Tariff-Induced (De)Industrialization: An Empirical Analysis

37 Pages Posted: 27 Jul 2018

See all articles by Marjan Petreski

Marjan Petreski

University of American college - Skopje - School of Business Economics and Management

Branimir Jovanovic

University of Rome Tor Vergata

Igor Velickovski

University American College Skopje (UACS); National Bank of the Republic of Macedonia

Date Written: July 2017

Abstract

In this paper, we investigate if tariffs affected manufacturing value added in 25 countries from Central and Southeast Europe, the Commonwealth of Independent States, and the Middle East and North Africa over the period 1990–2010. We identify and test three channels through which tariffs may affect industry value added. We use various fixed effects and an instrumental variable approach to address tariffs’ endogeneity with respect to value added. The results suggest that, in general, lower tariffs seem to lead to higher value added, mainly through the higher imports of inputs in the production process, which were either non-existent or more expensive on the domestic market previously. However, there are notable differences in the effects between different groups of countries and industries: tariffs are not found to affect industrialization in Southeast Europe and the Middle East and North Africa, which implies that their decision to liberalize trade was likely premature. This is supported by the finding that lower tariffs have positive effects on industry value added only in more mature industries.

Keywords: industrialization, trade liberalization, tariffs

Suggested Citation

Petreski, Marjan and Jovanovic, Branimir and Velickovski, Igor, Tariff-Induced (De)Industrialization: An Empirical Analysis (July 2017). Comparative Economic Studies, Vol. 59, Issue 3, 2017, Available at SSRN: https://ssrn.com/abstract=3219076 or http://dx.doi.org/10.1057/s41294-017-0030-8

Marjan Petreski (Contact Author)

University of American college - Skopje - School of Business Economics and Management ( email )

Skopje, 1000
Macedonia

Branimir Jovanovic

University of Rome Tor Vergata ( email )

Via di Tor Vergata
Rome, Lazio 00133
Italy

Igor Velickovski

University American College Skopje (UACS) ( email )

Treta Makedonska Brigada
Skopje, 1000
Macedonia

National Bank of the Republic of Macedonia ( email )

Skopje, 1000
Macedonia

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