Authors: Chad P. Bown, World Bank, DECRG
Co-Author: Patricia Tovar, Brandeis University
Summary: This paper is the first to examine empirically the relationship between import tariff cuts and the subsequent re-imposition of import protection under safeguard exceptions at the product-level. Our approach overcomes potential endogeneity problems by focusing on the case of India, a country that underwent a major exogenous tariff reform program in the early 1990s and subsequently initiated substantial use of safeguard and antidumping import restrictions. In the first part of the paper we estimate structural determinants of India’s import protection using the Grossman and Helpman (1994) model. Estimates of the model on India’s pre-reform tariff data from 1990 are consistent with the theory. We then re-estimate the model on the Indian tariff data after the trade liberalization is complete and find that the model no longer fits, a result consistent with theory and evidence provided in other settings that India’s 1991-92 IMF arrangement can be interpreted as resulting in an exogenous shock to India’s tariff policy. However, when we re-estimate the model on data from 2000-2002 that more completely reflects India’s cross-product variation in import protection by including both its post-reform tariffs and its additional non-tariff barriers of antidumping and safeguard import protection, the significance of the Grossman and Helpman model determinant estimates is restored. In the paper’s second section we use a reduced form model to confirm the result that products with larger tariff cuts between 1990 and 1997 are associated with a substitution toward these new forms of import protection in the early 2000s. Finally, we interpret the implications of our results for the burgeoning research literature examining the effects of liberalization on India’s micro-level development.