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The importance of the lobbies is, however, significantly lower than in the case of the United States. In the second part of the chapter we made an attempt to test empirically the Grossman- Helpman model for Israel. We applied almost the same specification of the model to that used for Poland. But, in this case we faced some serious problems, resulting probably from limited availability of statistical data. Poor performance of the G-H model in the case of Israel will be interpreted in the final section of the chapter. We present stylized facts on Israeli trade policy. We discuss recent unilateral liberalization of MFN tariffs and scope of free trade areas signed by Israel. Their impact on Israeli trade flows was presented in the section 1.2. of the report. We also discuss some specific non-tariff measures (NTM) applied by the government and non-governmental organizations. Special attention is devoted to sectoral policies in agriculture, textiles and high-tech industries. The core estimation equation of the Grossman-Helpman model requires that the inverse import penetration ratio is used as an explanatory variable, that is clearly endogeneous. The original modelling framework applied by Goldberg-Maggi (1999) uses instrumental variables to overcome that problem. However, it was impossible to get a robust estimate of the predicted import penetration ratio for Israel. The problems stemmed mainly from the lack of sectoral data on capital stock required to predict import penetration in a Heckscher-Ohlin, factor-intensity fashion. Nevertheless, an attempt has been made to estimate the model neglecting the endogeneity problem. The chapter is organized as follows. We start with the presentation of the Grossman-Helpman model and proceed with the description of empirical studies made on this subject. Two sections regarding Poland and Israel follow, each comprising the review of the trade policy of the relevant country, brief discussion of the estimation technique and the presentation of the empirical results. The “Protection for Sale” model The formal G-H model, in a somewhat simplified version by Goldberg and Maggi (1999) and Feenstra (2004), can be described as follows. There is a continuum of individuals (consumers), with identical preferences of quasi-linear utility (increasing & strictly concave) 67
N function (U ), given by: + ( ) u c ∑ i i i= c 0 where: o 1 c is a numeraire export good and c i denotes the consumption vector of all other goods ( h = 1,..., n) . Assuming that I is the budget constraint of a representative consumer, and ( ) d is per capita consumption of each good, then remaining income is spent on the numeraire good, i.e. I − p'd ( p) where: p ( p p ,...., p ) 1, 2 N 68 i pi c o = ; = is the vector of domestic prices. Each consumer maximizes utility subject to budget constraint: c + p'c ≤ I . Therefore, the individual utility is given by: ( p I ) ≡ I − p'd ( p) + u [ d ( p ) ] V ∑ i= 1 S N i i 0 , . Denoting consumer surplus as: N ( p) u [ d ( p ) ] − p'd ( p) ≡ ∑ i= 1 ( p I ) ≡ I S( p) V , + . i i i i we can rewrite the representative consumer welfare as: On the production side there are N industries with sector specific (capital) inputs and labour. The total supply of labour has measure one. The numeraire good is produced with one unit of labour that the wage is equal to one. Each other good is produced from labour and factor specific input. The supply function of good i is denoted by ( ) y . The returns to factor i pi specific input i are equal to π ( ) and therefore by Hotelling’s lemma '( p ) = y ( p ) i pi π . We analyze a small economy in which the international prices of goods are fixed at i i i i * p i . Each of N industries receives a specific tariff s s t i , where t i > 0 indicates a tariff in an import s industry or a subsidy in an export industry. Obviouslyt < 0 means a subsidy in an import industry or a tariff in export industry. The tariff introduces a wedge between domestic and international price: i ( p ) d ( p ) y ( p ) i i i i i i = pi * s i i p + t . Defining imports of each of i industry as: m = − (which are negative if there are exports), we can denote tariff revenue N ∑ i= 1 * collected as T ( p) = ( p − p ) m ( p ) i i i i . The revenue is distributed by a pool subsidy of to all individuals. Then, summing up labour income, returns to specific factors and tax revenue we s get the total social welfare: W ( p) = ∑Wi( p) = + ∑ i( pi ) + ∑ti mi + ∑ N N 1 π S . i= 1 i= 1 i= 1 i= 1 N N i
Page 1 and 2:
In collaboration with: F E M I S E
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Table of contents INTRODUCTION AND
Page 5 and 6:
Introduction and summary In the pro
Page 7 and 8:
that of the NMS, we would observe a
Page 9 and 10:
accession to the EU. Instead, a num
Page 11 and 12:
trade area (FTA). The Agadir Agreem
Page 13 and 14:
liberalization has taken five years
Page 15 and 16:
signed Europe Agreements, EFTA and
Page 17 and 18: used as industry organization varia
Page 19 and 20: The main goal of the project was to
Page 21 and 22: Chapter 1: Assessing trade liberali
Page 23 and 24: Agricultural Policy (CAP). Further
Page 25 and 26: Agreements concluded with the MPCs.
Page 27 and 28: n lnTijt = ∑ k= 1 β RTAijt + α1
Page 29 and 30: Preferential trade liberalization i
Page 31 and 32: the EU enlargement, the EFTA lost t
Page 33 and 34: The most important of these was the
Page 35 and 36: The Definitions of the Variables an
Page 37 and 38: Estimates for the whole CEE sample
Page 39 and 40: agreements is, however, mixed. Whil
Page 41 and 42: The OLS estimates suggest that both
Page 43 and 44: Czech Republic Estonia Hungary Lith
Page 45 and 46: Czech Slovak Republic Estonia Hunga
Page 47 and 48: products. The provisions of the Eur
Page 49 and 50: foreseen to take effect in 2005. Ho
Page 51 and 52: Similar to the AMU, the ACC was for
Page 53 and 54: Unfortunately, the data on capital
Page 55 and 56: Table 2. The estimates for bilatera
Page 57 and 58: obust, while the dummy variable for
Page 59 and 60: Yi (partner) 0.944 1.009 2.267 1.96
Page 65 and 66: Agreements on the third countries a
Page 67: Chapter 2: Grossman-Helpman Model I
Page 71 and 72: ti 1+ ti xi Ii −α i mi = ⋅ ,
Page 73 and 74: Probably the most extensive list of
Page 75 and 76: eginning of 1990. But the tariff st
Page 77 and 78: The non-preferential (MFN, conventi
Page 79 and 80: have important impact on political
Page 81 and 82: xi where ti is the tariff, ei is th
Page 83 and 84: We can recover the structural param
Page 85 and 86: Appendix Table 2 Estimation results
Page 87 and 88: Table 4 Estimation results using mo
Page 89 and 90: Testing Grossman-Helpman model for
Page 91 and 92: practice most importers do not pay
Page 93 and 94: countries were traditionally subjec
Page 95 and 96: point to notify the US government o
Page 97 and 98: and between 157% and 247% in 2004.
Page 99 and 100: policy reforms. On the other hand i
Page 101 and 102: Table 1 Estimation results for Isra
Page 103 and 104: 1995 0.00202 [2.04]** -0.00199 [2.0
Page 105 and 106: extended to disaggregation of burea
Page 107 and 108: The Importance of Corruption A subs
Page 109 and 110: transition countries. Sekkat and Ve
Page 111 and 112: society. In addition, they show tha
Page 113 and 114: Johnson, Kaufmann, McMillan, and Wo
Page 115 and 116: corruption. For example, upon grant
Page 117 and 118: and criminal prosecution. On the ot
Page 119 and 120:
estimation are likely to be influen
Page 121 and 122:
levels have been used to derive fur
Page 123 and 124:
Union. In fact, the level of regula
Page 125 and 126:
Table 2 List of the Commonly Raised
Page 127 and 128:
Table 6 Predicted improvement (show
Page 129 and 130:
SB_PR all procedures required to re
Page 131 and 132:
AFGHANISTAN, ALBANIA, ALGERIA, ANGO
Page 133 and 134:
Brunetti, Aymo; Kisunko, Gregory an
Page 135 and 136:
Hines, J.R. (1995). Forbidden Payme
Page 137 and 138:
PellegriniI, Lorenzo and Gerlagh, R
Page 139:
World Bank (2005). Doing Business i
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