The Political Economy of Protection in GVCs: Evidence from Chinese Micro Data

59 Pages Posted: 4 Dec 2019

See all articles by Rodney D. Ludema

Rodney D. Ludema

Georgetown University - Department of Economics

Anna Maria Mayda

Georgetown University - Department of Economics; IZA Institute of Labor Economics

Miaojie Yu

Peking University - China Center for Economic Research (CCER)

Zhi Yu

Sun Yat-sen University (SYSU) - School of Intelligent Systems Engineering

Date Written: November 2019

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 import-competing producers and their domestic input suppliers are generally allies in favor of protection, but this alliance weakens as DVA increases, because a home tariff on finished goods decreases foreign demand for home inputs. Empirically, we examine detailed discriminatory trade policies of 23 countries 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 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.

Keywords: global value chains, Lobbying, trade policy

JEL Classification: F10, F13, F14

Suggested Citation

Ludema, Rodney D. and Mayda, Anna Maria and Yu, Miaojie and Yu, Zhi, The Political Economy of Protection in GVCs: Evidence from Chinese Micro Data (November 2019). CEPR Discussion Paper No. DP14156, Available at SSRN: https://ssrn.com/abstract=3496646

Rodney D. Ludema (Contact Author)

Georgetown University - Department of Economics ( email )

Washington, DC 20057
United States
202-687-1429 (Phone)
202-687-6102 (Fax)

Anna Maria Mayda

Georgetown University - Department of Economics ( email )

Washington, DC 20057
United States

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Miaojie Yu

Peking University - China Center for Economic Research (CCER) ( email )

Beijing, Beijing 100871
China
+86-10-6275-3109 (Phone)

HOME PAGE: http://mjyu.ccer.edu.cn

Zhi Yu

Sun Yat-sen University (SYSU) - School of Intelligent Systems Engineering ( email )

Guangzhou, 510275
China

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