Common Agency and China's Trade Policymaking: An Endogenous Switching Regression Analysis
Posted: 7 Sep 2009 Last revised: 22 Sep 2009
Date Written: 2009
Abstract
This paper proposes a non-proxy approach for examining the political economy of China's trade liberalization in the post-reform period. China's economic policymaking has been widely believed to be rife with political bargaining among bureaucratic agencies established to manage different industries. While this observation has been well-established in the literature of fragmented authoritarianism two decades ago, the direct measure of the political leverage of these ministries is unfortunately unattainable for lack of transparency in China's political system. To tackle this problem, the conventional endogenous-tariff approach suggests a variety of proxies such as industrial concentration ratio or membership of business and industry associations to capture the degrees of political organization and bargaining power of industries in the policymaking processes. However, despite their popularity in the empirical literature, the lack of theoretical underpinnings for these measures makes the interpretations of them mere ad-hocery and very little to contribute to the theory of special interest politics in general. This paper presents an endogenous switching regression framework that not only builds upon a solid theoretical foundation of Grossman and Helpman's "Protection for Sale" model, but also requires no data on political contributions. First of all, a testable hypothesis is derived from a revised version of "Protection for Sale" model that incorporates China's institutional features. Then, instead of using proxies, the paper identifies politically organized industries using publicly accessible trade and production data, as well as the model's structural parameter estimates
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