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The protectionist bias of duty drawbacks: evidence from Mercosur

Published inJournal of international economics, vol. 59, no. 1, p. 161-182
Publication date2003
Abstract

In a political-economy setting where tariffs and duty drawbacks are endogenously chosen through industry lobbying, it is shown that full duty-drawbacks are granted to exporters who use imported intermediates in their production. This in turn decreases their incentives to counter-lobby against high tariffs on their inputs. In equilibrium, higher tariffs will be observed on these goods. The creation of a regional block will change the political equilibrium. Duty-drawbacks will be eliminated on intra-regional exports, which in turn will lead to lower tariffs for goods used as inputs by intra-regional exporters. Evidence from Mercosur suggests that the elimination of duty-drawbacks for intra-regional exports led to increased counter-lobbying by users of intermediate products. In its absence the common external tariff would have been on average 3.5 percentage points (25 percent) higher.

Keywords
  • Duty-drawbacks
  • Political-economy Mercosur
  • New regionalism
Citation (ISO format)
CADOT, Olivier, DE MELO, Jaime, OLARREAGA, Marcelo. The protectionist bias of duty drawbacks: evidence from Mercosur. In: Journal of international economics, 2003, vol. 59, n° 1, p. 161–182. doi: 10.1016/S0022-1996(02)00084-3
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Article (Published version)
accessLevelRestricted
Identifiers
ISSN of the journal0022-1996
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