands for protection, but systematically neglect the
factors the regulate the provision of trade barriers.
• Finally, our results yield substantial evidence that tariffs are strongly related to the incidence of
NTBs, and that these forms of protection are substitutes. This finding is consistent with the law
of constant protection. Among the states considered here, new tariffs could not easily have
been imposed due to GATT restrictions. States will low tariff levels that wish to augment their
trade barriers therefore have had reason to rely on NTBs for this purpose. Further, states

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