Common Agency and China's Trade Policymaking: An Endogenous Switching Regression Analysis

Posted: 7 Sep 2009 Last revised: 22 Sep 2009

See all articles by Hans Tung

Hans Tung

National Taiwan University

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

Suggested Citation

Tung, Hans, Common Agency and China's Trade Policymaking: An Endogenous Switching Regression Analysis (2009). APSA 2009 Toronto Meeting Paper, Available at SSRN: https://ssrn.com/abstract=1449236

Hans Tung (Contact Author)

National Taiwan University ( email )

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Taipei 106, 106
Taiwan

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