Protectionism Unchained: Determinants and Consequences of Discretionary Trade Policy in Argentina
Abstract
Many countries utilize discretionary trade policies that target particular firms and products at particular times. Since they are often illegal under WTO rules, the ability to empirically study the drivers and consequences of these policies—and more generally to study hard-to-measure non tariff barriers—has been limited. We study the prominent protectionist experience of Argentina in the early 2010s, where we observe detailed records from a system of discretionary approvals affecting all imports. The restrictions varied across firms in a manner consistent with the government’s rhetoric of encouraging investment and exports. Restrictions also varied across time in an attempt to safeguard the current account, becoming more stringent for initially less-restricted firms when macro conditions worsened. Utilizing these sources of variation to instrument for the quantity restrictions imposed by the policy, we find that firm-level quantitative restrictions increased the prices paid by importers—contrary to the prediction of falling prices generating terms of trade gains from competitive models of trade policy. A trade model with bargaining matched to these responses reveals that high bargaining power of foreign exporters vis-a-vis Argentinian importers shapes the impacts of trade policy.
